Technological advancement has brought us very far from where we were as a society 100 years ago. Where payment methods are concerned, we’ve made huge strides. While cash was king in the past, we’re slowly but surely moving towards a cashless society. Last year, digital transactions totaled over 6.6 trillion dollars.
Given their increasing centrality to business, it’s important to understand the different types of digital payment methods available, so you can ensure your business is ready for them. So, what are the pros and cons of each, and how do they work?
Credit And Debit Cards
Bank issued cards are nothing new. They’ve been around for decades, and more recently, have had the capability to be used for online payments. It’s also one of the most widely used digital payment methods, because it’s the thing most people have access to. In the US, over 70% of the population has a credit card.
Any system reliant on credit or debit cards also needs POS (Point of Sale) technology to work properly in-person. This includes things like mobile phone payments.
However, digital payments with cards can be cumbersome. Since the card codes are imprinted on the physical object itself, extra security measures like two-factor authentication, or tokens, need to be in place. So credit and debit cards work for digital payments, but they’re not the ideal way forward.
Other measures can offer a better user experience without sacrificing cybersecurity.
POS (Point Of Sale)
POS payment systems are able to read cards, through different technologies, and accept payments at a merchant’s point of business. New POS systems can be used contactless, with NFC (near field communication) technology, which offer a very seamless experience for customers choosing digital payments at in-person stores.
POS systems are usually sold by banks, but they can be bought from regular electronics stores as well. But businesses looking to buy a POS should first take their country’s legislation into account. Some states require particular technologies in a POS.
USSD (Unstructured Supplementary Service Data)
USSD may sound complicated, but you’re probably familiar with it already. USSD is “a global system for mobile communications (GSM) that is used to send text messages”. Any number dialled that starts with * and ends with # is a USSD code, and these codes can be used for banking as well as normal GSM communications.
They’re not the easiest mechanism to use either, and they don’t work for major transactions. But they’re a good alternative to drive market forces in poorer regions. The USSD infrastructure exists anyway, and more people have access to it than they have access to a bank account in these areas.
So it’s a good alternative for digital payments. And it boomed. In the wake of the Covid pandemic, mobile and USSD payments grew by over 80%.
Mobile Banking Applications
Mobile banking applications use a bundle of technologies, including NFC, the internet, and GSM to empower users. People that have a mobile banking application can get exhaustive access to their banking account from their mobile phones. From there, they can get bank statements, schedule payments, and even pay at a POS with the help of NFC. 85% of US citizens used a mobile banking app last year.
Mobile banking applications are also usually tied with the owner’s bank cards. This way, some of the drawbacks of cards are mitigated. If you pay with a card that’s tied to your mobile banking app, you won’t need to confirm the transaction with an SMS. You can just tap a button on your phone, and you’re good to go.
Internet banking platforms (only accessible via a browser) are a precursor of these mobile banking apps. They’re generally the same, with a slightly uglier interface, and the lack of NFC capabilities.
QR Codes can be used to access sites, or sign-up for something. But they can also be used for payments. Many mobile banking applications offer the possibility to scan QR codes to authorize payments to vendors.
Alternatively, some vendors also create their own applications to scan QR codes. Users add a banking card to that application, and when they scan a QR code, that payment method is charged. This type of flexibility can be very useful when purchasing public transport tickets, for example.
Regional Payment Methods
Digital payments have taken different shapes and sizes in different countries. So while the methods we’ve explored above are the pieces of the puzzle in most cases, regional variations do change the game a lot.
For example, India has UPI (Unified Payments Interface), a technology through which multiple banks offer access to a person’s account in the same interface. It’s not too different from mobile banking in general, but it’s a specific system that generally only exists there.
In Asian markets, mobile banking apps that allow both payment processing, and social interaction, are gaining traction. Again, there’s not a huge difference between that variant, and how mobile banking apps generally work, but it’s still a regional aspect to take into account for companies active in the region.
Cryptocurrencies like Ethereum and Bitcoin aren’t just assets to be traded for a profit. They’re actual currencies that can be used for digital payments.
But since cryptocurrencies are decentralized, they function very differently from all the methods we mentioned above. To use them, buyers need to jump some hoops, like purchasing their own Bitcoin wallet, and encrypting payment details with PGP.
So this method is not easy. But people that use it are driven by anonymity. Cryptocurrency transactions can keep the identity of users completely anonymous, if done right. So that’s why it’s a method of choice for dark web transactions, but it’s also used on the surface web by privacy-minded individuals. For example, most VPN (Virtual Private Network) providers allow Bitcoin as a payment method.
Conclusion: The Digital Wallet Of The Future
As society evolved, so did our wallets. And as society is closer and closer to a cashless payment system, banking cards are sure to completely take over.
But they’re not the only digital payment method that businesses and consumers take into account.
USSD and QR systems are extremely valuable for low-ticket items, and in poorer regions. Mobile banking applications are also widely used for more efficient and secure digital payments, while cryptocurrencies can guarantee complete anonymity to both buyers and merchants.