On a bright sunny day in September, I was really hungry when I had to miss my lunch because of the extra class. The best respite out of the situation was to simply go to the college canteen. I didn’t carry money in my wallet. I have a fear of losing it. So, I keep my money in the bag. But, unluckily I couldn’t find one note. And I was craving that Honey Chilli Potato. My only option was to quickly scan the QR code in front of me and make an online payment. I must say it is a handy innovation. And within a few minutes, I had a cola and my chilli potatoes in my hands.
“When somebody has a mobile phone in Africa, you can see their whole transaction history. Would you rather have that or an economy based on untraceable dollar bills?”Bill Gates
Imagine if I didn’t have my bank account linked to my PhonePe wallet that day? Well, I wouldn’t have been hungry, of course. What are friends for?
One of my previous articles on the changes in the economy caused due to innovation in digitalization talks about this only. It briefly talks about e-transactions and the rise of cryptocurrency.
The History of Payment Methods
The Barter System is the earliest known form of trade. One item is simply exchanged for another in this system. While this works perfectly when it involves two people with the same demands. For example, I have a carton of milk and the person in front of me has rice. I need rice and he needs milk. We both exchange products as suitable. However, what if he doesn’t need milk but shoes. And the person who needs shoes requires milk. While the problem can still be solved, it has grown complicated. So, as the number of people involved in the transactions grows, so does the complexity of the situation. To solve this problem innovation was needed.
At this point, land and cattle were the most important commodities when considering transactions.
This led to the rise of a common currency system in the form of coins. In earlier ages, gold, silver, and copper were used to make coins.
As times changed and these metals became more valuable, paper and other cheap metal came into use. This popularised the use of currency notes further.
Today, we live in a digitalized world, hence the changes in the methods of payment are ever-involving.
The Innovation that begun the tale
Global eCommerce company, PayPal, co-developed by Elon Musk, began its services in 1998 and currently operates in 202 markets. I must say that it is an innovation that has out-performed itself. The company performs payment processing for online vendors, auction sites, and other commercial users. They allow their customers to send, receive, and hold funds in 24 currencies worldwide. Currently, PayPal manages more than 244 million accounts, more than 100 million of them active.
Even before the World Wide Web in the 1990s became active, Amazon had initiated the concept of e-commerce and was way ahead of even giants like Pizza Hut in making e-transfers.
In fact, it is commonly believed that the first online transaction was done by a group of students. And that too at MIT in their Artificial Intelligence lab. Want to know what they sold? Marijuana. Well, human beings are human beings. They will have their due fun. Won’t they?
Innovation in Modern Payment Technology
Modern Payment Technology is focused on being paperless and less time-consuming. On a normal day in The State Bank Of India, if you are in a remote part of India, you will end up spending more than 3 hours just depositing your money in your account.It took me the entire day to get a bank account opened.
Imagine the time to be taken, if I were to be asking for a loan.
Banks are overburdened by paperwork. And this often leads to crowding in banks. Which is why, people now prefer e-payments.
One of my previous articles on the future of smartphones talks about their utility in the coming years. However, in the future, our smartphones will be our banks.
“Digital payment systems can do more for equality in poor countries than they can do anywhere else, and we would like them to emerge there even if it takes longer in richer countries. We’re not waiting for it to trickle down as we do for many advanced technologies. That’s not good enough.”Bill Gates
The rise in e-payments is partially attributed to a steady rise in e-commerce. E-commerce is growing rapidly, with worldwide sales anticipated to be $4 trillion in 2020.
Most common E-payment methods
Since consumers are comfortable with online methods of payment, a large number of mobile-based banking systems have come into the market.
According to a survey conducted by Rakuten Insight in February 2020, over 85 percent of Indian respondents preferred to use Paytm for e-payments. Paytm, Google Pay, PhonePe, Amazon Pay, and BHIM were some of the other popular e-payment services during the survey period.
1. Google Pay
Google Pay, launched in 2018, is a fast and simple way to pay online and in physical stores. With Google Pay, you check out in hundreds of apps without having to enter your payment information. Google Pay Send, a peer-to-peer feature included inside Google Pay, has replaced the Google Wallet service. With Google Pay Send, it is easy to pay anyone with an email address or phone number. It became increasingly popular due to scratch cards during Diwali and other offers where users could earn money by collecting stickers. This was one of the most effective marketing streaks in the e-payment industry.
Based in Noida and founded in 2010, Paytm reported revenue of nearly 36 billion Indian rupees in the financial year 2019 catering to about 350 million users countrywide. This was the pioneer of online payments in the Indian Market. The app lets you book tickets, pay bills, shop online, pay your friends, and even transfer money to your bank account. After the app became a hit, it even launched a Paytm mall and it’s own online banking system, Paytm Payments Bank in 2015.
Launched in 2016, PhonePe is the first app built on the Unified Payment Interface (UPI). I have always personally preferred this app, as it always offers some kind of discounts and coupons. Also, it has a better interface than the other apps. This is one of the primary reasons for its popularity. The app lets you do all things that Paytm allows you too.
The Indian Innovation- United Payment Interface
UPI was developed by the National Payments Corporation of India in 2016. It was an innovative development in the direction of e-payments. As of now, this method is limited to India. However, the government is in talks to internationalize it after witnessing its huge popularity amongst the masses.i
Unlike other methods. UPI doesn’t disclose phone numbers or account addresses to other people when making payments. This is why it is considered more secure. UPI transactions involve a VPA. VPA stands for Virtual Payment Address, and each address is unique.
So, If I am to transfer money from my bank account, I simply have to click on “Via UPI”, in any app I am using. This includes Paytm, PhonePe, Google Pay, and even Bhim UPI.
Bhim was developed by the government of India specifically for the purpose of UPI transfers.
In 2018, RBI revealed that the worth of total transactions was more than a trillion rupees.
In March 2019 alone, NPCI data revealed that the total number of transactions via UPI to be 21.68 crores.
The Government’s push for digitalisation is credited for the exponential increase in the number of e-transactions.
More Innovation in Payment Tech
Another popular form of payment is through RTGS. RTGS stands for Real-Time Gross Settlement. This payment method is performed via a bank branch only in real-time. This means there is no waiting period. It is very popular for payments involving large sums of money.
Debit and credit cards are also very popular these days. Most people are familiar with their usage and that is why I won’t talk much about them.
Internationally, there are apps like Cash App, Venmo, Jaxx. and Zelle. In fact, Facebook Messenger has developed more from being just an app to talk. You can now pay and receive money from friends after you link your bank account.
What to look out for? Innovation and more Innovation
Since we now have a global market for most items, it is necessary for payment platforms to be available internationally too. This is why PayPal is popular. After the success of UPI, the government of India has pushed for the usage of UPI all across the world.
Companies now have to be on the watch for their online presence too because of these factors. Online payments speak a lot about the crowd going after your product. In fact, it offers a chance at a frictionless experience through increased cost-saving, efficiency, and accessibility.
A bitcoin that cost $1 in 2014, cost $12000 in 2019. The numbers are eye-opening.
The first bitcoin transaction was made in 2010. Since then, it has not looked back.
A cryptocurrency is a digital or virtual currency, secured by cryptography,. This makes it nearly impossible to counterfeit or double-spend. The best or the worst part about them is that they are not issued by an agency or a central authority. So, they are immune to government interference.
The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular and most valuable. Today, there are thousands of alternate cryptocurrencies with various functions and specifications. Some of these are clones of Bitcoin, while others are new currencies that were built from scratch.
Some of the competing cryptocurrencies include Litecoin, Peercoin, Namecoin, Ethereum, Cardano, and EOS.
Today, the aggregate value of all the cryptocurrencies in existence is around $214 billion—Bitcoin currently represents more than 68% of the total value.
In India, people in a general opinion, have been septic about this. However, a lot of experts believe cryptocurrencies are the future of currencies.
The Supreme Court in 2108, squashed the RBI order and legalized cryptocurrency trade in India too. Therefore, what are you waiting for?