From a rotary dial phone to a touch screen smartphone, a big CPU-based PC to a laptop, and letters to messaging apps, digital transformation is happening for real. Digital transformation is utilizing technologies to transform a business by eliminating existing problems (slow operations, inefficiency, human errors) and improving customer experience.
Today, every industry and business is moving towards digital transformation. The payment and financial industry has also joined the trend. That’s why financial services aligned with digital transformation are called fintech. This transformation has given birth to cashless, digital, and contactless payments.
According to a study by Gartner, nearly 91% of businesses are moving toward digital transformation. They are using at least some digital initiatives. This shows how digital is the new normal.
Highlighting the fintech part, research by Coppermobile says that the digital transformation in fintech will reach nearly US dollars 29.97 billion by 2025. This shows how prevalent technological change is in the financial sector.
The fintech industry is significantly utilizing technologies like APIs, AI & ML, cloud tech, IoT, and blockchain for developing innovative financial services such as wallets and mobile banking. The aim is to improve operations and customer experience while solving the most troubling problems in finance and banking.
In this blog, we will learn all about cashless payments, its types, benefits, and how cashless payments are reducing security risks.
What are cashless payments?
The digital transformation in fintech led to the advent of advanced digital payment solutions. One such solution is cashless payments. Cashless payments are payments that eliminate the need for cash and are made through online modes of payment.
Cashless payments eliminate the need for cash and allow users to make payments through digital modes as and when required through their smartphones.
Cashless payments are now widespread because of the impact of COVID-19. The COVID-19 pandemic locked us into our homes, and every business became remote. Additionally, the COVID virus was contagious and looking at the massive death tolls all around the world, people were afraid of any payments that involved cash.
This hesitancy towards cash payments gave rise to the already in-function digital payments. It grew to the level that everyone started making and accepting cashless payments. This twirl of events in the money market proved to be very beneficial for the fintech sector, and many financial companies approached a mobile app development company to stay ahead of the trends. Hence, many types of cashless and contactless payments came into existence during this period.
Major types of cashless payments
Cashless payments are spreading like wildfire. Today, there has been extensive use of various types of cashless payments. The major types of cashless payment are:
Among all the types of payments, e-wallets are the most common fintech solutions used as cashless payment. E-wallets are digital wallets in smartphones. Here a user can load money through a credit or debit card and utilize it for making and receiving payments, booking tickets, paying bills, scheduling payments, and much more. This makes it convenient and seamless for the customers to make payments as and when required.
2. Mobile and net banking
Mobile banking or net banking is the use of banking services over the internet, over a smartphone, tablet, or desktop. Here, the user can download a banking app of the bank whose services they are already subscribed to and make various payments, investments, and lending activities through that mobile banking app. Also, the user can log on to their net banking account on the desktop and utilize the same services.
3. Banking cards
When we are on the subject of cashless payments, the banking cards like credit and debit cards qualify for the same. The user can use a card swiping machine at the counter without any cash in hand and can shop in-store as well as online with utmost convenience, security, and smoothness.
4. QR Codes
QR code or quick response code is a fine method of making payment without cash and direct contact. QR codes are machine-readable codes formed with black and white squares. These codes are used at the stores by sticking them on the wall or keeping them at the counter (in small standee form), where users can open a scanner to scan the QR code and make an online payment either through a wallet app or a banking app on the phones.
5. Unstructured Supplementary Service Data (USSD)
USSD or Unstructured Supplementary Service Data is a text or sms based service that can be used to make cashless payments by users who do not have internet or smartphones.
Here the user who wants to make a cashless payment can dial *99# on a button-based mobile phone. The only requirement is that the mobile number must be linked to the bank account.
6. Contactless payments (NFC)
Near-field communication technology, commonly known as NFC, is now widely adopted. Almost every store has an option for an NFC machine where users can bring their smartphone or an NFC-enabled debit or credit card into close proximity to the NFC system. This way, the payments are cashless as well as contactless at the same time.
7. POS terminals
The POS terminals are electronic devices used to process transactions at retail locations. POS terminals are connected to a computer or network and equipped with a card reader, keypad, and display screen.
When a customer makes a purchase, the cashier enters the transaction information into the POS terminal, and then the customer is prompted to swipe their card or enter their card information, generally a PIN. Then the payment is automatically processed, and the amount is deducted from the customer’s account.
Benefits of Cashless payments in the digital world
Now that we know what cashless payments are and the types of cashless payments in the digital world. We must understand the benefits of cashless payments emerging from digital transformation. Because these are future-proof digital payments. These benefits are:
1. Convenient to use
Cashless payments make it very easy for customers to make payments and receive funds as and when required, without having to carry any cash in hand or standing in long queues at ATMs to withdraw. This makes cashless payments very convenient to use.
2. Reduced costs and increased profitability
With technological advances, cashless payment solutions for your business reduce operations and related costs owing to automation and ease of payments. Also, as you can make financial transactions in a more secure, convenient, and cheaper way with your customers and suppliers, it increases your business profitability.
3. Faster payments and transactions
Let’s say a customer is at a departmental store, and due to Sunday, it’s a bit crowded. After putting the items in a cart, he reaches the counter only to find long checkout queues. These queues at the counter are time-consuming. The cashless payment options eliminate these slow processes by providing direct payment options like QR payments and NFC.
4. Seamless cross-border payments
Traditionally, making cross-border payments was a difficult task. But digital payments have made it easy. Digital transformation has led to the development of cashless payment solutions, which help the customer or merchant to make seamless international payments without worrying about currency exchanges.
5. Enhances security
The cashless payment solutions come with extra security layers like biometrics, tokenization, two-factor authentication, and other security frameworks integrated into them which makes the payments extra secure.
6. Easy monitoring of money movement
Cashless payments are well-kept and recorded online. So you can monitor every transaction of the customers. Also, you can use this data to improve your services and solutions for your customers.
How cashless payments are reducing security risks
Cashless payment methods, such as credit and debit cards, mobile payments, and online payment systems, can provide numerous security benefits reducing security risks such as
Encryption: Cashless payment uses encryptions to protect customers’ financial data. This makes it difficult to make unauthorized access.
Verification: Cashless payment can verify the customer’s identity, such as requiring a PIN or using biometric authentication for mobile payments.
Reduced risk of loss or theft: With cashless payments, there is no risk of losing the cash or having it stolen.
Improved tracking and record-keeping: Here, the transactions are recorded online, which makes it easier to track and monitor spending and identify suspicious activity.
Digital transformation has given rise to cashless payments and has promoted them globally as an advanced mobile money solution. As a result, the cashless payment scenario has only improved with many payment options like banking cards, QR codes, USSD, NFC, POS, and many more. In addition, cashless payments are essentially reducing security risks in the payment environment.