Security and Modes of Digital Payments Class 6

Under Security and Modes of Digital Payments unit includes role of RBI (Reserve Bank of India), Digital Banking, various types of cards and other technology used for this purpose.

 

Reserve Bank of India ﹘ Role and Importance

The Reserve Bank of India (RBI) is the Central Bank of India. It has the power to control the monetary situation of the entire country. Besides the issuance of currency, RBI performs various other important functions:

  1. Implements monetary policies
  2. Manages foreign exchange reserves
  3. Acts as banker to the government
  4. Financial regulation and supervision
  5. Governs the policies for other banks to follow

 

About National Payments Corporation of India (NPCI)

National Payments Corporation of India (NPCI) is the single organization for all retail payments in India. It was incorporated in the year 2008 under the guidance and support of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA).

NPCI facilitates the entire banking system of India for both physical and electronic payment and settlement systems.

 

Introduction to Digital Banking

Digital banking means the availability of banking services to the customers by means of mobile app on a smartphone/tablet/laptop etc.

Digital Banking services include:

  1. Checking account balance
  2. Transferring funds to another account
  3. Ordering a cheque book
  4. Changing passcodes

Digital Banking − Do’s & Don’ts

Do’s to be observed while performing digital banking:

  1. Keep your user ID and password confidential and do not reveal to anyone
  2. Memorise your user ID and password instead of noting down anywhere
  3. Log off completely and clear your system cache after every session
  4. Register for SMS alerts to keep track of transactions on your account

Don’ts to be observed while performing digital banking:

  1. Do not use an email message to log in to your banking account; Always use the official website
  2. Do not reveal personal information to anyone over email/SMS/phone call
  3. Do not use the ‘Remember Password’ feature provided by browsers to save your banking password

 

Digital Payments

Digital Payments means transferring an amount of money to another individual, business or organisation through the internet without the requirement to handle physical cash.

Benefits of Digital Payments

The trend of digital payments has changed the business world and lives of people. It has brought in a new era of flexibility of convenience.

  1. Fast, easy and convenient: Customers can make Digital payments at any time of the day using just the smartphone.
  2. Digital Record: Each digital transaction has a unique transaction ID making digital payments fully secure.
  3. One-stop solution: We can use digital payments for various purposes e.g. school fees, instalment of house, insurance premium, shopping.
  4. Transparent Transactions: As there is no cash handling involved, the use of black money is difficult.

 

Modes of Digital Payments − Card Based

Besides cheques, banking cards are also important tools for making convenient transactions.

Three Types of Cards:

  1. Debit Cards:

Debit cards serve a dual purpose. They help to perform banking transactions through the ATM machine such as deposits, cash withdrawals and access account information.

  1. Credit Cards:

Credit cards are instruments that provide instant credit to the cardholders.

When a credit card is used for making a transaction, the amount is provided as credit by the issuing bank. The cardholder can make the payment to that bank within a time period generally a month.

  1. Prepaid Cards:

These are ‘stored value’ cards that are charged with a specific amount. The cardholder is allowed to spend the amount equal to the value stored in the card.

For example, if the card has a value of ₹10000, once that value is used up for purchases, more value needs to be added to the card.

Guidelines for the use of banking cards

  1. While using an ATM card to withdraw cash, one must keep the PIN secret.
  2. The Credit cardholder must ensure to pay back the card dues in time to avoid the heavy interest.
  3. Banking cards must be kept very safe from going into the wrong hands to avoid misuse.
  4. Card PIN numbers must not be shared with anyone.

 

Various channels for acceptance of card based digital payments

  1. Point of Sale (PoS)

PoS is a system that automatically keeps track of each sale transaction and the amount received from the customer. It also enables card-based transactions.

  1. Mobile Point of Sale (mPoS)

mPoS is a mobile phone-based application for simple use by the merchant. The menus and functions on an mPoS are easy to use.

  1. Soft PoS

Soft PoS is a payment acceptance segment, that uses ‘Tap-on-Phone’ technology. This technology allows merchants to accept payment from contactless cards directly on their Near Field Communication (NFC)-enabled android mobile devices via software based payment application. It doesn’t require any additional connected hardware.

 

  1. E-commerce payment

The purchase of goods and services online through an electronic medium without the use of cash or cheques is known as e-commerce payment. e.g. purchasing your favourite game online.

Benefits of E-commerce payment:

  1. Security
  2. Efficiency
  3. Convenience
  4. User-friendliness

 

  1. Automated Teller Machines (ATMs)

ATMs enable bank account holders to withdraw cash, check balance, and do other

banking transactions at their own convenient time without the need of bank staff involvement.

Benefits of ATM to Customers

  1. Reduced visits to the bank branch.
  2. Shorter travel time as ATMs are situated nearby.
  3. Convenient access to cash 24x7.
  4. Additional services such as balance inquiry, mini statement, PIN change, etc.
  5. As ATM is interoperable, customers can visit any bank ATM to withdraw cash, do balance inquiry, PIN change, etc.

 

  1. Modes of Digital Payments - Biometric Based

 

(a) Unique Identification Authority of India (UIDAI)

The government of India has launched Unique Identification Authority of India (UIDAI) for securing digital transactions. It was launched in the year 2016, as a statutory authority.

The aim of UIDAI is to issue a unique identity document named as ‘Aadhaar’ (also known as UID) to all citizens of India in order to eliminate duplicate and fake identities.

(b) Aadhaar Enabled Payment System (AePS)

Aadhaar Enabled Payment System (AePS) is a payment system operated by NPCI.

AePS empowers a bank customer to access his/her Aadhaar enabled bank account to perform basic banking transactions like balance enquiry, cash deposit, cash withdrawal, mini statement & Aadhaar fund transfers.

(c) Micro ATMs - a perfect solution for Rural and Hinterlands

Micro ATMs are handheld devices available with authorised banking correspondents (also known as bank mitras) allowing Aadhaar holders to perform basic banking transactions. Fingerprint and/or Retina/Iris of the customer are used to authenticate a customer. Micro ATMs are portable and can be carried anywhere in just one hand.

 

  1. Modes of Digital Payments - Mobile Based Banking and Others:

 

(A) Internet Banking

Internet banking means doing banking transactions over the internet using laptop, tablet or smartphone. Transfer of money can be done through different methods, including:

  1. National Electronic Fund Transfer (NEFT)
  2. Real-Time Gross Settlement (RTGS)
  3. Immediate Payment Service (IMPS)
  1. National Electronic Fund Transfer (NEFT)

National Electronic Funds Transfer (NEFT) is a nation-wide centralised payment system owned and operated by the Reserve Bank of India (RBI). The payment mode enables companies and individuals to transfer funds electronically to other companies and individuals.

The account holder needs to register the beneficiary account details such as account holder name, account type (savings etc.), account number and Indian Financial System Code (IFSC) which helps to identify individual bank branches.

  1. Real-Time Gross Settlement (RTGS)

RTGS is a real-time settlement system which allows for fast processing of money transfer between any two accounts. ‘Real Time’ means the processing of instructions at the time they are received; ‘Gross Settlement’ means that the settlement of funds transfer instructions occurs individually. The payments made via RTGS are final and irrevocable.

The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is ₹ 2,00,000/- with no upper limit.

  1. Immediate Payment Service (IMPS)

IMPS is a product made available by the National Payments Corporation of India (NPCI). It allows for 24x7 instant funds transfer service that can be accessed on multiple channels like Mobile, Internet, ATM and SMS.

The key feature of IMPS is that it is available at all times. The transaction fee for IMPS is nominal, and it allows a transfer limit of Rupees 2 lakhs per transaction.

(B) Mobile Banking - Bank in Your Pocket

Most popular banks today offer the facility of Mobile Banking. In this case, a dedicated and secure app provides the following key services:

  1. Checking of the account balance.
  2. Making funds transfer.
  3. Bill payments and card payments.
  4. Service requests such as ordering cheque books.

Unified Payments Interface (UPI)

National Payments Corporation of India (NPCI) has developed Unified Payment Interface (UPI). It enables real-time digital payments, allowing users to send and receive money, perform various transactions through a single application.

Users can create a unique UPI ID, link multiple bank accounts and use multiple payment methods without needing debit or credit cards.

QR Codes, an Easy Way to Pay

The UPI interface makes it extremely easy and convenient to make payments using the Quick Response codes or QR codes.

Working of QR codes

  1. The customer scans the UPI QR placed at merchant locations / generated on PoS.
  2. Customer verifies the transaction details like UPI ID, amount, merchant name, etc. and provides confirmation.
  3. The customer has to enter UPI PIN.
  4. Customer gets successful payment confirmation on the UPI App along with SMS confirmation on mobile.

 

(C) Mobile Wallets, the Smart Way to Make Payments.

Possibility of money transactions without cash or cards:

A mobile wallet is a virtual wallet in the form of a mobile app that allows you to make purchases simply by scanning the QR code at the merchant establishment. A popular example of a mobile wallet in use today is Google Pay.

(D) Unstructured Supplementary Service Data (USSD)

Unstructured Supplementary Service Data (USSD) allows users without a smartphone or data/internet connection to use facilities such as mobile banking by using the *99# code. The key objective of (USSD) is to allow financial inclusion of the less privileged sections of the society.

 

  1. National Automated Clearing House – NACH

(Earlier Known as Electronic Clearing Service)

The National Payments Corporation of India (NPCI) offers to banks, financial institutions, Corporates and Government/s a service termed as “National Automated Clearing House (NACH)” which includes both Debit and Credit.

NACH (Debit) and NACH (Credit) aims at facilitating interbank high volume, debit/ credit transactions, which are repetitive in nature, electronically using the NPCI service.

Banking

Proposed Activities and Abbreviations for Financial Literacy Class 6

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