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The ever changing list of payment systems

Shah Md Ahsan Habib | Published: February 01, 2019 21:26:10


Payment through electronic means has progressed remarkably in recent years. More and more people are paying through electronic means like cards, e-payments, mobile banking etc. These have become possible through the infusion of technology and installation of innovative tools for facilitating payments. Technological development has been contributing to reshape new payment products and services in the financial arena that currently includes cards, e-payments, b2b, mobile banking, mobile payment services, virtual currencies and internet-based payment services. Generally, these payment methods account for payment transfer (domestic and international) or for electronic commerce. Due to the changing scenario, most national currencies today exist in both physical and electronic forms. While physical currency still has advantages in certain situations, its role is gradually diminishing. Virtual currencies are coming up in a big way that are being used in online gaming; social networking (like Facebook, MySpace, Flickr, YouTube etc.), virtual worlds and online communities (like instant messages, email, newsletters etc.). Use of virtual currencies using block chain is a relatively a new dimension in payment options. 

The payment systems used in business activities have been altered by recent technological developments. Sales through smartphones are an indicator of the growth potential that these new trade and payment methods have in the future. Mobile technology is revolutionising the global banking and payment industry as well. It offers new opportunities for banks to provide added convenience to their existing customers in developed countries, and reach a large segment of 'unbanked' population in emerging markets. However, the rapid adoption of mobile money systems in developing economies reflects its benefits where a large proportion of the population do not have any accounts at financial institutions or where underdeveloped financial infrastructure means that there is limited access to convenient and affordable financial services.

The Global Digital Report 2018 revealed that there were more than four billion people around the world using the internet. This reflects the potential in global demand for e-payment services. The evolution of online banking started in the 1980s when the definition and the practice of internet banking were far different than what it is today. Online banking has become so widespread today that customers expect accounts to include free online banking. Many banks only operate on the internet, effectively decreasing overhead costs to offer more competitive rates on savings accounts and enjoy higher profit margins. Convenience, user friendliness and time saving are the main attractions for using online banking facilities.

Plastic money is an easy way to make payments. The concept of plastic money came around the 1970s and the first plastic card was used in the USA. Plastic money includes ATM cards, credit cards, debit cards etc. Convenience is the main advantage of using plastic money. There is no exact statistics about the number of cards in the world right now. 

Electronic-Wallet is a digital wallet (also known as E-wallet). It allows users to make secured electronic commerce transactions quickly. The electronic wallet (E-wallet) provides all the functions of today's wallet on one convenient smart card while eliminating the need for several cards. The E-wallet provides numerous security features not available to regular wallet carriers. Identification is required for every credit card transaction and the card is equipped with a disabling device if the card is tampered with. To facilitate the credit-card order process, many companies are introducing electronic wallet services. E-wallets allow tracking of a user's billing and shipping information so that it can be entered with one click at participating merchants' sites. E-wallets can also store e-checks, e-cash and our credit-card information for multiple cards.

Now-a-days online virtual Currency or crypto-currency is being highlighted as the next big financial instrument and payment mode. The currency exists in electronic form and is commonly referred to as digital cash. Examples of virtual currencies (VCs) are Bitcoin, Ripple, Litecoin, Peercoin, Dogecoin, Namecoin and more. Bitcoin and other VCs drew little attention from economists or monetary and regulatory authorities. Bitcoin was the first cryptocurrency developed in 2009 allegedly by a developer named Satoshi Nakamoto. VCs were considered a niche phenomenon that might disappear any day. The increasing interest in VCs was partially underpinned by the rapid build-up of the Bitcoin financial bubble in 2017 and its subsequent burst in early 2018. The growth of crypto-currency has been significantly due to anonymity and security. But there are still many unanswered questions related to cryptocurrency.

The development of IT technology and the emergence of the global network led to development of online games, social networks and other online communities. These, in turn, gave rise to virtual currency and game currency, which were used to pay for services provided within these online structures. Every social currency service has options that facilitate communication among people in the virtual world where some economic component is present. Usually these are handed over as awards to the people following achievements in the network or through the purchase of the currency by using real money (state currency).

The development in new payment systems seems to be an ever-changing landscape.  This has increased the need to introduce an open and collaborative payments system which spurs collaboration among stakeholders on a common platform. Within this new system, the intermediaries may consolidate or collaborate to stay relevant by opening up their systems. Payment vendors also are expanding value added services through consolidation. Some consolidate to acquire new technology, others to access top talent or new customers. Instant payment is expected to act as catalysts for next-generation payments technology, which started offering better and faster payment solutions to clients. Cross-border payments are expected to transform by using blockchain technology to offer efficient, inexpensive and faster transfers. An open and collaborative environment additionally opens up vulnerabilities related to cyber security and data privacy. Technological intelligence can help to mitigate exposure. Robotic process automation and machine learning can monitor for fraud in real time. Regulators and central authorities have increased their focus on stringent regulations related to cyber security and data privacy requirements that could impose hefty fines and criminal liability on firms for a data breach. Authentication is becoming critical. Multifactor validation involving biometrics, secure element, geo-location-based verification and cryptography keys could be the way forward to alleviate cyber threats and data breaches.

Dr. Shah Md. Ahsan Habib is Professor and Director (Training), Bangladesh Institute of Bank Management (BIBM).

ahsan@bibm.org.bd

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