Technological Development in Payment

April 23, 2020

Technological Development and Innovative Payment System

(Published in the Financial Express in January 2019)

Dr. Shah Md Ahsan Habib[1]

Payment through electronic means has increased remarkably in recent years. Developments are taking place in the form of advancements of existing payment methods through infusing technology; or installing completely new and innovative tools for facilitating payments. Technological development has been contributing to reshape and to innovate new payment products and services to the financial arena that mainly include cards, e-payments, b2b, mobile banking, mobile payment services, virtual currencies, and internet-based payment services. Generally these new payment methods are working to address money or payment transfer (domestic and international) or for electronic commerce. With the changing scenario, most national currencies today exist in both physical and electronic form; while physical currency still has advantages in certain situations, its role has gradually diminished. Virtual currencies are coming up in a big way that are in use 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 new dimension of the payment development. 

The payment systems used in business activities have been altered by recent technological developments. Currently, sales through smartphones are an indicator of the growth potential that these new trade and payment methods have in the future society. Mobile technology is revolutionizing the global banking and payment industry. It offers new opportunities for banks to provide added convenience to their existing customers in developed countries, and reach a large population of unbanked customers in emerging markets. However, the rapid adoption of mobile money systems in developing economies reflects the benefits they can offer in countries where a large proportion of the population do not have an account at a financial institution 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 4 billion people around the world using the internet, which reflects the growth in global demand for e payment serveries. The evolution of online banking started in the 1980s when the definition and the practice of internet banking were far different than what exists today. Online banking has become so widespread today that customers expect accounts to include free online banking, and 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 major attractions for using online banking facilities.

Plastic money as the name suggests the money made out of plastic, an easy way to make payment in exchange of goods and services to reduce the usage of cash. The concept plastic money came into 1900’s and the first plastic card was used in USA. Whole over the world huge number of plastic cards are used by the people. There is no exact statistics of number of cards in the world.  The idea behind using plastic money was to make payment system cashless. Plastic money includes ATM cards, credit cards, debit cards etc. Convenience is the main advantage of using plastic money.

Electronic-Wallet is a digital wallet (also known as E-wallet) which allows users to make electronic commerce transactions quickly and securely. The electronic wallet (E-wallet) provides all of the functions of today’s wallet on one convenient smart card eliminating the need for several cads. 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 should be tampered with. To facilitate the credit-card order process, many companies are introducing electronic wallet services. E-wallets allow us to keep track of our 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, which is currency that exists in electronic form and commonly referred to as digital cash, (examples of virtual currencies are Bitcoin, Ripple, Litecoin, Peercoin, Dogecoin, and Namecoin) is getting importance as financial instruments. Bitcoin and other VCs drew little attention from economists or monetary and regulatory authorities. The first crypto currency called bit coin which was developed in 2009 by an anonymous developer Satoshi Nakamoto. VCs were considered a niche phenomenon—a sort of technological folklore—that could 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 so many unanswered questions related to crypto currency.

The development of IT technology and the emergence of the global network led to development of online games, social networks and other online communities. Those, 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 to communicate among people in the virtual world where some economic component is present. Usually it is awarded the people according to their achievements in the network or through the purchase using real money (state currency). This allows them who have achieved certain achievements, to strengthen their position by buying in-game virtual goods – items that give them an advantage over others.

Development in new payment system, an ever-changing regulatory landscape, has urged to introduce of an open and collaborative payments ecosystem which spurs collaboration among stakeholders in a common platform. Within this new ecosystem, 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 customers better and faster payments solutions. Cross-border payments are expected to transform by using block chain technology to offer efficient, inexpensive, and faster transfers. However, an open and collaborative environment introduces vulnerabilities related to cyber security and data privacy. However, the technological intelligence can help to mitigate exposure such as 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.

[1] Professor and Director (Training), BIBM.

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