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Context:

The Indian Cyber Crime Coordination Centre (I4C) under the Union Home Ministry has issued an alert against illegal payment gateways created using mule bank accounts by transnational organised cyber criminals facilitating money laundering as a service.

About Digital Payments:

Digital payments are transactions that occur via digital or online modes. This means both the payer and the payee use electronic mediums to exchange money.

 The meaning of digital payment is equivalent to an electronic payment. Digital payments use a digital device or platform to move money between payment accounts. They can be partially, primarily, or fully digital.

 What is a Payment Gateway?

A payment gateway is a merchant service provided by an e-commerce application service provider that authorizes credit card or direct payment processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar.

The payment gateway may be provided by a bank to its customers but can be provided by a specialised financial service provider as a separate service, such as a payment service provider.

Types of Digital Payments In India:

1. Banking Card: Indians widely use banking cards, debit/credit cards, or prepaid cards as an alternative to cash payments. In 1981, the Andhra Bank launched the first credit card in India.
2. Unstructured Supplementary Service Data(USSD): The unstructured supplementary service data (USSD) was launched for those sections of India’s population which do not have access to proper banking and internet facilities.
3. Aadhaar Enabled Payment System (AEPS): The Aadhaar Enabled Payment System (AEPS) is a bank-led model for digital payments initiated to leverage the presence and reach of Aadhar. Under this system, customers can use their Aadhaar-linked accounts to transfer money between two Aadhaar-linked bank accounts.
4. Unified Payments Interface (UPI): The UPI is a payment system that culminates numerous bank accounts into a single application, allowing money transfers between parties. Compared to NEFT (national electronic funds transfer), RTGS (real-time gross settlement), and IMPS (immediate payment service), the UPI is considered a well-defined and standardised process across banks.
5. Mobile Wallets: Mobile wallets are a type of wallet where you can carry cash in a digital format. Often, customers link their bank accounts or banking cards to their wallets to facilitate secure digital transactions.

How Payment Gateways Work?

The payment gateway is a key component of the electronic payment processing system, as it is the front-end technology responsible for sending customer information to the merchant-acquiring bank, where the transaction is then processed.

Digital Payment Examples:

Mobile payment apps: Apple Pay, Google Pay, Paypal and Samsung Pay

Digital cards: Credit, debit, or prepaid cards issued to a customer’s mobile or digital wallet

Contactless payments: Credit, debit, or prepaid cards with near-field communication (NFC) technology, or mobile wallets that use magnetic security transmission (MST) technology as qualified as contactless payments.

Bank transfers: Direct transfers, also known as ACH transfers, are usually inexpensive or free and take one to three business days to execute.

Biometric payments: Mobile apps and other digital payment agents use biometric verification to authenticate transactions. For example, smartphones can send information with a payment request that includes biometric information.

National Electronic Toll Collection (NETC) FASTag: This interoperable solution uses Radio Frequency Identification (RFID) technology to allow individuals to make toll payments while their vehicle is in motion.

Reference -

https://razorpay.com/learn/digital-payments-india-definition-methods-importance/

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 Source:

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PRACTICE QUESTION Q.Discuss the role of digital payment gateways in promoting financial inclusion in India. Highlight the challenges associated with their security and the measures needed to prevent cyber fraud. (250 words)