By - Ujwal Tamminedi
What is a payment?
• Payment is the exchange of money between a payer (who pays the
money) and a payee (who receives the money) for goods, services or
both or for fulfilling a legal obligation.
• The players involved in a typical payment are a payer and a payee
who can be individuals, corporations or governments and usually an
intermediary which helps exchange money, such as a bank.
• Examples of conventional payments include:
– Paying Rs 500 to a grocery shop (Cash transaction)
– Using a credit card at a petrol pump (Credit card transaction)
– Buying books on Amazon through your Visa card (Card not present
– Writing a cheque to book a flat (Banking instrument transaction)
– Using your online banking account to transfer money to a friend (Peer
to peer transaction)
– Paying your bills through your bank account (Bill payment transaction)
Your most common payments!!
• A cash transaction that you do costs the soceity nearly $350 per person!! Yes you
have to draw money by going to the bank/ATM, yes central bank has to print notes
and yes they have to stop theives!!!
• Credit card transactions aren’t cheap either!! The plastic embossing is not free and
neither is your paper receipt.
• Why is it worrying? Because:-
– The retail payment transactions in India are worth nearly Rs 25 lakh crores.
– 2800 crores are spent anually for printing Indian money.
– If 10% of currency is shifted to lendable reserves it will increase the GDP by 1%.
– Card transaction cost per Rs 100:-
Lessthan Re 1.
Re.1 to Rs. 1.50
Rs. 1.50 to Rs.2
Rs. 2 or more
What are the emerging alternatives?
• Mobile Payments - There are a number of technological advances that are enabling
us to use our mobile phones and tablets to enable payments. For Eg:-
• Near field communication (NFC) - Instead of using a card, you can tap your mobile
device against a POS terminal to make small money payments.
• Mobile POS - A mobile device will be used as a POS device for accepting payments
from cards or other mobile devices
• Mobile Wallets - An application in your mobile stores your identity/card
information/banking information and will let you make payments
• Mobile money transfers - You can use your mobile number to transfer money to
another individual just using his mobile number
• Mobile QR bill payments - You can pay bills or taxi with a QR code recognition
software in your mobile
• Mobile SMS - SMS will still remain a ubiquitous method and will be used for making
Mobile Payment System
Mobile payment application server
Innovations in mobile technologies
• Use of audio and mobile microphone for making
• Using real time analytics for making offers to
• Loyalty programs and rewards
• Mobile smart tickets for clubs/bars/discos
Other payment systems
• e-Commerce payment systems like Paypal
• Here the intermediary between the buyer and seller or two individuals is
a network like Paypal. You can pay using your verified paypal account
online. You can also transfer money using email adresses.
• Revenue for Paypal is from merchants and interest on money left in
• Virtual currency and cryptocurrency like Bitcoin
• The essence of the idea is to eliminate intermediaries in peer to peer
exchange and create a decentralized currency
• The currency is generated through cryptography (encyption algorithms)
rather than rely on a central authority
• Real time credit transfers
• These involve peer to peer transfer of credit in any form.
• For instance I can transfer my mobile minutes to a friend
• EBPP (Electronic Bill Presentment and Payment)
• The presentment of bills or invoices and also the payment is through electronic
What is AADHAR all about?
• AADHAR is a project undertaken by the Goverment of India under
cabinet minister Nandan Nilekani envisaging financial inclusion in the
• It works by giving a unique identification to each Indian citizen based
on his biometric information.
• In the future it will integerate with the banking payment systems and
allow seamless access to money to all individuals.
• It is possible that if you go to a ration store in the future, you will
swipe your thumb on a biometric reader to purchase or get goods
entitled to you. The biometric information will be carried over the
payment infrastructure and your entitlement or bank account will be
debited against the goods you take. This is how the current
entitlement of LPG cylinders for instance will be tracked.
• There are many applications that might come about using AADHAR.
For instance in areas of taxing, food security or the direct cash transfer
that is being envisaged.
• Hawala is a system (not necessarily legal in all countries) where in the
exchange of money takes place without actual movement of the
money. The money is exchanged based on mutual trust of Hawala
brokers who later settle among themselves through various means.
• In the Indian subcontinent Hawala is illegal and has emerged as a
alternate payment system due to inefficiences in the current payment
• The money made by Hawala brokers is usually used for illegal purposes
such a drug trafficking and terrorist activities.
• With emerging payment systems involving legal non-bank actors
ordinary people will not take the Hawala route to transfer/remit
• However illegal money transfer to avoid any taxes or perform illegal
activities like betting will still find way through Hawala.