Definition: Digital payments are carried out through digital or online modes with no involvement of hard cash and include all methods of transferring funds between parties by leveraging digital payment technologies.
The Types of Digital Payments explained
Digital payment methods encompass all forms of transactions carried out digitally. From the consumer's perspective, this entails any transaction that doesn't require a physical credit card, debit card, or prepaid card, for example.
For merchants, digital payment methods encompass the manner in which payments are received. For instance, a consumer might utilize their physical credit card; however, if the point-of-sale system is digital, such as a mobile device in place of a conventional cash register, this qualifies as a digital payment.
Digital payment types include
- Mobile point-of-sale (mPOS) systems
- Contactless payments
- Digital wallet payments
- Peer-to-peer digital payments
- Social media payments
- Cryptocurrency payments
- Cross-border/ FX payments
Digital payments encompass a spectrum of levels of digital involvement, spanning from partially digital to primarily digital, and finally to fully digital transactions.
These examples are as follows
A partially digital payment
In a partially digital payment scenario, both the payer and the payee utilize cash through intermediaries (a third-party agent), while payment providers facilitate the digital transfer of funds between these intermediaries.
A primary digital payment
In a primarily digital payment scenario, the payer initiates a digital payment to an intermediary, who in turn receives the digital payment, but the payee receives the payment in cash from that intermediary.
A fully digital payment
A fully digital payment refers to a situation in which the payer initiates the payment digitally to a payee who receives it digitally, and it is then kept and spent digitally.
Digital payments are encrypted to protect critical data during transmission and storage to ensure its confidentiality and integrity using a variety of technologies, including encryption, tokenization, and secure socket layer (SSL/ TLS) certificates.
