Six ways to move money

Knowingly or unknowingly, over the past few years, we have adopted various new ways of making payments, be it for monthly bills, shopping, commute, and even sending money to our loved ones. The move has been away from paper and towards digital. As more and more people go digital, we take a look at the various platforms and interfaces that have come up recently.

Mint takes a look at six broad ways to make payments, based on convenience, cost efficiency and usage.

Basic platform

All cashless payment processes in India are based on similar underlying infrastructure. So, while there may be many customer facing interfaces, the back-end systems are a few. Payments other than in cash happen through four main channels: electronic clearing, payment systems, direct debit and cards. You use electronic clearing when you pay, for example, monthly instalment for a loan or for a mutual fund’s systematic investment plan. Payment systems are used when you have to transfer funds to another account. “The underlying infrastructure that a bank uses for fund transfers are National Electronic Funds Transfer (NEFT), Real-time Gross Settlement (RTGS) and Immediate Payment Service (IMPS)," said Jairam Sridharan, president—retail lending and payments, Axis Bank Ltd. “When it comes to payments through cards, banks use what is called payment networks (such as Visa, MasterCard, American Express and Rupay)," he added.

Even the money movement is between a limited number of entities. “When you make a payment or fund transfer, the receiver and the sender are typically one of three entities—individuals, business or companies and government," said Arjun Chowdhry, head—credit cards and unsecured lending, consumer bank, Citi India. Though the overall payment infrastructure is limited to these, the front-end experience differs across banks. Here’s a look at some of the recent developments in this area.

Social media

If you use Facebook, Twitter and Google+ for socializing, now you can use these for financial transactions as well. Banks such as Axis Bank, ICICI Bank Ltd and Kotak Mahindra Bank Ltd have launched apps or websites using which you can pay bills or transfer money on social media.

To send money from Facebook or Google+, you will have to either download an app or register on a website. Some offer the app on your Facebook page itself. When you send money using the app or Facebook page to your friend, the receiver will get a message on her Facebook message box with a link. The receiver has to click the link to download the app and enter her bank details. Once that is done, the money goes into the receiver’s account.

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Fund transfers through Twitter are commonly known as hashtag banking or Twitter banking. To send money via Twitter, you first have to follow your bank on Twitter. Banks that offer hashtag banking generally allow fund transfer to anybody who has a Twitter account. The usual process is to use a hashtag code followed by the receiver’s Twitter handle and the amount to be sent. Once you enter a four-digit passcode, the intended recipient will get a tweet from the bank on her timeline. She has to use the same passcode (you have to share this with her either via message or phone call) to receive the money. The back-end platform for social media-based funds transfer is either IMPS or NEFT.

Using contact list

Mobile phone numbers and email addresses, too, can act as account numbers for sending money. Banks have apps that allow you to send money to any mobile phone number in your phone contact list. To use this service, the sender has to be the bank’s customer; the recipient can be a non-customer.

To send money, you have to download the bank’s app on your phone, enter details and register your bank account. Next, you can select the phone number of the recipient from your phone contact list and enter the amount. The transfer can be authorized using a mobile MPIN, which can be generated either on the app or through Netbanking. The process varies across banks.

When you send the money, the recipient will get a link, which she needs to click on to download and receive money. The recipient can get money in an account to which his mobile phone number is registered. The same process works for transferring money using email and WhatsApp. The back-end infrastructure used is either IMPS or NEFT. The transfer can happen instantly but it may take a couple of hours to register for the first time.

Smartwatch

Recently, some private banks have launched banking apps for smartwatches—ICICI Bank’s iWear, Axis Bank’s iWatch and HDFC Bank’s WatchBanking. Using this app, some banks allow you to do financial transactions such as recharge prepaid mobile phone connections and pay bills from a smartwatch.

You have to download the app from the app store on the mobile phone paired with the smartwatch. The app gets installed on the phone and the paired watch. Once you enter the registered mobile phone number on the phone app and enter a four-digit login PIN of your choice, you will get a one-time password. Enter the code on the screen of the app to complete verification. You can then login into this app and start transactions on a smartwatch. The smartwatch and the phone are generally paired using bluetooth.

Remember that the app on the watch works only if you download on the phone. Once logged in, the watch will have to be synchronized with your mobile application. Some banks allow you to use your existing Netbanking PIN. The menu will have icons for payments. This interface uses the IMPS platform.

Wallets

Prepaid payment issuers, banks and companies offer digital wallets in which you can preload money and make payments. Broadly, there are three kinds of wallets: closed, semi-closed and open. A closed wallet can be used to buy goods and services exclusively from that company. Semi-closed wallets can be used to buy goods and services, including financial services, at clearly identified merchant locations, which have a specific contract with the issuer to accept the payment instruments. Open wallets can be used for purchase of goods and services, including at merchant locations or point of sale terminals that accept cards, and also for cash withdrawal at ATMs or business correspondents. These wallets can only be issued by banks. Money can be added using Netbanking, credit or debit card. Wallets have transaction limits and validity periods. For instance, semi-closed wallet Paytm has a basic monthly limit of 10,000, as set by the central bank. The limit can be upgraded to ₹ 1 lakh after a know-your-customer process. The account is valid for six months from last transaction.

Cards

According to Reserve Bank of India (RBI) data, credit card outstanding as on 17 April 2015 is ₹ 31,300 crore. Debit card volume stood at 700.31 million in March this year with a transaction value of ₹ 2.1 trillion. In a bid to further increase card usage for small value transactions, this year RBI allowed banks to use near field communication (NFC)—a technology that allows electronic payments by waving a card near a merchant terminal from a distance of about 4cm. RBI has also done away with two-factor authentication for amounts up to ₹ 2,000 on these cards. Cards work on payment networks such as Visa or Rupay.

Besides debit and credit cards, NFC technology is also being used for transit-related payments such as toll. Some banks have partnered with National Highways Authority of India and Indian Highways Management Co. Ltd to launch e-toll facility. For instance, ICICI Bank has FASTag, a prepaid radio frequency identification device tag, that can be attached to a vehicle’s windscreen. The tag is linked to a prepaid account and toll amount gets debited. For transit systems such as Metro, bus or taxi, RBI recently proposed semi-closed prepaid payment instruments.

ATM, Net and phone banking

These are widely used for basic services, and you can use them for payments and fund transfers, such as for utility bills, recharge prepaid mobile phones, and direct-to-home television connections. For instance, Citibank enables its customers to transfer money from its ATMs to a pre-registered third party via the IMPS platform. To transfer funds to another account, you have to insert the ATM card, enter the PIN, select ‘transfer funds’ and the beneficiary.

A similar service is available on phone banking too. You need to have a mobile phone number that is registered with a bank, and a four-digit MPIN. You will have to call the number which allows this facility. After the welcome message, select where you want to send money, enter required details and the amount. Choose account-based payment options, and enter the MPIN to complete the transaction. ICICI Bank allows you to make payments through voice recognition wherein voice acts as the password.

What should you do?

Despite the various cashless payment options available, most transactions in India continues to be through cash. The convenience and cost efficiency largely varies from person to person. Before using a mobile or online service, understand the costs attached. Most of the channels that ride on IMPS are restricted to small amounts. Also most of the charges for these services vary from bank to bank. The effectiveness of a payment mode also depends on the receiver. Both sender and the receiver need to be in sync for the payment process to run smoothly. Though it is worth trying out the new technology, understand the cost and limitations involved.