Unit 2 - Individual Payments PDF

UNIT2 PAYMENTS, CRYPTO CURRENCIES AND BLOCKCHAIN 1. INDIVIDUAL PAYMENTS 2. DEVELOPING COUNTRIES AND DIGITAL FINANCIAL SERVICES (DFS): THE STORY OF MOBILE MONEY AND REGULATION OF MOBILE MONEY 3. RTGS SYSTEMS 4. CRYPTOCURRENCIES WHAT IS BLOCKCHAIN? FINTECH- INDIVIDUAL PAYMENTS UN...

UNIT2 PAYMENTS, CRYPTO CURRENCIES AND BLOCKCHAIN 1. INDIVIDUAL PAYMENTS 2. DEVELOPING COUNTRIES AND DIGITAL FINANCIAL SERVICES (DFS): THE STORY OF MOBILE MONEY AND REGULATION OF MOBILE MONEY 3. RTGS SYSTEMS 4. CRYPTOCURRENCIES WHAT IS BLOCKCHAIN? FINTECH- INDIVIDUAL PAYMENTS UNIT-2 INDIVIDUAL PAYMENTS  Individual payments in FinTech refer to the digital financial transactions made by individuals, typically facilitated through technology-driven platforms and applications. These payments have transformed the way people conduct personal and everyday financial activities, ranging from paying bills to transferring money domestically or internationally TYPES OF INDIVIDUAL PAYMENTS  Peer-to-Peer (P2P) Payments: Peer-to-peer (P2P) transactions in FinTech refer to direct money transfers between individuals without needing intermediaries like traditional banks. In India, the rise of digital wallets, mobile payment apps, and UPI (Unified Payments Interface) has greatly facilitated P2P transactions, making them faster, more secure, and highly convenient. These are transactions between individuals, such as splitting bills with friends or paying someone back. Popular P2P payment apps include Venmo, PayPal, Cash App, and Zelle.   Ease of Use: Users can send money to anyone with just a mobile number, email address, or unique ID, without needing bank account details.  Instant Transfers: P2P payments are usually processed in real-time, providing immediate access to funds.  Low Transaction Costs: These platforms often charge minimal to no fees for domestic transactions.  Secure Transactions: Encryption, two-factor authentication, and other security measures protect user data and funds.  P2P Transaction Methods in India  UPI (Unified Payments Interface): UPI is a real-time payment system developed by the National Payments Corporation of India (NPCI) that enables instant money transfers between bank accounts through a mobile device.  How It Works: Users can link multiple bank accounts to a single UPI app and use a Virtual Payment Address (VPA) to make transactions without sharing bank details.  Examples: Apps like Google Pay, PhonePe, Paytm, and BHIM (Bharat Interface for Money) utilize UPI for P2P transactions.  Use Case: Paying a friend back for dinner by transferring money directly from your bank account to theirs using their VPA.   MOBILE WALLETS  Mobile wallets are apps that store card information securely, allowing users to make quick payments via mobile devices.   How It Works: Users can load money into the wallet from their bank accounts or use linked cards to make payments. The wallet can be used to send money to others within the same platform.  Examples: Paytm, Mobi Kwik, Free charge, and Amazon Pay.  Use Case: Sending money to a friend’s Paytm wallet, which they can use to pay bills, shop online, or transfer to their bank account.  Banking Apps with P2P Features:  Description: Many traditional banks in India have integrated P2P payment options into their mobile banking apps, allowing customers to send money easily. Examples: SBI YONO (State Bank of India), ICICI iMobile, and HDFC Bank’s MobileBanking app.  Use Case: Using the ICICI iMobile app to transfer money directly to a friend’s account using UPI or account details.  QR CODE BASED PAYMENTS  QR Code-Based Payments: QR code payments allow users to scan a code to send or receive money directly from bank accounts or wallets. How It Works: The payer scans the payee’s QR code using a P2P payment app and enters the amount to transfer funds instantly. Examples: QR codes are widely used across platforms like Google Pay, Phone Pe, and Paytm.  Use Case: Paying a local vendor by scanning their QR code with Google Pay, instantly transferring the amount without cash. Examples of Popular P2P Payment Platforms in India  E.g.1-Google Pay: One of the most popular UPI-based payment apps in India, Google Pay allows users to make P2P transactions, pay bills, and recharge mobile phones. Features: Simple interface, rewards, and cashback offers, integration with bank accounts via UPI. Example Use: Sending money to friends using their mobile number or UPI ID.  E.g. 2- Phone Pe: Another leading UPI-based app, Phone Pe enables P2P transactions, utility payments, and even investment options like mutual funds. Features: Supports multiple languages, cashback offers, and seamless integration with numerous banks. Example Use: Paying rent to a landlord by directly transferring money from your linked bank account to theirs.  E.g.3.- Paytm: Originally a mobile wallet, Paytm has expanded into a comprehensive payment platform that supports UPI, P2P transfers, bill payments, and e-commerce. Features: Multiple payment methods, wallet-to-wallet transfers, and acceptance across millions of merchants. Example Use: Sending money to a friend’s Paytm wallet or directly to their bank account. BHIM (BHARAT INTERFACE FOR MONEY)  A government-backed UPI app that simplifies P2P payments by providing a direct bank account transfer interface.  Features: Easy setup, low data consumption, multiple language support, and direct access to UPI services.  Example Use: Transferring funds to a family member using their UPI ID.  TECHNOLOGICAL INNOVATIONS DRIVING INDIVIDUAL PAYMENTS 1. Blockchain Technology: Provides secure, transparent, and decentralized platforms for transferring funds without traditional intermediaries, reducing costs and increasing transaction speed. 2. Biometric Authentication: Incorporates fingerprint scanning, facial recognition, or voice authentication to authorize payments, enhancing security and user convenience. 3. Artificial Intelligence (AI) and Machine Learning: Used for fraud detection, personalizing payment experiences, and providing instant customer support through chatbots. 4. Open Banking APIs: Allow third-party developers to build apps and services around the financial institutions’ data, enabling consumers to make payments and manage finances seamlessly across platforms.   DIGITAL PAYMENTS IN INDIA  To achieve the nation’s vision of transforming into a developed country by 2047, it is imperative that all citizens be brought under an organised financial ecosystem.  Digital payments in India have been successful in making India a more financially inclusive country.  With digital payments seeing rising adoption, India is becoming a less cash-dependent country.  Digital payments are helping the growth of other industry sectors (both B2B and B2C) by eliminating the challenges involved in cash transactions.  This has made it easier and faster to realise the transactions in the recipient’s financial books. As a result, digital payments have been able to reduce the cost of funds required in these industries.  Innovations in the payments lifecycle are resulting in sustainable growth in industries such as education, transportation, healthcare, insurance, automobile, manufacturing, banking, e- commerce and aviation.  The benefits of digital payments are enjoyed right from a small neighbourhood kirana shop to a large conglomerate handling high-value complex receivables and payouts. INDIAN PAYMENTS INDUSTRY IN (2023-24)  India has become a leader in digital payments in recent years because of the creation of an environment that makes it easier to embrace and use digital payment modes. It has a very high rate of digital payment adoption as compared to other nations, and as a result, many other nations want to learn from the country and leverage its learnings and design choices. The value of digital payment transactions increased by 58% in a single year, from INR 71.97 billion in FY 2021–22 to INR 113.94 billion in FY 2022–23.  New-age products like Unified Payments Interface (UPI), National Electronic Toll Collection (NETC) and National Auto- mated Clearing House (NACH) have been received well by consumers and are expected to see further growth in the next five years  A. UPI  Payments made via UPI increased by 80% over the previous fiscal year. UPI accounted for more than 75% of the total transaction volume of India’s retail digital payments in February 2023. In the first quarter of FY 2023–24, transaction volume reached 24.9 billion and transaction value reached INR 39.7 trillion.  …….  India’s journey towards becoming a less cash nation has largely been driven by the growth of UPI. In May 2023,4 UPI accounted for over 78% of total retail digital payments in India and as per our estimates, it is expected to contribute 90% of total retail digital payments in India by FY 2026–2027.5  UPI started in FY 2016–2017 as a payment method for small ticket-size person-to- person (P2P) and person-to-merchant (P2M) transactions. It has now expanded to a mode for real-time cross-border payments and is even replacing ATM cash withdrawals using physical cards. This year’s edition of our payments handbook6 has listed the different features and use cases that have been developed to further increase adoption of UPI.  UPI- GLOBAL EXPANSION  The RBI’s and the NPCI’s blended focus on continuous innovation and stabilising the existing framework has resulted in the widespread adoption of UPI, with around 260 million users currently in India.7 NPCI’s focus on building a strong technology stack and a huge network of PSPs has helped in making UPI amongst the safest and most secure payment methods across the globe.  With a recent tie-up with France, UPI has expanded its presence outside Indian shores. This is in addition to existing tie-ups with nations such as Singapore, the United States, Australia, Canada, Hong Kong, Oman, Qatar, Saudi Arabia, the United Arab Emirates and the United Kingdom.  The Indian government aspires to get the support of all G20 countries to facilitate worldwide UPI-based payments. In February 2023, the RBI announced that eligible travellers from G20 nations could access UPI in India as they will be issued with prepaid instrument (PPI) wallets to use UPI service at merchant outlets. This will be extended to all countries in the future. Currently, wallets can be obtained at three international airports: Mumbai, Delhi and Bangalore. To support this, two banks and two non-banks are issuing wallet-based services to travellers. This will be further explored by other partners in the future. MOVING FORWARD- KEY CONSIDERATIONS FOR SUSTAINING UPIS GROWTH  B. NETC (NATIONAL ELECTRONIC TOLL COLLECTION)  The infrastructure of Indian roads has been continuously improved over the past several years as a result of the rising vehicle density. The expansion of digital transactions throughout the country has been significantly aided by the NETC scheme, which uses FASTags on moving vehicles.  In FY 2021–22, NETC transaction volumes stood at 2.4 billion (84% rise YoY) worth INR 380.8 billion (67% YoY growth). NETC decreased the average wait time at toll booths by half to less than two minutes per car.8 The first quarter figures for NETC transaction volumes in FY 2023–24 reached 0.96 billion, accounting for INR 0.16 trillion in transaction value.  The number of transactions is expected to increase at a 23% compound annual growth rate (CAGR) over the next five years, while transaction values are expected to increase at a 26% CAGR over the same time period since road travel is expected to increase and new use cases will be rolled out.  Payment for parking at malls and airports through FASTags is also gradually increasing. Acceptance at public parking places and fuel payments using hand-held devices, etc., can further boost adoption.  COMMERCIAL FLEET MANAGEMENT  The use case for NETC FASTag has grown beyond toll collection to parking, but its applicability in commercial fleet management could be further explored. FASTag may be designed to function as an expenditure management card for managing other expenses, i.e. gasoline and rest stops. This will allow an organised fleet and logistics companies to reduce their reliance on cash, assisting them in attaining a full view of all transactions and making expense management easier.  GPS-based toll collection system:  On 24 March 2024, the Union Minister of India announced a proposal to implement a new toll- collecting system, which will be implemented shortly. The Ministry of Transport and Roads is undertaking a pilot project for automatic number plate recognition systems (through automatic number plate reader cameras) to enable automated toll collection without stopping automobiles. This change will reduce waiting times even further, and tolls will be deducted based on the distance travelled by a vehicle on certain highways. This will be an upgrade to the current FASTags, which may become redundant for toll collection, but use cases like parking may still operate via FASTags if not integrated with the new system.  However, such improvements will necessitate infrastructure modifications to make NETC acceptable at sites such as gas stations and rest stops. C. CARDS  The recent history of digital payments in India showcases the growing prominence of credit cards. Month-on-month data shows that transaction volumes of credit cards surpassed those of debit cards in the month of January and have continued to do so in FY 2023 - 24. The major reason behind this shift is the availability of a 30 - 45 days interest-free credit period and other features, i.e. cashback and reward points along with multiple other saving opportunities. Tech innovations like contactless cards, UPI on credit cards, combined with the wide acceptance of credit cards, have boosted the growth in the number of transactions and customer base.   FREEDOM IN CARD NETWORK SELECTION AND UPI ON CREDIT CARDS  The RBI has released a draft guideline giving consumers the ability to change their card network not only while opting for a card, but also at any time while holding it  UPI on credit cards  UPI payments and credit cards have picked up pace, and the combination of the two payment rails is creating a buzz in the market. Currently, only one network provider has the authority to issue cards linked with UPI. Other network schemes will be launched in later stages of deployment.  This move has provided more flexibility to customers and also enabled users to use UPI in rural areas, where credit cards were not accepted by merchants because of merchant discount rate (MDR) rates and point of sale (PoS) machine unavailability. Unlike debit card payments, UPI payments will attract reward points and cashback. In addition, there will be no fuel surcharge on UPI payments. This will ensure that the customer spends more and saves more as well.  D. PPI  Prepaid cards are a convenient method to pay. Because of the increasing usage of smartphones and the internet, India has achieved tremendous advances in the e-commerce industry in the past ten years, resulting in an increase in the use of prepaid cards for online purchases. These instruments can be easily opened without many documents, which is an added benefit.  In FY 2022–23, PPIs handled 7.9 billion transactions worth INR 3.7 trillion. The number of transactions is expected to increase further at a CAGR of 7% in the future. The major reason for transaction volume growth is the significant growth in the number of wallets and digital gift cards issued by FinTechs. With business travel returning to pre-pandemic levels, use of prepaid cards for expense management has started to increase as it provides better control. This will boost growth of PPIs in the future.  While gift cards and travel cards have seen encouraging growth, the transaction value of m-wallets is showing signs of recovery after a drop in FY 2022–23.  The RBI’s statement about distribution of wallets to travellers10 would increase the number of transactions as well as their value. As more partners are able to provide wallets at multiple locations, issuance will rise in the future, improving the transaction experience of travellers.  Prepaid forex cards are a preferred transaction mode for people travelling abroad as they are able to transact in the local currency of the visiting country. Easy availability through Authorised Dealers (AD-II) and Full-Fledged Money Changers (FFMCs) at airports and online availability through online travel agents (OTAs) have been vital to the increased adoption of prepaid forex cards.  The RBI is additionally pushing to expand the use of e-RUPI vouchers. These initiatives will allow a broader range of customers to use the services and will increase the penetration of digital payments.  DEVELOPMENTS IN DIGITAL PAYMENTS AND FUTURE GROWTH POTENTIAL 1. Unleashing the potential of cloud-based payment infrastructure  The payment business is evolving at an unprecedented pace. Financial institutions are adjusting to changing requirements and ever-increasing challenges by implementing a variety of technology advancements, one of which is migration to cloud. Institutions have begun to abandon conventional on-premises infrastructure in favour of the next-generation benefits of cloud computing.  Before cloud migration, financial institutions had legacy systems running as on-premises infrastructure that had to be configured for each business and was only available from a single location. A breakdown, such as a power outage or server malfunction, could result in massive losses. The consumer today expects that transactions are processed in real-time, with extraordinarily high throughput and minimal latency. Financial institutions need real-time actionable insights and dynamically run ML models which are compliant with regulations. This is possible with cloud computing services that come with a much lower price, less complexity and a lower implementation time compared to non-cloud-based systems  FIGHTING FRAUD: MODERN MEASURES TO BUILD TRUST IN TODAYS LANDSCAPE  Amongst several causes of fraud, the most common one is an increase in the number of counterfeit merchants and websites which attract customers by offering products and services at a steeply discounted rate. Fraudulent access can take place across multiple platforms such as social media, knowledge, and media-sharing services, and goods platforms. It accounted for 57% of all fraud incidents in India in 2022.11  With an increase in the adoption of an array of digital payments, there has been a proportionate increase in the risk of fraud, with UPI having the highest share in terms of volume. However, instances of UPI fraud are of lower ticket size (Figure 12). This means that while the total contribution of UPI looks significant, it is substantially lower in comparison to that of other payment rails To address these shortcomings, the Government and the RBI have launched various initiatives:  Consumer Education and Protection Department (CEPD): The department will run various awareness programmes throughout the year to educate end consumers.  RBI’s fourth cohort on ‘Prevention and Mitigation of Financial Frauds’: The RBI shortlisted six entities that will test their products in the sandbox environment.12 These entities use AI and ML technologies to build solutions that aim to prevent and mitigate traditional and new types of frauds.  Amendment to Know Your Customer (KYC) master direction: The RBI released an amendment to its KYC master direction circular to guide registered entities on enhancing their KYC process.  Fraud reporting and sensitisation of NBFCs: This reporting system has been introduced by the RBI for NBFCs to report fraud cases.  WHATS NEXT FOR INDIA?  CBDC is a digital form of legal tender that is issued by a central bank and can be exchanged with fiat currency. Central banks of many countries are currently exploring CBDCs as it is a risk-free and central bank-based asset that will gradu- ally streamline global payments services.  In India, the RBI has chosen to opt for both retail and wholesale CBDC (wCBDC) for the pilot phase. Furthermore, an intermediate approach is being followed in the case of retail CBDC – where the RBI issues CBDC to licensed intermedi- aries who then distribute it further (similar to the cash distribution approach). The retail and wCBDC pilots were started in December 2022 and October 2022 respectively. The learnings from this pilot will help in clearing grey areas for stake- holders, bringing in more transparency, and decreasing the chances of failure in various stages of implementation, usage, and scaling.  Retail CBDC currently offers P2P and P2M payments. The adoption of retail CBDC in the pilot is limited to 1 million users and 0.26 million merchants thus far, with approximately 7.7 million13 transactions after launch. This number is fairly small if true testing at scale has to be performed on retail CBDC. While efforts are being made to extend this limited user group by enabling payments to merchants with a standard UPI QR code, it is to be noted that the merchant would require a CBDC wallet at the back end to accept the CBDC token. The total number of transactions on wholesale CBDC stood at 1,329 as on 3 February 2023, which indicates that wholesale CBDC has been used on a limited scale to settle Government securities  LPSS: AN ALTERNATIVE PAYMENT RAIL  In its annual report 2022 - 23, the RBI has conceptualised an LPSS, a payment rail to deal with natural calamities or any form of disruption.  LPSS will be designed to operate with minimum staff and will be independent of traditional payment rails such as real-time gross settlement (RTGS),  National Electronic Fund Transfer (NEFT) and UPI. The payment system will be activated only when required and can process economic transactions, such as those of the Government and the market, that are essential to maintaining the stability of the economy.  This system will maintain a near 100% uptime for payments and settlements.  ADVANTAGES OF LPSS  Lightweight infrastructure: The payment rail is planned to be operated only for the government to ensure the balance in the economy, so the infrastructure required will be less  High end : The plan is to use the best-in-class technology for the system which will allow a high level of safety and secure transactions.  Backbone during the emergency period: The transaction and communication infrastructure will be separate from the traditional payment systems which ensures the collapse of all the traditional systems will not affect the functioning of LPSS  However, in order to enjoy these benefits, a clear plan, including thorough testing and validation of operations under a variety of scenarios, will be required. In addition, there is a need for a policy that defines the scenarios  INDIAN STATISTICS OF GROWTH IN DIGITAL PAYMENTS  Digital payments in India have seen unparalleled growth in the last decade. Over the years different payment instruments are evolving and identified some of the developments in the payments space which have the potential to act as a catalyst for the future growth of this sector. A changes in consumer preferences and the shift to digital modes for various transaction types is observed.  Digital payments in India continued to have a healthy YoY growth rate of 58% in FY 2022 - 2023 compared to FY 2021 - 2022. UPI continues to be the flag bearer of this growth story, accounting for over 75% of retail digital  payments in India. Amongst cards, credit card transaction volumes saw a YoY increase of 30% in FY 2022 - 2023 compared to FY 2021 - 2022, while debit card transaction volumes saw a YoY decline of 13% in the same time period.  INDIVIDUAL PAYMENTS  In 2024, the FinTech payments industry is poised for remarkable growth and transformation. Startups, businesses, and companies increasingly want to incorporate FinTech payment options into their operations to stay competitive in a rapidly evolving landscape. However, this journey has challenges, including regulatory compliance, security concerns, customer trust, and scalability.  In 2024, the FinTech payments landscape is transforming remarkably, presenting challenges and opportunities for startups. This dynamic sector is driven by technological innovation in how transactions are processed and managed. Understanding the key trends and shifts is crucial for startups looking to make their mark in this evolving industry.  Let's explore eight critical aspects startups must know to succeed in the FinTech payments landscape in 2024.  …….  Over the last five to seven years, as digital payments adoption increased with the introduction of new use cases and innovative products by payment service providers (PSPs), we have seen huge growth in most of the digital payment instruments.  The growth of UPI payments has driven the overall growth story of digital payments in India and is expect- ed to maintain its high growth trajectory, given the Reserve Bank of India (RBI) and National Payments Corporation of India’s (NPCI’s) sustained efforts to introduce innovative features.  Acceptance of UPI has grown not only in India but across the globe, with various partnerships being forged. National Electronic Toll Collection (NETC) and credit cards also continue to grow at a significant rate.  Debit card transactions have seen degrowth in FY 2022–2023 compared to FY 2021– 2022. The same trend is also observed in the first half of FY 2023–2024. This can be attributed mainly to custom- ers’ preference to pay through UPI or credit cards over debit cards.  REASON FOR INCREASING ADOPTION OF DIGITAL PAYMENTS  Digital payments are helping the growth of other industry sectors (both B2B and B2C) by eliminating the challenges involved in cash transactions.  This has made it easier and faster to realize the transactions in the recipient’s financial books. As a result, digital payments have been able to reduce the cost of funds required in these industries.  Innovations in the payments lifecycle are resulting in sustainable growth in industries such as education, transportation, healthcare, insurance, automobile, manufacturing, banking, e-commerce and aviation.  Inclusiveness- The benefits of digital payments are enjoyed right from a small neighborhood Kirana shop to a large conglomerate handling high- value complex receivables and payouts.  2. USE OF AUTOMATED SOFTWARE FOR OPTIMIZED TRANSACTIONS  In 2024, FinTech startups increasingly adopt automated software to enhance their payment platforms and financial services. This automation, driven by artificial intelligence (AI) and machine learning (ML) advancements, is revolutionizing the financial industry by streamlining repetitive and labor-intensive tasks, such as customer verification and screening. This saves time and leads to improved efficiency and customer satisfaction​​. Agile Platform for Rapid Deployment: Automation tools should offer quick time-to-deployment and adapt seamlessly to dynamic environments, ensuring that startups can quickly respond to market changes​​. Real-Time Data Operations: This is crucial for startups to stay ahead in the fast-paced financial industry. Real-time operations allow for immediate responses to market conditions and customer needs​​. Cloud-based Enterprise Automation: This offers a unified platform for integrating various financial services, which is vital for FinTech startups aiming to deliver seamless and efficient services across digital channels​​. Robotic Process Automation (RPA): RPA is particularly effective for tasks like extracting information from legacy systems, and it works well in situations where the user interface remains constant​​. Customization According to Business Needs: Not all startups require the same level of automation. Some may need end-to-end automation, while others only need to automate specific tasks or processes​​.  3. HEIGHTENED SECURITY MEASURES  One of the most critical aspects for startups to focus on within the FinTech payments industry is the implementation of heightened security measures. Heightened security measures involve robust cybersecurity protocols and technologies to safeguard sensitive financial data and prevent unauthorized access. Startups should adopt these measures for several compelling reasons: Data Protection: Heightened security measures protect valuable financial information, ensuring that customer data, payment details, and transaction records remain confidential. Trust and Reputation: Implementing strong security measures helps build trust among users, which is essential for startups aiming to establish a reputable presence in the FinTech industry. Regulatory Compliance: Many regions have stringent data protection regulations. Adhering to these standards is a legal requirement and a critical factor in avoiding penalties and maintaining business operations. 4. INCREASED INVESTMENT IN MOBILE WALLETS  Startups should pay close attention to the increasing investment in mobile wallets, a trend that promises significant opportunities and benefits. Mobile wallets are digital applications that allow users to store, manage, and make payments using smartphones. Startups should consider adopting mobile wallet technology for several compelling reasons: Growing User Base: Mobile wallets are gaining popularity among consumers, providing startups access to a rapidly expanding user base. Enhanced Convenience: Mobile wallets simplify the payment process, offering users a one-stop solution for various transactions, including purchases, bill payments, and peer-to- peer transfers. Security Features: Leading mobile wallet providers incorporate robust security features, making transactions more secure and reducing the risk of fraud. Integration Potential: Startups can integrate their services with mobile wallets, offering users a seamless and convenient experience. 5. TAP TO PAY FEATURES  One trend startups must embrace is adopting tap-to-pay features. Tap-to-pay, also known as contactless payment, is a technology that allows users to make payments by simply tapping their mobile devices or credit cards on a payment terminal. Startups should consider this technology for several compelling reasons: Convenience: Tap-to-pay offers customers a seamless and hassle-free payment experience. It eliminates the need for physical cash or card swiping, making transactions quick and effortless. Enhanced Security: These systems often include advanced security features like tokenization, ensuring sensitive payment information remains safe during transactions. Adoption by Consumers: Tap-to-pay has gained widespread acceptance among consumers, and its popularity continues to grow. Startups can tap into this trend to attract more users. Versatility: Tap-to-pay can be used for various payments, from small everyday purchases to larger transactions. This versatility makes it suitable for a wide range of businesses. Competitive Advantage: By offering tap-to-pay options, startups can stay competitive in a market where user experience is paramount. 6. INCREASE IN BY NOW PAY LATER PLANS  One prominent trend that startups should embrace is the increase in Buy Now Pay Later (BNPL) plans. BNPL plans allow consumers to make purchases and defer payment, often without interest or fees, if paid within a specified timeframe. Here's why startups should consider adopting BNPL: Consumer Demand: There's a growing demand for flexible payment options among consumers. BNPL plans to cater to this demand, attracting more users to your platform. Increased Sales: By offering BNPL, startups can boost their sales as customers are more likely to purchase when they can spread payments over time. Customer Loyalty: BNPL plans can enhance customer loyalty as users appreciate the convenience and flexibility offered by this payment method. Competitive Edge: Embracing BNPL puts startups ahead of the competition, especially when targeting millennial and Gen Z consumers who are more inclined toward these payment options.  7. THE RISE OF NET BANKING  Net Banking, or Internet Banking or Online Banking, refers to digitalizing traditional banking services. The rise of Net Banking significantly affects startups in various ways. It presents opportunities for startups to develop innovative FinTech solutions that cater to the growing demand for online banking services. Startups can focus on creating user-friendly mobile apps, secure payment platforms, and tools that simplify financial transactions.  This trend encompasses various types of online financial services, including: Online Account Management: Users can check their bank account balances, view transaction histories, and manage their finances from the convenience of their computers or mobile devices. Bill Payments: Net Banking allows users to pay bills, transfer funds, and conduct various financial transactions online, eliminating the need for physical visits to banks or payment centers. Peer Payments: Peer-to-peer payment platforms enable individuals and businesses to send and receive money seamlessly, fostering cashless transactions. Mobile Payments: Mobile banking applications provide users with on-the-go access to their financial accounts and the ability to make payments using their smartphones. 8. APPLICATION OF GENERATIVE AI IN BANKING  The application of Generative Artificial Intelligence (AI) in banking is a trend that startups must note. Generative AI is a subset of artificial intelligence that generates new content, ideas, or solutions. In banking, Generative AI is used for various purposes, including: Customer Service: AI-powered chatbots and virtual assistants can provide real-time customer support, enhancing the user experience. Risk Assessment: Generative AI can analyze vast amounts of financial data to identify potential risks and suggest risk mitigation strategies, crucial for startups managing their financial services. Personalized Financial Advice: Generative AI can offer personalized financial advice and investment recommendations by understanding individual financial profiles and attracting and retaining users. Fraud Detection: AI algorithms can detect unusual transaction patterns and potential fraud, ensuring the security of financial transactions. THE OUTLOOK FOR FINTECH PAYMENTS:2024 AND BEYOND  The FinTech industry has been at the forefront of innovation, transforming how businesses and individuals make payments. Let's delve into the key trends and developments shaping the future of FinTech payments, focusing on critical aspects of financial technology.  Digital Currencies and Cryptocurrencies  One of the most significant trends in FinTech payments is the adoption of digital currencies and cryptocurrencies. Bitcoin, Ethereum, and various other cryptocurrencies have gained widespread acceptance as alternative forms of payment. Furthermore, central banks worldwide are exploring the concept of central bank digital currencies (CBDCs). These digital currencies can potentially revolutionize how we make payments and store value.  In 2024 and beyond, we anticipate a continued surge in the use of digital currencies for everyday transactions. FinTech companies are working tirelessly to integrate these digital assets into their platforms, allowing users to buy, sell, and transact using cryptocurrencies. For small businesses, this presents a unique opportunity to tap into a growing market of crypto-savvy consumers. CROSS BORDER PAYMENTS SIMPLIFICATION  Cross-border payments have historically been plagued by complexity and high fees. However, FinTech innovations are changing the game. In 2024, we can expect further simplification of cross-border payments. FinTech companies are developing solutions that make sending money internationally more accessible and cost-effective for businesses and individuals.  These innovations will profoundly impact businesses engaged in global trade and individuals sending remittances to their families in other countries. Small business owners can benefit from reduced fees and faster settlement times, making expanding their reach to international markets easier. BIOMETRIC AUTHENTICATION  Enhanced security measures are a top priority in the FinTech industry. Biometric authentication methods like fingerprint and facial recognition are becoming increasingly prevalent. These technologies provide an additional layer of security, ensuring that payments are convenient and highly secure.  For small business owners and online businesses, biometric authentication can help protect against fraudulent transactions and unauthorized access to financial accounts. Customers can enjoy the peace of mind that their financial information is safeguarded by cutting-edge technology.  Sustainable and Green Finance  FinTech payments also embrace sustainability in an era of growing environmental concerns. FinTech companies offer options for eco-conscious consumers and businesses to support environmentally friendly initiatives through their financial transactions. This includes offsetting carbon emissions, investing in green projects, and making sustainable choices when managing finances.  Embedded Finance  Embedded finance, integrating financial services into non-financial platforms and apps, is poised to become more widespread in 2024. This trend allows users to access financial products and services seamlessly within their daily activities. For example, e-commerce platforms can offer instant loans to businesses to help with inventory purchases, and mobile technology can facilitate on-the-go payroll management for employees.  Small businesses can benefit from embedded finance by directly accessing financing options, payment processing services, and other financial tools through the platforms they already use for their operations.  1. HIGHER DEMAND FOR PERSONALISED PAYMENT  1. Higher Demand for Personalized Payment  In 2024, one of the prominent trends in the FinTech payments landscape is the higher demand for personalized payment solutions. Consumers and businesses increasingly seek tailored payment experiences catering to their needs and preferences.  To capitalize on this trend, startups should consider the following: User-Centric Approach: Startups should adopt a user-centric approach, understanding their customers' behaviors, preferences, and pain points. Customizing payment experiences based on customer data can lead to higher adoption rates. AI and Machine Learning: Leveraging machine learning algorithms, startups can analyze user data in real time to offer personalized payment recommendations. This can include tailored offers, discounts, and payment schedules. Security Measures: As personalized payment options involve handling sensitive financial information, robust security measures are paramount. Startups must invest in cutting-edge security technologies to protect user data. Compliance: Stay abreast of the evolving regulatory landscape to ensure that personalized payment solutions adhere to industry standards and data privacy regulations. HOW DID WE DO THIS?  HOW DID WE DO THAT?  Cheques were used for transferring money from one account to another. They are basically an instruction to a bank to withdraw money from one account and deposit into another.  Telegram is the fintech of its time which figured out how to send money with telegram.  Telex machines existed basically to send instructions around payments around to  WHAT DOES IT LOOK LIKE TODAY?  Central bank sits in the centre of the payment systems  We have central banks around the globe and 180 different fiat currencies. The central banks are central to commercial banks. Its important to remember that our money system has moved to from being paper money to digital money. Today in US accounts for $1.8trillion in paper currency.  But the digital money, all of the bank deposits and money market funds etc is 15 or so trillion dollars.  So, 90% money in US is digital and most of that digital money is commercial banks money.  EXAMPLE- HOW A CONTACTLESS MOBILE PAYMENT WORKS  Scenario: A customer uses their smartphone to make a purchase at a retail store using a contactless payment method. 1. Payment Initiation: 1. The customer selects items to purchase and proceeds to the checkout counter. 2. At the checkout, the customer informs the cashier they will pay using a contactless payment method. 2. Payment Terminal Activation: 1. The cashier inputs the purchase amount into the point-of-sale (POS) terminal, which activates the contactless payment option. 2. The terminal displays a prompt for the customer to present their payment device (smartphone, smartwatch, or contactless card).  Customer Authentication: The customer unlocks their digital wallet (e.g., Apple Pay or Google Pay) using biometric authentication (fingerprint, face recognition) or a secure PIN. The customer brings their device close to the NFC-enabled payment terminal. Data Exchange and Tokenization: The smartphone uses Near Field Communication (NFC) to communicate wirelessly with the terminal. Instead of sending the actual card number, the digital wallet generates a unique encrypted token for that transaction, ensuring that sensitive information is not exposed.  Transaction Confirmation: The payment network sends the approval back to the acquiring bank and then to the POS terminal. The terminal displays a confirmation of the successful payment, and the customer receives a notification on their device. Settlement: The actual funds transfer occurs in the settlement phase, usually within a day or two. The acquiring bank pays the merchant the transaction amount (minus fees), and the issuing bank debits the customer’s account. Receipt Issuance: The customer receives a digital or printed receipt confirming the purchase.  Payment Authorization: The payment terminal forwards the tokenized data to the acquiring bank (merchant’s bank), which passes it on to the payment network (e.g., Visa, Mastercard). The payment network contacts the issuing bank (customer’s bank) to verify the transaction details, check the available funds, and validate the transaction. Security Checks: The issuing bank checks for any fraud alerts, confirms that the token matches the customer's account, and ensures the customer has sufficient funds. If everything is in order, the issuing bank approves the transaction and sends an authorization code back through the payment network. KEY COMPONENETS IN THE PROCESS Digital Wallets (e.g., Apple Pay, Google Pay) provide convenience and security. NFC Technology enables contactless communication between devices and payment terminals. Tokenization protects sensitive card information by using temporary, unique identifiers. Payment Networks (e.g., Visa, Mastercard) facilitate the flow of payment information between banks. Security Protocols ensure that transactions are safe, leveraging encryption, biometrics, and fraud detection measures. This seamless, secure process illustrates the efficiency of modern payment systems, enhancing convenience for customers while safeguarding financial information. CRYPTO CURRENCY SKIPS SOME OF THE INEFFICIENCIES OF THE MODERN PAYMENT SYSTEMS. REAL TIME GROSS SETTLEMENTS –  RTGS are relatively faster. The word gross means we are not setteling net. Assuming millions of checks coming in the clearing house. You can Net settle as in these checks coming from Bank of America and these checks coming from Wells Fargo… and they both can enter into net settlement. This happens in real time.  RTGS are used for large value payments. Eg: FED WIRE, UK CHAPS, EUROZONE TARGET.  The question is can we move from large value to just person to person directly, rapidly, instantaneously……?  Some countries have actually formed it. Its called REAL TIMER ETAIL. Or RTGS.. 24-7  Answer is yes, TOKENIZATION- MEANING  The tokenization process removes any connection between the transaction and the sensitive data, which limits exposure to breaches, making it useful in credit card processing. ….. The Fintech means of payments currently dominate the payment landscape. 2021 was a year of transition for the payments industry as we moved towards Payments 4.X − an evolutionary, COVID-19-sparked era that’s fueling even more industry consolidation and attracting tech-expert ecosystem players. CURRENT SCENARIO-  As part of this phase, payments are becoming an enabling function that is embedded and invisible to provide an immersive, seamless, and frictionless customer eXperience. This current global scenario is witnessing the new technology trends, permanent changes in customer behavior, unparalleled need for next-gen payment methods, and increased focus on nimble payment solutions for B2B and SMB segments, which are paving the way for tomorrow’s payments landscape.  The Covid-19 pandemic necessitated the payments industry undergo a facelift, sparked by novel approaches from new-age players, fostered by industry consolidation, and customers’ demand for end-to-end experience. Crossing the threshold, the industry is entering a new era – Payments 4.X, where payments are embedded and invisible, and an enabling function to provide frictionless customer experience.  As customers make a permanent shift to next-gen payment methods, Digital IDs are critical for a seamless payment experience.  The B2B payments segment is witnessing rapid digitization. BigTechs, PayTechs, and industry newcomers are ready to jump in with newfangled solutions to help underserved small to medium- sized businesses (SMBs).  As incumbents struggle with profits, new-age firms are forging ahead to take the lead in the Payments 4.X era by riding the success of non-card products and services.  The new era demands collaboration, platformification, and firms can unleash full market potential only by embracing API-based business models and open ecosystems.  Data prowess and enhanced payment processing capabilities are inevitable to thrive ahead.  The clock is ticking for banks and traditional payments firms because the competitive advantage is not guaranteed forever.  As industry players seek economies of scale, consolidations loom, and non- banks explore new territories to threaten incumbents’ market share.  While all these 2022 trends are at play, central bank digital currency (CBDC) is emerging globally and might open a new chapter in the current payments landscape. THE GROWTH IN E- PAYMENTS IS FUELLED BY-  Emerging innovation in the payment for goods and services in electronic commerce promises to offer a wide range of new business opportunities. The growth in electronic banking and commerce is fueled by:- 1. An increasing number of internet users. 2. Reduce operational and processing cost due to improvement in technology 3. The affordability of high-performance technology  SPECIAL FEATURES REQUIRED IN THE PAYMENT SYSTEM  Anonymity– The payment system should be anonymous E-payment system should be designed in such a way that it could not be able to provide the information that can be used I trace the personal information of the customer.  Security– The payment system should be secure. There should be no harm n threat to the user’s credit card numbers, smart card numbers, or other personal details.  overhead– The overhead cost should be optimum or minimum for the customer so that they can buy easily online without bothering the overhead costs.  Transferability– This feature states that whether the payment can be carried out without the involvement of a third party.  Divisibility– This means that a payment can be divided into arbitrary small payments whose sum is equal to the original payment.  Acceptability– The last but not least feature that an electronic payment system should possess is that the payment should be supported globally. TYPES OF DIGITAL PAYMENT SYSTEM  1. Digital Wallets  Digital wallets are nothing but software that stores your credit cards and other bank account information. These are usually linked to your phone number or email ID, and you can use them for online purchases. You can also use these digital wallets to withdraw cash from ATMs or make payments at shops.  Digital wallets can be accessed through mobile devices such as smartphones and tablets. Mobile payments allow users to pay for goods or services by scanning a QR code or entering a payment number. POPULAR DIGITAL PAYMENT INCLUDES  Bank Cards  Bank Cards include credit, debit, and prepaid cards offered by banks. Not only can you choose from a variety of Bank Cards, but they provide a convenient and secure way of making payments. You can safely use two-factor authentication to enjoy online shopping and make payments at Point of Sale (PoS) machines. You may also use bank cards at Micro ATMs (Automated Teller Machine) to digitally complete transactions.  Internet and Mobile Banking  Internet banking, also known as online banking or e-banking, allows you to conduct various financial transactions digitally. It is an electronic payment system wherein you, as the customer of the bank, can use its website to initiate digital payments. You can also use internet banking services like IMPS, NEFT and RTGS to transfer funds securely. You can also send funds via these methods through the Mobile Banking App of your bank. You need to download the bank app on your phone, log in, and choose your preferred type of digital payment system to complete the transaction  UPI  United Payments Interface (UPI) allows you to link multiple bank accounts through one mobile application. This mobile banking application enables you to enjoy banking features and conduct merchant payments simultaneously. You can download your bank’s mobile UPI app on your Android or IOS enabled smartphone and conduct the transaction.  2. Mobile Payments  Mobile payments have become an integral part of our lives. It is no more a luxury but a necessity. With the help of mobile phones, people can pay bills on time, transfer money between friends and family members, book movie tickets, send flowers to loved ones, buy groceries, etc. Numerous mobile wallets available in the market allow you to make payments using your phone number or email ID.  You can carry cash digitally by linking your credit or debit card to mobile wallet apps, downloadable on your internet- enabled smartphones. You can link your bank account or bank cards to the digital wallet and load money on it. Once done, you can use the funds in your digital wallet and make payments via your smartphone, tablet, and even smartwatch.  3. Digital Payment Network Companies  A digital payment network is a company that provides a different kind of payment service. These companies primarily provide a way for people to pay each other with their mobile phones or computers. The most popular types of digital payment network companies include:  1) PayPal 2) Venmo 3) Square Cash  4. Contactless Payments  Contactless payments are the most widely accepted digital payment and the most convenient form for consumers. They allow you to pay for goods or services with a simple tap on your phone or contactless card. As the name suggests, contactless payments are made without needing to swipe a card or enter a PIN physically. Just wave the card over the reader, and you are done.  5. Cryptocurrencies  Cryptocurrencies are digital currencies that use cryptography to secure transactions and control the creation of new units. Any central authority does not regulate them; they are traded on online markets and through various exchanges. Bitcoin is the world’s most popular cryptocurrency. Bitcoin can be used for payments, transfers of assets between parties, and as a store of value.  6. Mobile Point of Sale Machines (MPoS)  Mobile payments are a fast-growing segment of the payments industry. These apps allow customers to pay for goods and services using their smartphones, essentially eliminating the need for cash or checks.  Retailers use mobile POS (Point of Sale) applications to process transactions when customers are in the store. The applications help merchants manage inventory, track sales, and customer loyalty, and provide insights into customer behavior.  7. Banking Cards  A banking card is a plastic card issued by a bank, credit union, or other financial institution. It can be used for making payments over the Internet and in stores and restaurants.  Banking cards (credit cards) are typically issued only to users with good credit ratings, so they can be used at any merchant that accepts credit cards. Some cards also come with rewards programs that offer discounts on purchases or cash back on certain types of purchases.  Conclusion: Digital payments are the future of money  Ultimately, digital payments are the wave of the future. Cash has served us well for decades, but now it’s time to move forward and embrace the next generation of payment options. In essence, digital payments are here to stay. All we have to do is learn how to use them effectively in our everyday lives. And when that happens, it will be a good day for all of us.  If you’re already invested in digital payments, it’s best to partner with a reputable payment processing company such as Payment Pilot for faster and safer transactions. Get in touch with us today and take advantage of our promise of the cheapest solution in the USA. INDIVIDUAL PAYMENTS  Using automation technology, that is, technology that doesn’t require human interaction, users are able to manage their finances better.  Charts, statistics, data, and current status updates are all part of how fintech can influence financial life.  Up to date activity is available on websites and apps, while payments can be made from anywhere, at any time.  Examples of fintech usage are peer-to-peer payments, online ecommerce purchases, donating to funding platforms, and online banking, to name a few. People who use fintech do so on a near-daily basis. ADVANTAGES  Ease of use  Faster Service  Good Experience  Lower Fees  More Features  Lack of Service by Primary Bank  Integration with Social Media  Allow cashless and paperless transaction  Sage, quick and convenient way to transfer funds.  You can avail of digital payment services 24x7x365