From, the early years of electronic funds transfer and card payment to the recent rise of mobile wallets and contactless payments, digital payments have not only become a ubiquitous part of our daily lives but are the driving force behind global commerce today. In fact, the COVID-19 pandemic has inspired rapid digitisation across continents spurring the adoption of e-commerce and digital banking. In Nigeria particularly, the Digital Payments market is projected to grow by 13.70% (2023-2027) resulting in a market volume of US$27.89bn in 2027, according to Statista.
It has become crucial for businesses, government agencies, and institutions to invest in integrating digital payment solutions into their operations to keep up with the changing times. In this article, we uncover the basics of what digital payment technology is, how it works and the impressive benefits it presents.
What are Digital Payments?
Digital payments are financial transactions completed using a digital device or over the internet and do not require the physical exchange of cash between parties involved. There are several forms of digital payment technology and some of the most common include:
- Electronic bank transfers and wire transfers
- Debit and credit cards
- Mobile payment apps: PayPal, Opay, Paga, etc.
- Mobile wallets: Apple Pay, Google Pay, etc.
- QR Code Payment
- USSD payments
How Digital Payments Work
With only a few taps, digital transactions can be completed in just a few seconds. However, the technology at work behind the scenes is more complex than it seems. It involves various parties: the merchant (business receiving a payment), the consumer (person paying for a purchase), the acquiring bank (merchant’s receiving bank), the issuing bank (payee’s sender bank) and the payment processing network that facilitates the transaction.
To illustrate the process and the role of each party, let’s imagine that Customer A purchased a new computer for N200,000 from Merchant B, a Computer and electronics store in Lagos.
- At the Point of Sale, Customer A chooses to make payment using their debit card. They insert the cart in the PoS machine and enter the PIN.
- The payment processor captures the data provided by Customer A through a payment gateway and sends it to the issuing bank for authentication.
- The bank first runs a security check to ensure there is no fraud, then confirms that there are sufficient funds in the account to make the payment.
- If the payment is approved by the payment issuing bank, the payment network notifies Merchant B through the PoS Machine that the payment is successful. Customer A can now leave the store with his purchase.
- The payment processor also communicates with the acquiring bank to request the withdrawal of funds from the issuing bank.
- The fund is then cleared and settled into the merchant’s account.
Benefits of Digital Payments
Digital payment solutions have made business transactions to be convenient, fast and more secure. Here are three advantages of digital payments over traditional cash, and check payments:
1. Secure Transactions
Unlike cash which poses a direct risk of theft, digital payments provide security features that protect customer details from a data breach while using layers of authentication to verify the payer’s identity and reduce possible risks for fraudulent transactions.
2. Fast & Convenient
Digital payments make the point-of-sale experience effortless and pleasant for customers. The need to carry cash around or fumble around in their purse during transactions is eliminated. In a matter of seconds, payment can be completed, while your business enjoys real-time cash flow.
3. International Customer Reach
Digital payments open breaks down geographical barriers allowing you to reach customers who would otherwise not be able to physically purchase from you. Digital payment solutions also facilitate multi-currency transactions, allowing you to receive from various regions of the world while accessing funds in your local currency.
Adopt Innovative Digital Payment Solutions for Your Business
Your business and operations can benefit from forward-thinking payment solutions that delight your customers while giving you a competitive edge. At Redtech Limited, we are committed to helping various businesses, irrespective of size or industry address their digital payment needs. We currently service top organisations in banking, education, government, healthcare and retail.
Ready to begin your digital payment journey? Speak to us today. Visit redtechlimited.com/contact-us/.