Digital Payments: A Starting Point
When we talk about digital payments, we are somehow talking about digital transformation because we are referring to the habit surrounding an activity that used to be performed manually (handling physical money), to move on to another one that is performed digitally in pursuit of efficiency and transparency, both for buyers and sellers.
In this article, we will go over the different types of digital payments, taking into account how each one of them plays a role in its context.
First Things First: What Is a Digital Payment?
Digital payment is the process of generating a monetary transaction between two parties without resorting to cash. In order to make this possible, some technical and legal conditions must be fulfilled so that operations are valid, secure and immediate. Although there are deferred digital payments, nowadays the fact that a payment is not instant puts us at a disadvantage; thus, I won’t delve into that payment method.
Types of Digital Payments
Online Payments Through Traditional Means of Payment
Debit, credit and prepaid cards are what we call “traditional means of digital payment” and they’ve come a long way simplifying transactions through a payment gateway. As a good practice, entering cards in a digital wallet payment gateway simplifies their later use so we don’t have to look for the card and enter the data for each transaction.
Digital Wallets
Digital wallets represent a virtual purse that we have in a mobile application. They enable money transfers in an immediate way. For quite some time, due to a regulation of the Central Bank of Argentina, operations between wallets from different providers are allowed in our country as well as the integration with traditional banks based on the CVU (single code for digital accounts) use. MercadoPago, NaranjaX, Ualá and TodoPago are all examples of digital wallets. Despite their distinctive features, each one of them targets the unbanked audience.
QR Code Payments
It is a mechanism that tackles the monetary transaction agility when the operation is performed in person. The QR code offered by the seller is scanned and thus, the buyer gets all the necessary data to send the money. This mechanism is usually included in digital wallets.
In Argentina, the next step for this kind of digital payment is to comply with the Central Bank’s new regulations so that QR codes are interoperable between different wallets in pursuit of payment democratization.
Contactless
Using NFC technology, there’s an exchange of information between the seller and the buyer. That handshake tends to take less than one second and it can be performed between two mobile devices or a mobile device and a digital totem or POS machine.
At Flux IT, we are working on a solution to avoid the seller’s need to acquire an mPOS or a POS machine, so that they can operate directly with the cell phone.
Both Visa and MasterCard have SDKs to adopt the necessary PCI requirements more easily.
Payment Link and Button
Payment links and buttons are mechanisms that allow us to integrate a website or app into a payment gateway in order to offer a simple digital payment service. A code snippet is downloaded and parameterized with the information of the product to be sold and the seller’s authentication information. When the buyers access this link or button, they are redirected to the payment gateway and, in the end, they return to the seller’s website or application.
These solutions allow small traders to sell their products digitally, using the payment gateway as a service.
Don’t Forget About Digital Onboarding
The payment process must be agile, but this agility can’t only be achieved during the transaction. If the process has frictions, when we incorporate a new user to the payment solution we’ll be at a disadvantage once again.
In any digital payment solution, the onboarding must be simple and have a significant success rate. Many wallets have failed in this regard (mainly in their early phase), and, as a result, all the subsequent functionality was compromised. As I’ve mentioned in a previous article, the balance between security and agility is important, both to keep the two parties (sellers and clients) satisfied regarding their money’s integrity and to ensure the process is quick.
What About the Two-Factor Authentication (2FA)?
As regards security, it’s key to challenge operations with a second authentication factor. However, as with digital onboarding, if there are constant validations, they will end up causing users exhaustion and discomfort. That is why it’s important to equip these solutions with a risk analysis engine so that, through variables such as amounts, geolocation, product or sellers’ frequency, we can decide how risky the operation is and what type of 2FA we should use. Ideally, the 2FA should be unexpected and be applied only when there’s a riskier operation than usual.
Nowadays (and even more in times of COVID-19), those companies that have embarked on a digital transformation process are the ones that are making a difference. As I see it, an effective digital payment solution requires 3 efficient implementations: a digital onboarding, a money transfer mechanism and additional security through a 2FA.
When it comes to migrating our current processes to digital payments, we have to understand that, at present, the cost of doing so has been reduced as much as possible, both if we adopt a product to solve the issue or if we implement an ad-hoc solution. No matter how we do it, this change must be introduced as soon as possible.
More than ever, users are demanding to operate digitally, and the access to that world should be simple, efficient, and secure. Digital transformation is filling the market with alternatives and it is key to prioritize and analyze what our goal is before defining our solution’s architecture.
