EFFECT OF THE CLOUD ACCOUNTING ON ECONOMIC DEVELOPMENT IN NIGERIA

E-PAYMENT SYSTEM (CLOUD ACCOUNTING) AND ECONOMIC DEVELOPMENT IN NIGERIA

The core aim of this research proposal is to investigate empirically the effect of the e-payment system (cloud accounting) on economic development in Nigeria.

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CHAPTER ONE

INTRODUCTION

Background of the study

Cloud accounting is the practice of using an accounting system that’s accessed through the internet. Some accounting systems sit on just one computer. These are called ‘desktop accounting systems’, Files that would normally be stored on a hard drive are stored online. Because the information is stored in such a way that it is always accessible, you can log into a service and perform accounting practices on any computer on the planet with an Internet connection. Cloud accounting is facilitated by electronic transactions, also known as E-payment and E-commerce. The advancement of information technology has facilitated innovation in electronic payment where goods and services are traded without the use of physical cash. The advent of information and communications technology (ICT), not only in Nigeria, but the world over has brought with it some level of simplicity in the way business transactions are being carried out. In advanced economies like Japan, China, Europe, and America, the system has been operationalized several years ago and the people are savoring the advantages there for the technical, economic as well as the overall socio-political development of their people.  A cashless payment reduces the usage of money as a medium of exchange for goods and services by allowing electronic transfer payments or non-electronic payment via cheques. Adopting a cashless payment has numerous advantages. Unlike traditional cash transactions, cashless payments discourage robbery and other cash-related crimes (Armey et al. 2014). When people opt for other alternative modes of payment, they tend to hold less physical cash when they shop. Thus, it reduces the incentive for robbers to commit cash-related crimes.

As for vendors, the ease of transaction through various payment modes will increase their revenue, improve operational efficiency and lower operating cost (Alliance 2003).

Electronic payment system (e-payment) is a way of making transactions or paying for goods and services through an electronic medium, without the use of cheques and cash. It’s also called an online payment system.  The electronic payment system has grown increasingly over the years due to the widespread of internet-based banking and shopping. As the world advances with more technological development, there is an increase in the use of payment processing devices. As these increase, improve and provide a more secure online payment transaction, the percentage of cheque and cash transactions will decrease.

The Nigerian payment system has been predominantly cash-based for both positive and negative reasons: positive because of its instant convertibility to other forms of value without the intermediation of any financial institution and negative because of its anonymity and un-traceability in unethical transactions.

Cloud accounting which is also an information system (IS) can be viewed essentially as a social system with some technological elements (Land, 1994; Soriyan, et al. 2001). This indicates a shift from an initial techno-centric focus to a more integrated technology, management, organization and social focus (Elliot and Avison, 2005). It also emphasizes the application of technologies and the interactions between people and organizations and the technology. These interactions, the processes or order needed and the governance structure based on the defined regulatory framework for the interactions may be significant in the application of technologies and economic activities (North, 1991). This study views these interactions, governance structure, and regulatory framework as institutional arrangements (North, 1991), and examines their contributions or limitations in the development of Electronic Payments System (EPS).

An Electronic Payment System (EPS) is a form of inter-organizational information system (IOS) for monetary exchange, linking many organizations and individual users. This may require complex interactions between the stakeholders, the technology and the environment. The unique characteristics of EPS/IOS also differentiate it from traditional internal based information systems; it is more complex and multifaceted technologically, organizationally and, relationally (Sprague and McNurlin, 1993; Boonstra and de Vries, 2005; Kumar and Crook, 1999), highlighting the importance of collaboration and the need to bring all the facets together. Therefore, this study examines the impact of electronic payment on the economic development of Nigeria.

Statement of the Problem

To complement the implementation of the electronic payment system, CBN introduced a cashless policy into the Nigerian financial system with the sole aim of achieving Vision 2020. According to CBN (2011), an effective and modern payment system is positively correlated with economic development and is a key enabler for economic growth, though this has not been supported by empirical evidence in the case of Nigeria.

However, the fact that the e-payment system is gaining prominence in Nigeria does not guarantee a successful transition to a cashless economy nor positive relationship found between the e-payment system and economic growth in developed countries and/or other developing countries preconditions its implementation in Nigeria. Meanwhile, the drive for a cashless economy as a preference for new generation should be supported with a sound education, age advantage, and possession of appropriate relevant technological infrastructures, among other factors, rightly put in place by all concerned members of the financial system and efficiently regulated before citizens are forced to comply.

Since the implementation of Cashless Lagos, there have been concerns from many Nigerians about the success of cashless policy in other parts of the country despite the prosperity it witnessed in Lagos (CBN, 2013). Several questions have been raised:

To what extent can an electronic payment system influence economic growth in Nigeria?

Can a country such as Nigeria where there is a prevalence of a large number of a low-income group characterized by a low level of literacy and a large volume of cash-based transactions, among others, transit to the cashless economy?

Can punitive measures embedded in the current cashless policy warrant its successful implementation in Nigeria? Yet, there is a dearth of empirical studies that provide quantitative evidence of the relationship between the e-payment system and economic growth in Nigeria and this is the main justification for the current transition to a cashless economy.

Hence, this study sought to provide empirical quantitative evidence of the relationship between the e-payment system and economic growth as a means of reviewing the transition to a cashless economy in Nigeria. Additionally, the introduction of e-payment in Nigeria was done initially to eliminate the unacceptable delay in the payment of government contractors by minimizing interaction between contractors and government officials who have a role to play in the payment system but was later extended to cover all payments from any government fund effective 1st January 2009. Concerns have been raised on the payment system implementation and concerns. Therefore, this study identifies the constraints in the payment system and proffer solutions to the same.

Reasons for Electronic Payment System

The electronic payment was introduced because the government was engulfed with allegations of corruption in the Federal Civil Service. The Federal Government through its treasury circular reference No TRY/A8 & B8/2008 of 22nd October 2008 directed that payments from all funds from it be made electronically as from 1st January 2009. The policy has been condemned by all and sundry for lack of planning, inefficiencies, and delay in the payment for goods and services, hence this article extends and contributes to the body of knowledge to assess the implementation and constraints of the system to proffer solutions to them.

Today’s globalization is the product of technological innovative efforts. Technological innovation has changed the horizon of payment systems, drifting towards e-World. Precisely, modern technology has changed the conventional payment system into a more efficient and effective system, devoid of ‘cash and carry’ syndrome. The ease of transacting economic substances as well as safer and quicker access to funds, among other factors, has placed the e-payment system on a more glorified pace than a cash-based system. Interestingly, in Nigeria, the e-payment system is gaining prominence to the extent that users have now preferred to carry out monetary exchange without visiting brick and mortar banks. Hence, the era of cash-based payment system is gradually fading as the need to operate cashless preponderates modern Nigerian economy.

In recent times, the e-payment system has become a medium through which monetary substance circulates conveniently, especially in developing economies like Nigeria where the carrying of cash around is habitual. In Nigeria, the e-payment system formed the fundamental starting point of her modern market economy; a well-functioning e-payment system has been recognized to have much relevance on financial stability, monetary policy and overall economic activity (CBN, 2011). Historically, the Central Bank of Nigeria (CBN) introduced a payment system that facilitated e-payment in 2002. During this period, Nigeria Automated Clearing System (NACS) was introduced as a veritable platform for the development of electronic payment and to reduce the clearing of cheques period.

Also, Automated Teller Machine (ATMs) was introduced by Interswitch in 2003 followed by the implementation of Real-Time Gross Settlement in 2006, migration to a new uniform accounting system (NUBAN) in 2010. Subsequently, in early 2011, Nigerian Inter-bank Settlement System announced instant payment services and the first set of cash deposit ATMs were launched (KPMG, 2012). Consequently, a transition to the cashless economy was proposed in December 2011 and first implemented at Lagos in January 2012. At the end of 2013, a cashless policy is envisaged to have been effectively implemented in Abuja, Port-Harcourt, Abia, Kano and Ogun State.

Several studies have been carried out on the e-payment system in Nigeria. Such studies revealed that the e-payment system is increasingly gaining users’ acceptance and there is a gradual increase in the percentage of non-cash transactions in the last few years, despite several challenges identified with the e-payment system or non-cash payment system (Nkwanko et al, 2013). Interestingly, approximately 80 billion naira of electronic transactions are currently being recorded daily(CBN, July 2013). Hence, a present transition to the Nigerian cashless economy by CBN has been reinforced by the perceived prosperity of electronic payment system – citizenry continuous use of ATMs, POS, ETF, Smart cards, e-cheques, etc. (Echekoba et al, 2011).

Aim and objective of the study

The core aim of this study is to investigate the empirically the effect of the cloud accounting on economic development in Nigeria. Specific objectives of their study are to

1. Investigate the effect of e-payment on gross domestic product in Nigeria
2. Analysis of the influence of e-payment on per capita income
3. Evaluate the effect of e-payment on human development index in Nigeria
4. Identify the effect of e –commence on a Gross domestic product in Nigeria
5. Ascertain the influence of e-commence on per capita income in Nigeria
6. Access the effect of e-commence on Human development index in Nigeria

Research Questions

In line with the aim and Objective of the study stated above, the research questions to address are

1. What is the effect of e-payment on Gross domestic product in Nigeria?
2. How does e-payment influence per capita income in Nigeria?
3. What is the effect of e-payment on the Human development index in Nigeria?
4. What is the effect of e-payment on the internally generated revenue of MDAs in Nigeria?

Hypotheses

Having stated the aims and objectives of the study, review questions, the following null hypotheses guided the study.

Ho1: E-payments do not exert any significant effect on gross domestic products in Nigeria.

Ho 2: E-payments have no significant influence on per Capita Income in Nigeria.

Ho3: E-payments do not exert any effect on the Human Development Index in Nigeria?

Ho4: E-payment does not have any significant effect on MDAs IGR in Nigeria.

Ho5: E-commerce does not exert any significant influence on per capita income in Nigeria.

Ho6: E-commerce has no significant effect on the Human Development Index in Nigeria.

Significant of the study

This study is significant to the following:

1. Management: Electronic payment allows your customers to make cashless payments for goods and services through cards, mobile phones or the internet. It presents several advantages, including cost and time savings, increased sales and reduced transaction costs for management of an organization
2. Policy Makers: It enables policymakers to make a timely decision since the report can easily be generated which aids decision making.
3. Government: More efficient government payment programs not only optimize government payouts, but they can also improve revenue-generating activities. More efficient electronic payment systems not only save the government money, but they can also potentially benefit taxpayers and all other users of electronic payment.
4. Academics: Frictionless digital payments can be beneficial for both schools and parents as they enable easy, timely payments and make record-keeping easier.

Scope of the Study

This scope of this study is restricted to;

1. The impact of the electronic payment system on the economic development of Nigeria with specific reference to Ministries, Departments, and Agencies in Nigeria.
2. To provide empirical quantitative evidence of the relationship between the e-payment system and economic growth as a means of reviewing transition to a cashless economy in Nigeria.

Significance of the Study

This study will contribute to knowledge in the following areas;

1. This study is particularly significant, not only in Nigeria but also in other emerging economies, some of which have exhibited characteristics that demonstrate the correlation between the technological and the economic development of a country.
2. Electronic payments are not only an alternative for reducing costs concerning other payment methods, such as cash and checks but can also generate significant benefits for increasing economic development.
3. This project will serve as a reference material for future/further researches in the area of E-payment and its impact on the economic development of Nigeria.

Definition of Terms

• M-Payment: Mobile payment (m-payment) is a Point-of-Sale (POS) transaction made or received with a mobile device.
• E-Commerce: E-commerce refers to commercial transactions conducted online.
• Internet Banking: This is a product that enables the Bank leverage on the Internet Banking System Module in-built on the new Banking Application and implemented by the Bank to serve the Internet Banking needs of the Bank’s customers.
• Mobile Banking: This is a product that offers Customers of a Bank to access services as you go. Customer can make their transactions anywhere such as account balance, transaction inquiries, stop checks, and other customer’s service instructions, Balance Inquiry, Account Verification, Bill Payment, Electronic fund transfer, updates and history, Customer service via mobile, Transfer between accounts, etc.
• Payment System: A financial system that establishes that means for transferring money between suppliers and of the fund, usually by exchanging debits or Credits between financial institutions.
• Point-of-Sale (POS) Machine: A Point-of-Sale machine is the payment device that allows credit/debit cardholders to make payments at sales/purchase outlets. It allowed customers to perform the following services Retail Payments, Cashless Payments, Cash Back Balance Inquiry, Airtime Vending, Loyalty Redemption, Printing mini statement, etc

Research Questions

1. The following research questions were stated to guide this study:
2. How effective is the implementation of the e-payment system in Nigeria?
3. What are the constraints bedeviling the implementation of the system in Nigeria?
4. What are the possible solutions to the identified constraint in the implementation of the system?

 Hypothesis 1

H0: The implementation of an electronic payment system does not effectively enhance the economic development of Nigeria.

H1: The implementation of an electronic payment system effectively enhances the economic development of Nigeria.

Hypothesis 2

H0: No constraints are bedeviling the implementation of the system in Nigeria.

H1: Constraints are bedeviling the implementation of the system in Nigeria.

Electronic payment systems apart from their convenience and safety also have a significant number of economic benefits, which include mobilizing savings and ensuring that most of the cash within the economy is deposited in the banks. This will help make funds available to the deficit economic units (DEUs), especially those who need business and individual loans. An electronic payment system has the capability of tracking individual spending, thus consumers can keep records of their average rate of consumption, and also be able to make spending forecasts (budgets). With such economic information systems like these, citizens and governments can make more efficient economic decisions.

On the side of the currency-issuing bank, the reliance on electronic payment would considerably reduce the cost of printing money or minting coins as the case may be. As expected, handling of cash would be less burdensome on both sides – the financial institutions and the consumers. Moody Analytics (2010) asserted that embracing electronic payment would increase the real global GDP by 0.2% per annum. As the transition to electronic payment systems takes place, the volume of cash held outside the financial institutions, which constitutes a potential source of unproductive economic resources, because they are not being used to invest, is integrated, thereby expanding the deposit base of the money system.

Okifo Joseph (2004) opined that “while the high level of cash transactions creates an opportunity for the e-payment industry, it also imposes a cost on local economics. Cash has to be minted, securely transported, counted and reconciled, kept secure and maintained for reuse time and time again”. Debit and credit cardholders who use their cards and also customers who pay with codes and e-wallets at the point of sales, actually contribute to the economy by –

• Helping to retain adequate cash in the banks
• Saving the apex bank from having to print excess cash
• Bringing hidden transactions to the notice of the financial institutions, thereby promoting financial transparency.

Several types of research have been conducted in developing nations, to determine if there is a correlation between the increase in the use of PoS terminals and increased money deposits in the banks, and the figures are positive. Automated payments provide financial institutions with a powerful engine for growth. They sweep money away from circulation, as consumers, vendors and service providers become almost mutually inundated with holding cash. The cash mopped up from the economy is in turn given out as loans for investment.

• Experts believe that e-payment will continue to stimulate increased consumption. These days, consumers and bank customers can monitor what they are spending, and handle their daily financial transactions without having to visit their local bank branch. It does not only save one from handling cash, but also saves time and costs of transportation to the bank itself. Between 2011 and 2015, e-payment added 296 billion (U.S.) dollars to the gross domestic product (the total income that was made in those nations within a particular period) of about 70 countries. That brought about the creation of approximately 2.6 million jobs in those countries sampled. Visa USA showed us that the largest increases in card usage experienced the biggest contributions to growth. For instance, developing economies and emerging markets can draw inference from the way these economies below grew between 2011 and 2015
• Percentage growth of GDP in economies that embraced e-payments from 2011 to 2015. Source – Moody’s Analytics.

Electronic Payment could improve spending habits

Consumption rate is faster on the average, in emerging economies, and they have more to gain by increasing e-payment usage to rapidly increase consumption growth even further. Consumption growth in the areas of services and products will mostly be catalyzed by the increased number of cardholders, mobile money applications, e-commerce sites, and payment gateways. Consumer behavior today reveals that individuals are more inclined to buy things faster or make payments and transfers faster if they have electronic means of doing so. Moody’s Analytics asserts that financial systems conducive to the growth in electronic payments include control over inflation and the money supply, a wide network of stable and readily accessible banks, insurance companies and pension funds managers, the existence of markets such as stock exchanges, and the availability of such financial infrastructure as ATMs. Increased card usage drives consumption rates and vice versa.

Benefits of e-payment to consumers and merchants from a micro and macroeconomic perspective.

There is more access to financial resources – with cash, spending may be limited, but with credit cards, consumers would be able to extend their credit, thus leading to more consumption. With more consumption, the decline of inventory to its minimum level is rapid, and derived demand (the type found in B2B scenarios) Producers get more requisitions to supply physical inventory. There is greater income on the side of the producers and consumers because jobs will be created, spending power will increase, greater revenue will be amassed at the merchant’s place. Cards and payment platforms will enable SMEs to sell themselves in a digital economy. Regional market GDP growth stemming from increased bank card usage.

Overview of the Nigerian Payment system.

The Nigerian payment system has been predominantly cash-based for both positive and negative reasons: positive because of its instant convertibility to other forms of value without the intermediation of any financial institution and negative because of its anonymity and its inability to be un-traced in unethical transactions. The electronic payment was introduced because the government was inundated with allegations of corruption in the Federal Civil Service (Asaolu et al, 2011). The Federal Government through its treasury circular reference to TRY/A8 and B8/2008 of 22nd October 2008 directed that payments from all funds from it be made electronically as from 1st January 2009. By so doing, they were one of the pioneer pushers of this great innovation. Cheques had been the sole alternative to cash in the Nigerian economy for many years. However, cheques are not accepted everywhere in Nigeria, because of a lack of trust from merchants towards their customers.

In the Nigerian context, e-payment is making payments from one end to another, through the medium of electronic devices such as PoS, ATM, mobile phones and computers. It usually involves digital, automated processes, and the only manual functions required are – the user inputting the transaction data. Transaction data include – bank card number (Permanent Account Number), PIN, savings or current account number, customer ID and what have you. In Nigeria, it is a type of transaction used to pay vendors and suppliers of services, for goods and services rendered through the use of a gateway, which is powered by electronic data services.

Types of e-payment channels in Nigeria

Thanks to the CBN’s cashless policy, which was mandated in the turn of this decade by the Federal Government, electronic payment has begun to grow in leaps and bounds. The multifarious e-payment systems we have in Nigeria today are a testament to a government which is consistent in digitizing the economy, towards reaching the financial standards of the 21st century. The common types of e-payment include –

• Web payments – This involves the integration of web-based payment gateways into the e-commerce platform of any given business enterprise. So, Application Programme Interfaces (APIs) are generated for the B2B user to integrate with an e-business platform. Did you know that Global Accelerex currently offers this solution to businesses across Nigeria and Sub-Saharan Africa?
• Point of Sales Terminals – Over the years, we have built a reputation for ourselves in this area. Making payments with this channel requires the use of a software programmed PoS device, which is internet enabled. It mostly deals with bankcard (credit and debit) transactions.
• Automated Teller Machines – Often commonly abbreviated as ATM, this channel also involves the use of bank cards. It is an electronic telecom device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, transfer funds, or obtaining information at any time and without the need for direct interaction with bank staff.
• Mobile Money –  This channel is a payment solution that enables you to pay for goods and services with mobile phones. It has been introduced to the Nigerian economy to promote the CBN’s cashless policy. Mobile Money turns a mobile phone into an electronic wallet (e-wallet). A user can store electronic money in his mobile phone for use in settling bills, making transfers and subscribing for services et cetera.

Latest Trends

Today, electronic payment has been extended to many services in the economy. The following can now implement electronic means towards serving their customers better and faster –

1. Retail Outlets – they could integrate PoS terminals with their electronic cash registers (ECR). Nevertheless, e-means of the transaction are quickly being adopted across Nigeria, due to the desire not to hold too much cash in the stores, and to minimize the time a customer spends at the point of sales.
2. Government – several services are now at the doorstep of government agencies and service providers. These include and are not limited to – collections of taxes, payment for utility bills, fines, duties, license renewals and a whole lot more.
3. Electronic commerce – the integration of payment gateways into websites, that are used for buying and selling, has become a standard these days. So, it saves the customer time, by not being at the physical shop. It also changes the perception of the business in the area of technological receptivity. Also, e-commerce platforms that have implemented online payment solutions have cemented their reputation as those who have gone beyond the brick and mortar business model.
4. Agent networks – today, thanks to PoScashback and Mobile Money services, agents have begun to realize that, there is a need to bridge the gap between the financially underserved and those who have active access to financial services. Therefore Mobile money and cashback services can be used to save money and hold less cash, pay for projects, make transfers at the bureaux-des-changes or the parallel currency exchange markets, subscribe for services, open accounts, make deposits and withdrawals.

What the future holds for e-payment in Nigeria

The impact of Generation Z (that is the generation born after the millennials – from 2001 to date) is going to be great because a whole lot of them are tilting towards doing cashless transactions. They are the generation born in the new millennium when the internet revolution had just reached Nigeria. They are going to need banks to digitize their monies and vendors and suppliers to accept digitized money – thus e-payment is going to cement its place in the Nigerian economy in the not-distant future. The level of customer experience demanded from service providers and vendors are rapidly rising to newer levels because of competition, improvement in tastes and preferences, and customers easily getting bored with monotonous methods of being served. Business outfits may have to dance to the tune of the next generation – they need to be able to encourage transaction convenience and e-payment product and service extensions which will bring about flexibility.

Digital wallets are going to be a norm – PoS terminals are going to get smaller and smaller to enable ease in mobility. Vendors and service providers are going to accept mobile payments and savings as the norm. Cards are likely to compete with codes – Payment devices are already being installed with capabilities such as barcode scanners and biometric scanners. With the introduction of EMV, each account will become the foundation for a code that changes with each transaction, for security purposes. Payments will thus become more virtual. Electronic payments added $296 billion in real (U.S.) dollars to GDP in the 70 countries studied between 2011 and 2015. That is equivalent to the creation of about 2.6 million jobs on average per year over the five years, or about 0.4% of total employment in the 70 countries. Countries with the largest increases in card usage experienced the biggest contributions to growth. For example, significant increases in GDP were recorded in Hungary (0.25%), the United Arab Emirates (0.23%), Chile (0.23%), Ireland (0.2%), Poland (0.19%) and Australia (0.19%). In most countries, card usage increased regardless of economic performance.

Only in the case of Finland, Greece and Tunisia did card usage decline when economic performance deteriorated or other macro events affected activity. As a result, consumption was weaker than it would have been had card penetration increased or remained unchanged. The actual definition of an electronic payment is simple: when you transfer money from one account to another electronically, i.e., without the need for paper checks or currency notes. Examples include making online bill payments; direct debits and credits in your bank account; tax refunds and another government disbursement into your bank account; and using credit and debit cards in online stores. Sounds straightforward enough, until you consider the many types of electronic payments and the concerns they raise. Get started with this look at how electronic payments have evolved, and how they might look in the future.

The First Electronic Payments

Some payment mechanisms have been around much longer than others. The earliest versions of modern-day credit cards existed even in the mid-20th century. The first forms of electronic payments were motivated by the need for efficient alternatives to paper-based payments, primarily for business-to-business transactions, but with e-commerce, electronic payments are the only practical option. Even as recently as the late ‘80s, several of the EFT (Electronic Fund Transfer) platforms were primarily used for B2B banking. Today, that’s changing, because a significant proportion of the globe’s population has access to at least one of the following: a credit card, online access to their bank account, a stored value online account, or the like.

Types of Electronic Payments Popular Today

If you have made a payment without handing over some form of paper – currency notes, checks, coupons – then you likely made an electronic payment. The most common types include:

Credit and Debit Cards: These are the most popular electronic payment tools. While a credit card gives you a convenient loan for purchases, a debit card withdraws money from your bank account. Given their popularity, no business owner can afford to reject credit cards as a form of payment.

RFID Cards: Some toll passes, such as E-ZPass, allow you to automatically pay as you drive past a tollbooth. These RFID (radio-frequency identification) cards “talk” to a receiving device at the tollbooth and make the payment. The greatest attraction of RFID cards is they process transactions without the need for physical contact – no swiping, no tapping. Especially in high-speed locations, such as a tollbooth, nothing can match the convenience of an RFID card.

Online Bank Payments: When you transfer money to someone else’s account or pay a utility bill from your account, you’re making an online bank payment. For many, bank accounts are the primary payment facilitators. Even if you use some other form of payment, you likely need to associate it with a bank account.

Electronic Checks: These did not get as popular as some predicted. Electronic checks are just the online version of paper checks. They require a digital signature and are governed by the same regulations that govern paper checks. Its similarity to a paper check makes an electronic check attractive, but people expect electronic payments to be much faster. Electronic checks aren’t much faster, and that prevents them from becoming too popular.

Online Stored Value Accounts: Stored value accounts such as PayPal have become quite popular because of the convenience—you can receive payment based solely on an email address. Of course, if you want to add or withdraw money from your account, you need to link it to a credit card or bank account.

Digital Wallets: A digital wallet is a device, or application on a device such as a mobile phone, that either store’s money or can withdraw money from a credit card or bank account. They enable customers to store information for multiple cards, making it more convenient to pay when shopping online or on a mobile device, because you don’t have to enter card information for every purchase. Examples include Apple Pay, Google Wallet, and Soft card. Versatility makes digital wallets a major electronic payment innovation.

Smartcards: Smartcards are the new generation of plastic. Instead of a magnetic strip, your information is stored in a microchip, which enables greater functionality. In many cases, credit card issuers have upgraded the plastic of all cardholders. This has caused smartcards to become a common payment method overnight. Widespread usage, coupled with a much higher degree of security, has motivated businesses to upgrade their swipe machines to accept smartcards too.

Associated Challenges with E-payment

Security: The upside of electronic payments is that they are more efficient than manual methods. The downside is that if left unchecked, they can also lead to efficient payment frauds! If all you need to authenticate a transaction is a device or credit card numbers, then someone might very well be able to withdraw money from your account.

Privacy: To transact, electronic payment mechanisms store your information. Users fear that this information could be misused.

Connectivity: To authenticate and complete an electronic transaction, you need an Internet connection. Places with poor connectivity can’t easily adopt electronic payment systems.

Inclusion: Underlying most electronic payment mechanisms is a bank account. For the part of the population not eligible for a bank account, this is a deterrent.

The Future of Electronic Payments: What to Expect in 2019 and Beyond

Stronger Security: Today we can configure a foolproof authentication system. But the problem with very high levels of security is that they make transactions cumbersome. For instance, you could take a thumbprint scan every time you use your digital wallet. But in addition to delaying each transaction, this process would require a fingerprint scanner. Every year, we are making greater strides in security. Encryption technologies, including SSL (Secure Sockets Layer), are now commonplace. Several online payment options require multifactor authentication too.

Smarter Credit Cards: How smart can a credit card be? A smartcard could easily enable parents to block mobile app purchases by their kids while permitting other purchases. Until then, present-day technology permits all your credit cards to be loaded on to one smartcard, doing away with the need to carry a wallet full of plastic.

Biometric Payments: What if at a checkout counter, all you had to do was press your thumb to a scanner, and the money would automatically be taken from your credit card or bank account? It’s technologically possible today, and many researchers support biometric authentication. But the necessary backend infrastructure is not in place to make this option widely available—yet.

Mobile Payments: While mobile phone-based payments rely on a credit card or bank account, they may do away with the need to carry that piece of plastic. Using the NFC (Near Field Communication) technology in your mobile device, you can get authenticated, and money can be withdrawn from your account.