Trends in Electronic (Digital) Payment Systems

ICT ATM cashIn high school economics, we were taught that money is a medium of exchange. Traditionally, money has been a physical substance, evolving from a barter system where items such as cattle and cowry shells were used as exchange items, to coins and notes. With the advent of the information revolution, however, we’ve seen a transition from coins and paper to plastic and other intangible forms that facilitate electronic payments.

An electronic payment is generally viewed as a payment process carried out electronically. It is regarded as a form of non-cash payment that doesn’t involve a paper check.

Singh Sumanjeet of the University of New Delhi, India provides a more comprehensive definition of e-payments. In his article titled “Emergence of Payment systems in the Age of Electronic Commerce” published in the Global Journal of International Business Research (2000), he defines e-payment as “any payment to businesses, bank or public services from citizens or businesses, which are executed through a telecommunications or electronic networks using modern technology.”

Many forms of electronic payment systems exist today. Among the prominent ones are online credit card payment systems, electronic banking institutions, digital cash, mobile payment, smartcard based electronic payment system (fuel card), and electronic billing.

Electronic Payments have several benefits over traditional forms of payments. Among them are convenience, flexibility, speed, security, reduced transaction costs, and a global reach. Its use has increased globally and continues to rise.

Some of the telecommunications companies have launched their own forms of electronic payments. For example, Zain, recently in March 2010 launched its Zap service in Ghana.

The service which has been available in East Africa for a couple of years enables Zain customers to have access to banking services through their Zap account. This enables them to pay bills and purchase goods and services without using cash.

MTN’s banking service allows customers to open and access accounts using their mobile handsets. The availability of such a service has enabled MTN’s numerous mobile phone subscribers, many of whom are under-banked or unbanked, to be involved in mobile banking This has given rise to a new trend-mobile airtime- on the continent.

Pioneered by MTN, the technique is based on using pre-paid phone airtime vouchers as virtual currency. This enables users to use a part of their phone’s airtime to exchange for goods and cash.

With mobile airtime, the movement of money over mobile devices has been made very easy; people in remote communities can receive money without any travel time; people can buy groceries with a few punches of keys without money changing hands.

Vodafone, another telecommunications giant has launched a similar service called M-Pesa, in Kenya. And, countries such as Zambia and the Democratic Republic of Congo Celpay service has gained some prominence on the continent.

A number of banking institutions continue to offer electronic bill payments. Specialized online bill pay services have emerged to take advantage of the electronic payment platform. Paytrust and Yahoo Bill Pay are two of such services.

Online banking institutions such as Paypal and Propay have been around to facilitate electronic payments. One needs to register a checking account with these institutions to be able to use their services.

In spite of the benefits of electronic payments, there are a number of challenges that need to be addressed. Privacy (i.e., disclosure of personal information), fraud, spoofing (or online impersonation), and identity theft are some of the issues that have emerged.

However, new computer security features such as Secure Socket Layer (SSL), Secure Electronic Transaction (SET), Firewalls, and various cryptographic and smart card security techniques have made it possible to protect electronic information.

Low level of credit card access (especially in most parts of Africa) has limited the full emergence of electronic payment systems. In spite of these limitations, countries such as Egypt, Tunisia, and South Africa have institutionalized measures to promote the use of electronic payments.

For example, Egypt and Tunisia have improved upon their telecommunications infrastructure, adopted legal and regulatory framework to promote electronic commerce, and have supported the banking sector to enable them promote e-payments.

The enactment of the Payment Systems Act (Act 552) in 2003 and the introduction of the e-zwich system in Ghana are healthy developments that have facilitated electronic payments.

The emergence of eTranzact Ghana Limited has facilitated e-payments in the country. Through a partnership with selected banking institutions, mobile and internet-based applications, the company provides services such as Mobile Topup; Mobile Banking, Bill Payment and Online Purchases.

Efforts should be made to address the key challenges to enable the widespread use of e-payment systems on the continent.

Public awareness on the use of electronic payments should be raised. With a predominant rural population, awareness about electronic means of payment will improve upon cash in-flow to these communities, a development that is likely to reduce rural-urban migration.

Also, attempts should be made to improve upon the technological infrastructure needed to support electronic payment systems. Measures to address the above challenges will revolutionalize electronic payment systems in Africa.

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