The medium of the transaction of the physical form of currency has been evolving for the past few decades. Today, instead of paying in cash for products and services, consumers prefer credit or debit card or e-wallet. Carrying cash comes with a lot of risks – you might lose it or get it stolen or damaged.
Counterfeiting of currencies is also a big challenge, especially in developing countries. The counterfeiting syndicates have become so sophisticated that they can dupe even financial experts who sometimes fail to differentiate between a fake and a genuine currency.
The technology answered to these challenges a couple of decades ago and conceived plastic money (credit card and debit card) as an alternative to cash transactions. The use of plastic money had an obvious advantage over physical currencies and so it substantially replaced the cash transactions in a lot of countries.
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There is no denying the fact that the use of plastic money is still increasing in a lot of developing countries with more population joining the formal banking system, however, at the same time, innovators felt the need for a simpler means of payment.
With the innovation in communication technology, which has revolutionised the financial sector, mobile money has come as an answer to credit or debit cards. It seems that the technological enhancement is all set to declare the plastic money as an obsolete mode of payment and it is on its way out for a more convenient and simpler medium of payment, ie, mobile money.
Though the use and existence of mobile wallet existed in various forms before the beginning of Mobipay in about 2005 in Spain for pay-as-you-go service, its popularity went up after 2010 and 2011 when Google Wallet in the US and O2 Wallet in the United Kingdom made it easy for people to carry all their cash in mobile phones.
In many countries, a lot of consumers have – instead of moving from cash money to plastic money – leapfrogged into mobile wallet payment straightway from cash transactions. Both credit or debit card and mobile wallet use the same technology for money transactions, however, mobile wallet gives more freedom and options to a consumer than plastic money.
Easy to use and access
Paying money through mobile is as easy as making a call to a friend. Financial institutions and private entrepreneurs have developed a variety of mobile applications which one can download on the mobile phone and use it like a wallet.
You can transfer money from one account to another account sitting at home anytime you want. It only needs a four-digit password and the account details of the recipient. Once you feed these details in the application, you don’t need to do it again. The application keeps these details in its record forever.
The plastic money does not offer this sort of ease. First of all, one has to carry the card in the wallet like the physical currency. You can’t transfer money from your one account to other account or anyone’s account in any way by using a credit or debit card sitting at home. You will have to use Internet banking which is another form of e-transaction.
Consumers can face similar complications while buying the product either through brick and mortar store or online. If the user has to pay at any store or shop, he needs to swipe the credit or debit card with the point-of-sale machine to transfer money from his account to the account of the seller followed by a four—digit password.
Similarly, if the card user wants to use it online to buy a product, he has to fill the card details every time on the website. It is followed by either a regular password or one-time password that the card user can get it generated on his mobile. Normally people prefer one-time-password because regular passwords have to be a strong combination of numbers and letters (alpha-numeric) for security reasons. Often people complain of forgetting these alphanumeric passwords and so the majority of them prefer one-time-password generation. As far as an e-wallet, the only thing a user has to keep in mind is a four-digit password to make payments.
Plastic money vulnerable to cloning
Cloning or skimming of credit or debit card is one of the various types of card fraud making its use vulnerable. While swiping through the point-of-sale machine, it is possible to get the card details and copy it on another card to create its duplicate. An imposter can use this duplicate card like the original one.
That’s the reason card users are often advised not to swipe his card in an unsecured or unknown store but it is easier said than done. Any PoS can clone a card and if a person is travelling and using his card multiple times in a day, it’s difficult to cross-verify which PoS is secured. In many countries, the use of credit or debit card at the PoS does not require any password and in such situation, if the card gets lost, it’s prone to misuse.
Numerous instances of card cloning, misuse and data theft across the globe have cost users a huge financial loss. According to creditcards.com, the cases of credit card data breaches were only 1,540 worldwide in 2014; however, the cause for concern was that it was 46% more than the previous year. 76% of breaches took place in North America alone.
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Out of total use of cards, the percentage of fraud is about 0.1% but in many cases, the volume of transactions is quite big. Though credit card companies and debit card issuing financial institutions have taken strong security measures in the interest of the customers yet cases of card fraud does not seem to have come down considerably. Mobile money is considerably safer as its cloning or skimming is not possible. The only unauthorized misuse of the mobile wallet is through net hacking which is highly specialized and sophisticated job.
E-wallet takes care of small payments
In developing countries, e-wallet is useful to consumers for day-to-day activities where the very small amount of money needs to be sent. For instance, one can pay for a cup of tea or small quantity of groceries, vegetables and even a water bottle through his wallet.
He or she needs to scan a bar code from his mobile and use a password to complete the transactions. Plastic money cannot ensure this facility because of lack of infrastructure. A tea-seller cannot afford to have the Wi-Fi connection and a PoS machine on the roadside to get his clients pay through credit or debit cards. Sometimes, card payments turn expensive for small purchases because of certain taxes.
While mobile money can leverage the advantages of credit or debit cards but it’s vice versa is not possible. For instance, one can connect his mobile application with a credit card, debit card or saving account and directly pay for the services or product using the mobile application, however, a credit card can’t leverage the features of mobile wallets.
With increasing mobile connectivity and development of affordable smartphones, the popularity and use of e-wallet are spreading from urban cities to rural areas. Both consumer and merchant find mobile wallet more convenient and safer than any other existing medium of payment. This technological innovation can help fulfill governments’ ambitions to achieve cashless economy in their countries.