CHAPTER 8

DIGITAL FINANCIAL TOOLS AND

APPLICATIONS
INTRODUCTION
WHAT IS DIGITAL FINANCIAL TOOLS :-

Digital Financial Services (DFS) include a broad range of financial services accessed
and delivered through digital channels, including payments, credit, savings,
remittances and insurance.
-- Digital channels refers to the internet, mobile phones, ATMs, POS
terminals etc.
– DFS concept includes mobile financial services (MFS).

….. MFS is the use of a mobile phone to access financial services and execute
financial transactions.
….. Includes both transactional services and non-transactional services
.…. MFS include M-Banking, M-payments, M-money.

…M-Money is a mobile based service facilitating electronic transfers and other

transactional and non transactional services using mobile networks
 6 objectives of digital banking

 Develop consumer-centered business models, including a digital experience that

differentiates them from the competition and that addresses new purchasing
behaviors. According to a PWC study, 30% of financial entities believe that improving
the user experience is the most important element of their digital strategy.
 Optimize distribution. The user’s experience needs to be increasingly multi-channel,
especially when it comes to online, mobile, and social media.
 Simplify processes and transactions. Rather than simply moving off-line processes
on-line, they need to be re-thought from a 100% digital perspective.
 Obtain relevant information. Gaining the capability and the tools required to obtain
relevant information from Big Data will be a clear competitive advantage.
 Innovate proactively. This may be one of the most profound changes to company
culture in this industry: a transition to proactive innovation that seeks and favors
change.
 Invest in security for verifying user identity and for making data and transactions
secure.
DIGITAL FINACIAL TOOLS:-

Digital Financial Services (DFS) is a relatively new, low-cost means of digital access to
transactional financial services. Often termed 'mobile money' or 'mobile financial
services,' DFS is one of the core solutions used in developing countries to catalyze
financial inclusion and provide much-needed low-cost access to financial services.
Aimed at those at the Bottom of the Pyramid (BOP) in developing countries, it shifts
provision of financial services it uses digital access devices such as mobile phones
and digital value transfer channels. It also features the emergence of agent networks
for cash-handling and DFS account signups. DFS can be offered banks and non-banks-
known as Digital Financial Service Providers (DFSPs)-who may be licensed or
authorized by a range of regulators to provide these services, either on their own or
in mandated partnerships. Core DFS regulators include the central bank, the financial
intelligence unit and the national telecommunications authority. 'Enabling and
proportional' regulatory regimes allow DFSPs to collect customer funds through
agents operating on their behalf, convert those funds into electronic money (e-
money) to be stored in customer stored value accounts (SVAs) that are used for
primarily transactional purposes. 
UNDERSTANDING OTP AND OR CODE :-
A one-time password (OTP) is an automatically generated numeric or
alphanumeric string of characters that authenticates the user for a single
transaction or login session.

An OTP is more secure than a static password, especially a user-created

password, which can be weak and/or reused across multiple accounts. OTPs
may replace authentication login information or may be used in addition to it in
order to add another layer of security.
One-time password examples:-
OTP security tokens are microprocessor-based smart cards or pocket-
size key fobs that produce a numeric or alphanumeric code to
authenticate access to the system or transaction. This secret code
changes every 30 or 60 seconds, depending on how the token is
configured. Mobile device apps, such as Google Authenticator, rely on
the token device and PIN to generate the one-time password for two-
step verification. 
WHAT IS QR CODE?

A QR Code is a two-dimensional barcode that is readable by smartphones. It

allows to encode over 4000 characters in a two dimensional barcode. QR Codes
may be used to display text to the user, to open a URL, save a contact to the
address book or to compose text messages. "QR Code" is a registered
trademark of DENSO WAVE INCORPORATED.
To read QR Codes with your smartphone, you need an appropriate software
installed on your phone. For Android-based devices, you can use Barcode
Scanner by ZXing. On iOS-Devices like iPhones there are also QR Code readers
available on the AppStore, for Example i-nigma. On Firefox OS try QR Code
Scanner. On Symbian devices, you can use Mobiletag barcodes reader for
example.
 WHAT IS UPI (UNIFIED PAYMENT INTERFACE )

The Unified Payment Interface (UPI) can be thought of like an email ID for your
money. It will be an unique identifier that your bank uses to transfer money
and make payments using the IMPS (Immediate Payments Service). IMPS is
faster than NEFT and lets you transfer money immediately and unlike NEFT, it
works 24×7. This means that the online payments will become much easier
without requiring a digital wallet or credit or debit card.

How Does UPI Work?

Currently, if you want to make a bank payment online, you have to

enter their account number, account type, Bank name and IFSC code.
Even if you have all these details, typing it all in, particularly on a
phone, is a painful process. Most banks take upto 12 hours to add a
new payee and only then you can make the transfer.
WHAT IS AEPS( AADHAAR ENABLED PAYMENT
SYSTEM):-

Aadhaar Enabled Payment System (AEPS) was launched to empower a

bank customer to use Aadhaar as his/her identity to access their Aadhaar
enabled bank account. Using AEPS the bank account holder can perform
basic banking transactions like cash deposit, cash withdrawal, Intrabank or
interbank fund transfer, balance enquiry and obtain a mini statement, etc.
powered by Rubicon Project You need to seed your account with your
Aadhaar number at the bank or with the help of banking correspondent to
do transactions using AEPS. AEPS allows bank-to-bank transaction at PoS
(MicroATM).
WHAT IS USSD (UNSTRUCTURED SUPPLEMENTARY SERVICE
DATA) :-

USSD (Unstructured Supplementary Service Data) is a Global

System for Mobile(GSM) communication technology that is used to
send text between a mobile phone and an application program in
the network. Applications may include prepaid roaming or mobile
chatting.

USSD is similar to Short Messaging Service (SMS), but,unlike SMS,

USSD transactions occur during the session only. With SMS,
message scan be sent to a mobile phone and stored for several
days if the phone is not activated or within range.
The Wireless Application Protocol (WAP) supports USSD. USSD is
defined in the GSM standard documents GSM 02.90 and GSM
03.90.
WHAT IS CARD ( CREDIT / DEBIT) :-

 an instrument or machine for carding fibers that consists usually of

bent wire teeth set closely in rows in a thick piece of leather fastened to
a back.
  an implement for raising a nap on cloth.

WHAT IS CREDIT CARD:-

A credit card allows you to borrow money from a bank to make purchases, whether
you’re buying a burger or a round-trip ticket to France. As long as you pay back the
money you borrow within the “grace period” of 25-30 days, you don’t have to pay
extra. If you don’t pay it back in that time period, you’ll have to pay interest — a
percentage of the money you owe the bank — on top of what you borrowed.
WHAT IS DEBIT CARD :-

A debit card is a plastic payment card that can be used

instead of cash when making purchases. It is similar to a
credit card, but unlike a credit card, the money is
immediately transferred directly from the cardholder's
bank account when performing any transaction.

Debit cards work with mobile payment platforms like

Apple Pay, as well as with many money transfer
apps such as Venmo and Square Cash.
WHAT IS e- WALLET :-

E-wallet is a type of electronic card which is used for transactions made online
through a computer or a smartphone. Its utility is same as a credit or debit card. An
E-wallet needs to be linked with the individual’s bank account to make payments.

Descriptions:

E-wallet is a type of pre-paid account in which a user can store his/her money for any
future online transaction. An E-wallet is protected with a password. With the help of
an E-wallet, one can make payments for groceries, online purchases, and flight
tickets, among others.

E-wallet has mainly two components, software and information. The software
component stores personal information and provides security and encryption of the
data.
 WHAT IS POS ( POINT OF SALE):-

Point of sale (POS), a critical piece of a point of purchase , refers to the

place where a customer executes the payment for goods or services
and where sales taxes may become payable. It can be in a physical
store, where POS terminals  and systems are used to process card
payments or a virtual sales point such as a computer or mobile
electronic device.

Understanding POS:-
Points of sale (POSs) are an important focus for marketers because
consumers tend to make purchasing decisions on high-margin products
or services at these strategic locations. Traditionally, businesses set up
POSs near store exits to increase the rate of impulse purchases as
customers leave.
WHAT IS INTERNET BANKING :-
Internet banking is the system that provides the facility to the customer to
conduct the financial and non-financial transactions from his net banking
account. The user can transfer funds from his account to other accounts of the
same bank/different bank using a website or an online application. The
customer uses a resource and a medium to conduct financial transactions. The
resource that a customer uses might be an electronic device like a computer, a
laptop, or a mobile phone. The internet is the medium that makes the
technology possible.
The facility of internet banking is provided through banks and the customer
must be an account holder with any bank to get the facility available for
him/her.

Features of Internet Banking:-

The customer can view account statements.

The customer can check the history of the transactions for a given period by
the concerned bank.
Bank, statements, various types of forms, applications can be downloaded.
 WHAT IS NEFT ( NATIONAL ELECTRONIC FUND
TRANSFER) :-

National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating

one-to-one funds transfer. Under this Scheme, individuals can electronically transfer
funds from any bank branch to any individual having an account with any other bank
branch in the country participating in the Scheme.

Use NEFT service to transfer funds anywhere using the following modes:
Internet Banking
iMobile
m.dot
Pockets
icicibankpay
WHAT IS RTGS ( REAL TIME GROSS
SETTLEMENT) :-

Real Time Gross Settlement (RTGS) is an electronic form of funds

transfer where the transmission takes place on a real time basis.
In India, transfer of funds with RTGS is done for high value transactions,
the minimum amount being Rs 2 lakh. The beneficiary account receives
the funds transferred, on a real time basis. The main difference between
RTGS and National Electronic Funds Transfer (NEFT) is that while transfer
via NEFT takes place in batches (with settlements and transactions being
netted off), in the case of RTGS, the transactions are executed individually
and on gross basis.
WHAT IS IMMEDIATE PAYMENT SERVICE ( IMPS) :-

IMPS stands for Immediate Payment Service in Indian banking system terminologies.
It is a money transfer mechanism made available by the apex bank of the country, the
Reserve Bank of India and the National Payments Corporation of India (NPCI).
Initiated in 2010 by the NPCI with the help of a pilot project with 4 major banks, IMPS
has now grown to 150+ banks.
The major feature of IMPS is that it is available at all times for usage. It transfers
funds instantly and is a great banking platform in case of emergencies. The
transaction charges of this platform are also very nominal and the transfer limit is also
considerable, approximately Rupees 2 lakhs per day. Moreover, IMPS is available on
mobile too which makes it super-convenient.
ONLINE BILL PAYMENT :-
Online bill payment is a secure electronic service that allows customers to pay bills
without having to write checks and mail them. Online bill payment usually is tied to a
checking account from which funds are withdrawn electronically for payment of one-
time or recurring bills. Online bill payment is offered by many banks and bill-pay
services.

Online bill pay remits payments almost immediately, so no need to worry about
whether payments arrived on time.
Online bill pay is environmentally friendly, eliminating paper waste. Often, banks and
bill-pay services give customers the opportunity to opt out of paper mailings.
Many banks offer online bill payment free of charge to their customers. External bill-
pay services may charge a small monthly fee or a fee per transaction.
Many banks that have comprehensive online banking services allow customers to
schedule automatic payments and work with platforms with which they are already
familiar.