Digital Payment: Types, Ponzi Schemes, Online Frauds

  • Post last modified:23/11/2021
  • Reading time:17 mins read

What is Digital Payment?

Digital payment is a way of payment that is made through digital modes. In digital payments, payer and payee both use digital modes to send and receive money. It is also called electronic payment. No hard cash is involved in digital payments. All the transactions in digital payments are completed online. It is an instant and convenient way to make payments.

What Is a Digital Wallet?

A digital wallet is a software component that allows a user to make an electronic payment with a financial instrument and hides the low-level details of executing the payment protocol that is used to make the payment.

A digital wallet allows a user to make an electronic payment with a financial instrument (such as a credit card or digital cash) and hides the low-level details of executing the payment protocol that is used to make the payment.

It authenticates the consumer through the use of digital certificates or other encryption methods, stores and transfers value, and secure the payment process from the consumer to the merchant. It can hold other than payments like Bank account details, Credit cards, Gift coupons and reward certificates, Loyalty cards Offers.


Types of Digital Payments

These are the most innovative types of digital payment methods:

  1. Payment Cards
  2. Gift Card
  3. Store Card
  4. Unstructured Supplementary Service Data (USSD)
  5. Aadhaar Enabled Payment Service (AEPS)
  6. Unified Payments Interface (UPI)
  7. Digital Wallets
  8. Point of Sale Machines
  9. Mobile Banking
  10. Net Banking

Payment Cards

The most common types of payment cards are credit cards and debit cards. Payment cards are usually embossed plastic cards, 85.60 × 53.98 mm in size, which comply with the ISO/IEC 7810 ID-1 standard. They usually also have an embossed card number conforming with the ISO/IEC 7812 numbering standard. Most commonly, a payment card is electronically linked to an account or accounts belonging to the cardholder.

These accounts may be deposit accounts or loan or credit accounts, and the card is a means of authenticating the cardholder. The information required for using payment cards is Card Verification Value (CVV Number) and Expiry date of the payment card. CVV number is a combination of features used in credit and debit cards for the purpose of establishing the owner’s identity and minimizing the risk of fraud. Payment cards require 2-factor authentications.

Generally, types of payment cards can be distinguished on the basis of their features. They are:

  1. Credit Card
  2. Debit Card
  3. Smart Card
  4. Charge Card
  5. Fleet Card

Credit Card

The first universal credit card, which could be used at a variety of establishments, was introduced by the Diners’ Club, Inc., in 1950. Another major card of this type, known as a travel and entertainment card, was established by the American Express Company in 1958. Central Bank of India was the first public bank to introduce Credit cards.

The issuer of a credit card creates a line of credit (usually called a credit limit) for the cardholder on which the cardholder can borrow. The cardholder can choose either to repay the full outstanding balance by the payment due date or to repay a smaller amount, not less than the “minimum amount”, by that date.

Debit Card

The debit card was introduced by Citi Bank. With a debit card, when a cardholder makes a purchase, funds are withdrawn directly from the cardholder’s bank account.

Smart Card

Banks are adding chips to their current magnetic stripe cards to enhance security and offer a new service, called Smart Cards. Smart Cards allow thousands of times of information storable on magnetic stripe cards. In addition, these cards are highly secure, more reliable and perform multiple functions.

They hold a large amount of personal information, from medical and health history to personal banking and personal preferences.

Charge Card

With charge cards, the cardholder is required to pay the full balance shown on the statement, which is usually issued monthly, by the payment due date. It is a form of short-term loan to cover the cardholder’s purchases.

Fleet Card

A fleet card is used as a payment card, most commonly for gasoline, diesel and other fuels at gas stations.

Gift Card

A gift card also known as a gift voucher or gift token is a prepaid stored-value money card usually issued by a retailer or bank to be used as an alternative to cash for purchases within a particular store or related businesses

Store Card

It is a credit card that is given out by a store and that can be used to buy goods at that store.

Unstructured Supplementary Service Data (USSD)

USSD is sometimes referred to as “Quick Codes” or “Feature codes”, is a protocol used by GSM cellular telephones to communicate with the service provider’s computers. A typical USSD message starts with an asterisk (*) followed by digits that comprise commands or data. Groups of digits may be separated by additional asterisks.

The message is terminated with a number sign (#). The innovative payment service *99# works on the Unstructured Supplementary Service Data (USSD) channel. This service allows mobile banking transactions using the basic feature of mobile phones, there is no need to have a mobile internet data facility for using USSD based mobile banking.

USSD is generally associated with real-time or instant messaging services. USSD is sometimes used in conjunction with SMS. The user sends a request to the network via USSD, and the network replies with an acknowledgement of receipt: “Thank you, your message is being processed.

A message will be sent to your phone.” The Information required for the USSD transaction is MPIN/ IFSC/Aadhar number/Account number. Mobile Banking Personal Identification Number (MPIN) works like a password when we perform any transaction using Mobile.

Aadhaar Enabled Payment Service (AEPS)

The AEPS system leverages Aadhaar online authentication and enables Aadhaar Enabled Bank Accounts (AEBA) to be operated in anytime-anywhere banking mode through Micro ATMs. This system is controlled by the National Payments Corporation of India (NPCI).

Aadhaar Enabled Payment System is a way to get money from the bank account. This system of getting money neither requires your signature nor a Debit card. It is also not needed to visit a bank branch for getting money through the Aadhaar Enabled Payment System. For AEPS transactions the following information is needed.

  1. Aadhaar Number
  2. Bank Issuer Identification Number (IIN) or Name
  3. Finger Print

Unified Payments Interface (UPI)

Unified Payment Interface (UPI) is a new payment interface introduced by the National Payments Corporation of India (NPCI) under the supervision of the Government of India to promote a cashless society and mobile banking. Unified Payments Interface (UPI) is a system that powers multiple bank accounts to use several banking services like fund transfer, and merchant payments in a single mobile application.

Sending and receiving money through the UPI payment app is like sending and receiving a text message on your Smartphone. A user need not have multiple banking apps installed on his/her Smartphone. A user can simply add all the bank accounts in a single UPI payment app without the hassle of remembering or even typing banking user ID/Passwords.

Each Bank provides its own UPI App for Android, Windows and iOS mobile platform(s). The information required for UPI based transactions is the Virtual Payment Address (VPA) of the recipient and Mobile banking Personal Identification Number (MPIN). By sharing VPA, funds can be transferred and money can be collected.

Digital Wallets

A Digital wallet is a way to carry cash in digital format. Credit card or debit card information should be linked to digital wallet applications or money can be transferred online to a mobile wallet. Instead of using a physical plastic card to make purchases, it can be paid through a smartphone, tablet, or smartwatch.

The Services offered by Digital Wallets are Balance Enquiry, Passbook/ Transaction history, Add money, Accept Money, Pay money etc. Digital wallets are composed of both digital wallet devices and digital wallet systems.

A mobile wallet is simply the digital wallet on the mobile handset. Presently there are further explorations for smartphones with digital wallet capabilities, such as the Samsung Galaxy series and the Google Nexus smartphones utilizing Google’s Android operating system and the Apple Inc.iPhone 6 and iPhone 6 Plus.

Most banks have their e-wallets and some private companies. e.g. Paytm, Freecharge, Mobikwik, Oxigen, mRuppee, Airtel Money, Jio Money, SBI Buddy, itz Cash, Citrus Pay, Vodafone M-Pesa, Axis Bank Lime, ICICI Pockets, SpeedPay etc.

Point of Sale Machines

Point of Sale Machine made it faster and easier for cashiers to ring up sales and keep tabs on transactions. In the 1970s, innovation helped traditional cash registers evolve into computerized point of sale systems. It was also during these years that devices such as credit card terminals and touch screen displays were introduced.

The point of sale (POS) or point of purchase (POP) is the time and place where a retail transaction is completed. It is the point at which a customer makes a payment to the merchant in exchange for goods or after the provision of a service. After receiving payment, the merchant may issue a receipt for the transaction, which is usually printed but is increasingly being dispensed with or sent electronically.

A retail point of sale system typically includes a cash register (which in recent times comprises a computer, monitor, cash drawer, receipt printer, customer display and a barcode scanner) and the majority of retail POS systems also include a debit/credit card reader.

Mobile Banking

Mobile banking is a service provided by a bank or other financial institution that allows its customers to conduct different types of financial transactions remotely using a mobile device such as a mobile phone or tablet. It uses software, usually called an app, provided by the banks or financial institution for the purpose. Each Bank provides its own mobile banking App for Android, Windows and iOS mobile platform(s).

The earliest mobile banking services used SMS, a service known as SMS banking. With the introduction of smart phones with Wireless Application Protocol (WAP) support enabling the use of the mobile web in 1999, the first European banks started to offer mobile banking on this platform to their customers. Mobile banking is known as M-banking or SMS Banking.

Net Banking

Internet banking, also known as online banking or e-banking or Net Banking is a facility offered by banks and financial institutions that allow customers to use banking services over the internet. Customers need not visit their bank’s branch office to avail each and every small service. The person needs to register themselves with the concerned banks in order to avail net banking services.

Features of net banking:

  • Check the account statement online.
  • Open a fixed deposit account.
  • Pay utility bills such as water bill and electricity bill.
  • Make merchant payments.
  • Transfer funds.
  • Order for a cheque book.
  • Buy general insurance.
  • Recharge prepaid mobile/DTH.

Ponzi Schemes

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. Companies that engage in a Ponzi scheme focus all of their energy into attracting new clients to make investments.

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.

With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.

Ponzi schemes are named after Charles Ponzi, who duped investors in the 1920s with a postage stamp speculation scheme.

Features of Ponzi Schemes

  1. A guaranteed promise of high returns with little risk: Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.

  2. A consistent flow of returns regardless of market conditions: Investments tend to go up and down over time. Be sceptical about an investment that regularly generates positive returns regardless of overall market conditions.

  3. Investments that have not been registered with the Securities and Exchange Commission (SEC): Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances.

  4. Investment strategies that are secret or described as too complex to explain: Avoid investments if you don’t understand them or can’t get complete information about them.

  5. Clients not allowed to view official paperwork for their investment: Account statement errors may be a sign that funds are not being invested as promised.

  6. Clients facing difficulties removing their money: Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.

How to Prevent Ponzi Schemes?

  1. Be cautious: If someone tries to sell you on an investment that has huge and/or immediate returns for little or no risk, it could well involve some sort of fraud.

  2. Be aware: Someone contacting you unexpectedly, perhaps inviting you to an investment seminar, is often a red flag. Investment scams often target elderly people, or those close to or in retirement.

  3. Check out the seller: verify the professional licence of investment proposal seller and cautious about any negative information.

  4. Verify the investment register: Ponzi schemes are often unregistered at security and exchange commission of India.

  5. Understand the investment: never invest in scheme that you not understand or having doubt about it. Don’t write a check to – or open an account with – anyone who won’t fully answer your questions.

  6. Report any wrong doing: if you come across any fraudulent scheme do report it to regulatory authority like SEBI i.e., securities and exchange board of India, Investment regulatory authority of India, reserve bank of India.

Online Frauds

Fraud that is committed using the internet is “online fraud.” Online fraud can involve financial fraud and identity theft. Online fraud comes in many forms.

It ranges from viruses that attack computers with the goal of retrieving personal information, to email schemes that lure victims into wiring money to fraudulent sources, to “phishing” emails that purport to be from official entities (such as banks or the Internal Revenue Service) that solicit personal information from victims to be used to commit identity theft, to fraud on online auction sites (such as Ebay) where perpetrators sell fictional goods.

Type of Online Frauds

Some types of online fraud are explained below:

  1. Phishing
  2. Spyware
  3. Identity Theft
  4. Internet Banking Fraud
  5. Credit Card Cloning or Skimming
Type of Online Frauds
Type of Online Frauds

Phishing

Phishing is a technique used to gain personal information for the purpose of identity theft. Phishing involves using a form of spam to fraudulently gain access to people’s online banking details. As well as targeting online banking customers, phishing emails may target online auction sites or other online payment facilities.

Typically, a phishing email will ask an online banking customer to follow a link in order to update personal bank account details. If the link is followed the victim downloads a program which captures his or her banking login details and sends them to a third party.

Spyware

Spyware is generally considered to be software that is secretly installed on a computer and takes things from it without the permission or knowledge of the user. Spyware may take personal information, business information, bandwidth or processing capacity and secretly gives it to someone else. It is recognised as a growing problem.

Identity Theft

A large part of online crime is now centred on identity theft which is part of identity fraud and specifically refers to the theft and use of personal identifying information of an actual person, as opposed to the use of a fictitious identity. This can include the theft and use of identifying personal information of persons either living or dead.

Internet Banking Fraud

Internet banking fraud is a fraud or theft committed using online technology to illegally remove money from a bank account and/or transfer money to an account in a different bank. Internet banking fraud is a form of identity theft and is usually made possible through techniques such as phishing.

Credit Card Cloning or Skimming

Credit card cloning means unauthorised copying of credit cards. It also refers to as skimming and requires copying information at a credit card terminal using an electronic device or software, then transferring the information from the stolen card to a new card or to rewrite an existing card with the information.

Unfortunately, cloning and related forms of theft have become increasingly widespread in recent decades. Thankfully, security improvements such as the use of personal identification numbers (PINs) and chip cards have helped to protect against these types of attacks.

Modern chip cards—which have embedded microchips that contain their sensitive information—are much harder to compromise because the data they contain is encrypted within the chip itself.

This means that even if the thieves successfully access the chip card, they would not be able to use the information they stole some examples of cloning are installing hidden scanners onto legitimate card-reading devices such as gas station pumps, automated teller machines (ATMs), or the point-of-sale (POS) machines common in most retail stores.

How to Prevent Online Banking Frauds?

With proper precaution you can protect yourself from these frauds:

  • Know the scam: 1. Phishing, Spoofing, Pop-up Fraud – types of online fraud used to obtain personal information. 2. Trojan Horse – Virus that can record your keystrokes. It can live in an attachment or be accessed via a link in the email, website or pop-up window. 3. Counterfeit Websites – URLs that forward you to a fraudulent site. To validate a URL, you can type or cut and paste the URL into a new web browser window and if it does not take you to a legitimate web site or you get an error message, it was probably just a cover for a fraudulent web site.

  • Activate a pop-up window blocker: There are free programs available online that will block pop-up windows. Be sure to perform an Internet search for “pop-up blocker” or look at the options provided by major search engines. You will need to confirm that these programs are from legitimate companies before downloading.

    Once you have installed a pop-up blocker, you should determine if it blocks information that you need to view or access. If this is the case, you should consider turning off the blocker when you are on Web sites you know use pop-up windows to provide information you need or want to view.

  • Scan your computer for spyware regularly: You can eliminate potentially risky pop-up windows by removing any spyware or adware installed on your computer. Spyware and adware are programs that look in on your Web viewing activity and potentially relay information to a disreputable source.

    Perform an Internet search for “spyware” or “adware” to find free spyware removal programs. As with a pop-up blocker, you will want to be sure that your removal program is not blocking, or removing, wanted items, and if it is, consider turning it off for some websites.

  • Avoid downloading programs from unknown sources: Downloads may contain hidden programs that can compromise your computer’s security. Likewise, email attachments from unknown senders may contain harmful viruses.

  • Keep your computer operating system and Internet browser current.

  • Keep your passwords secret.

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