How do you pay? Understanding Digital Payments
An economy operates on the back of payments, which is the exchange of money for goods and services.
A traditional payment instrument that we’re familiar with is currency, or cash, which refers to the notes and coins issued by central banks such as the Reserve Bank of Fiji (RBF). Most Fijians and businesses also use bank cards and cheques to make a payment.
The last two decades have witnessed rapid growth in technology-driven innovations which are radically reshaping how we make payments. Besides cash, cards and cheques, a number of digital and electronic payment instruments and services are now available to us.
The COVID-19 pandemic has accelerated the uptake of digital payments given physical distancing restrictions and the risks associated with the exchange of cash.
It has also enabled many businesses to market goods and accept payments over the internet. Moreover, Government, large institutions and aid organisations are increasingly turning to digital channels to distribute funds for various purposes, including providing social benefits and relief assistance.
In this article, we will talk about the various types of digital payment tools, their benefits, key trends and current initiatives and what they mean for the future of payments in Fiji. A follow-up article will cover the National Payments System Reform and the changes that it will bring about.
What are digital payments?
A digital payment uses an electronic device or tool in order to initiate the transfer of money from one person to another.
For a payment to be purely digital, neither cash nor cheques are used at the sending or receiving end and both the sender and receiver are identified by an account they each have with a financial service provider, such as a bank or a mobile money operator.
Digital payment transfers may also be received as cash at a physical branch or agent. For example, a Fijian living abroad might send money using their bank card or via internet banking and the recipient would have the option to receive the funds in cash by visiting a money transfer agent.
Other types of payments may be made and received in cash but the means involved in transmitting messages between service providers are electronic. For instance, while a customer can send or receive cash at a money transfer agent, the systems used for communicating between agents locally and abroad are often electronic.
Here, we explain various digital payment tools commonly used to initiate payments. They are bank cards, mobile & internet banking and mobile money.
1. Bank Cards
Bank cards are a popular digital payment tool. They are widely used for making payments locally and are currently only issued by Fiji’s six licensed commercial banks. Cards allow Fijians to access funds held in their bank accounts without needing to visit a bank branch physically.
Most cards issued by banks are characterised by a magnetic strip, allowing them to be read by Electronic Funds Transfer Point of Sale (EFTPOS) machines, which businesses use to receive payments from customer bank accounts directly into their business bank accounts.
Aside from facilitating digital payments, bank cards can be used to withdraw cash and access other services through Automated Teller Machines (ATMs).
A majority of cards issued in Fiji are proprietary to a bank, i.e. can only be recognised by the commercial bank that issued it, as well as selected banks with whom the issuing bank has an agreement with.
Most cards issued by banks are also debit cards which means they are linked to deposits in customers’ accounts. There are also credit cards, which are facilities that customers can use to borrow funds from the bank, up to a particular limit and use it to make payments.
Debit or credit cards can also be issued as part of an international payment network (sometimes called ‘schemes’) such as VISA and MasterCard. These cards allow customers to access a larger network of EFTPOS and ATMs.
Their wide acceptance makes it a useful tool for making payments if you are travelling abroad. They are also a popular way of making payments to buy goods and services online and access subscription services for entertainment.
In recent years, locally-issued VISA debit and credit cards have been enabled with a ‘contactless’ feature which, allows customers to complete a payment by holding their cards within an inch of an EFTPOS or ATM i.e. without making physical contact with the machine.
These types of cards feature a special chip for security and utilise near-field communication or radiofrequency identification, which are technologies that allow it to be read electronically.
There are, of course, other types of cards that are used for payments besides those that are issued by banks. They are ‘closed-loop’ in nature, which means they are usually only accepted at specific organisations that issued them or have specific uses.
eTransport cards are one example where the cards can only be used by commuters for public transport services. Other examples include stored-value prepaid cards or gift cards that can be purchased overthe-counter or post-paid cards that are used at specific outlets.
2. Mobile & Internet Banking
Commercial banks have traditionally offered their services through bank branches. In recent times, they have also expanded access to key services through the telephone, internet and more recently on mobile phones.
Internet banking allows users to securely log into their commercial bank accounts through an internet browser in order to make bill payments, transfers to other accounts locally and abroad, and to track recent activity and account balances.
Mobile banking also offers similar services which may be accessed via SMS or through USSD services or on a smartphone application (“app”).
3. Mobile Money
Unlike cards, internet and mobile banking, mobile money is a digital payment option offered by mobile network operators e.g. Vodafone’s
M-PAiSA and Digicel’ s MyCash. When mobile money was first introduced in Fiji, the service was accessible on feature phones via USSD service i.e. by dialling short codes to the mobile network which retrieved menus that display options for various payments. In adapting to the growing number of smartphone users, the service is now accessible over apps that can be downloaded from the App Store for Apple users and Play Store for Android users.
These apps provide a multitude of bill payment options, the ability to send money to other local mobile money users in real time and make payments by scanning Quick Response (QR) codes - a form of barcode displayed at businesses that accept mobile money payments. In addition, mobile money users can also receive international inward remittances directly into their mobile money accounts. Besides cards, some local merchants also accept online payments via mobile money.
4. Other Types of Digital Payments
While cards, mobile and internet banking and mobile money are widely used digital payment tools for retail customers and businesses, there are a few other digital payments tools that exist in the market.
The RBF has a system for facilitating digital payments between banks called FIJICLEAR. While the system is widely used for important, large value and low-volume payments among businesses and Government, retail customers can also use FIJICLEAR for payments that need to be made to accounts of other banks within a business day.
Key Trends
As digital payments become more popular, the need for cash reduces. This trend is evident in the decelerating growth in physical currency in circulation in Fiji between 2016 and 2020, which is now almost half that of the preceding five-year period.
During the same period, ATM transactions rose by only 13% to 20.5 million transactions while EFPOS transactions increased by 63% to 5.4 million transactions. Similarly, internet banking transactions almost tripled (184%) to 3.5 million transactions. Mobile wallet transactions have grown by an impressive 626.6% and 1,069.6% in both volume and value, respectively over the same period.
While Fiji’s banked population has recorded considerable progress over the years (78% in 2020 from 60% in 2014), the uptake of digital products is still considered low . Only 24.3% of banked adults have access to internet banking while 19.8% of banked adults have access to a mobile banking app. Furthermore, despite the considerable growth in the number of mobile money accounts since the service was introduced in 2010 (from around 20,000 wallets to 390,772 in 2020), less than a half are being actively used.
Key reasons for the low uptake include low levels of digital literacy, a lack of awareness of the benefits of digital financial services and infrastructure challenges like network coverage and interoperability between mobile money wallets and commercial bank accounts, which are explained further in the next section.