Digital Financial Tools and Applications

Digital Financial Tools

A new era of financial system in India was started after independence.

In this era, efforts were made to improve methodology and responsibilities of financial system for financial tools.

Financial tools are term used to describe organizations that deal with the management of money.

Financial tools are generally not limited to the field of deposit-taking loan and investment services, but also present in the fields of insurance, agency services and all forms of financial intermediation including the distribution of financial products.

OTP (One Time Password)

OTP is a string of characters or numbers automatically generated to be used for one single login attempt.

OTP can be sent to the user’s phone via SMS or push messaging and is used to protect web-based service, private credentials and data.

OTPs minimize the risk of fraudulent login attempts and thus the risk of stolen data.

OTP works through randomness algorithms that generate a new and random password each time they are used.

QR (Quick Response) Code

A QR code is a type of two-dimensional bar code that is used to provide easy access to information through a smartphone.

It refers to the instant access to the information hidden in the code.

QR codes are gaining popularity because the technology is open source i.e. available for everyone.

QR code consists of black squares arranged in a square grid on a white background.

It can be read by an imaging device such as camera, and processed using Reed-Solomon error correction until the image can be appropriately interpreted.

Types of QR Code

There are two types of QR code as follows:

Static QR Code It is mostly common type of QR code. It is used to disseminate information to the general public. It is often displayed in advertising materials in the environment, on television, in newspapers and magazines.

Dynamic QR Code The codes are sometimes referred to as unique QR codes. It offer more functionality. The owner can edit the code at any time and can target a specific individual for personalized marketing.

Unified Payments Interface

UPI stands for "Unified Payments Interface."

It is a real-time payment system developed by the National Payments Corporation of India (NPCI).

It enables instant money transfer between two bank accounts using a mobile device

Key Features of UPI:

1. Instant Transfers: It allows immediate money transfer between bank accounts on a 24/7 basis, including holidays. 
2. Single Identifier: It uses a unique identifier called a UPI ID (e.g., user@bank) to simplify transactions. It eliminates the need for bank account details.
3. Multiple Bank Accounts: It enables linking of multiple bank accounts to a single UPI ID. It makes it easy to manage funds from different accounts.
4. Interoperability: It supports transactions across various banks and financial institutions.
5. Security: It provides a high level of security through two-factor authentication (2FA), which includes a UPI PIN and device binding.
6. Variety of Transactions: It supports different types of transactions, including person-to-person (P2P), person-to-merchant (P2M), bill payments, and more.
7. Convenience: It facilitates easy bill payments, online shopping, and other financial transactions directly from a mobile app.

Components of UPI:

1. UPI ID: A unique identifier linked to the user's bank account, used to send or receive money.
2. UPI PIN: A secure PIN set by the user, required to authorize transactions.
3. Bank Account: The source or destination of funds in a UPI transaction.
4. Mobile App: UPI-enabled apps provided by banks or third-party payment service providers, used to access and manage UPI services.

How UPI Works?

1. Setup: The user installs a UPI-enabled app and registers by linking their bank account(s) and setting up a UPI ID and PIN.
2. Initiating a Transaction: The user initiates a transaction by entering the recipient's UPI ID or scanning a QR code, specifying the amount, and confirming the transaction with their UPI PIN.
3. Processing: The UPI system processes the transaction in real-time, transferring funds from the sender's bank account to the recipient's bank account instantly.
4. Notification: Both the sender and the recipient receive instant notifications of the transaction status.

Popular UPI Apps:

1. Google Pay
2. PhonePe
3. Paytm
4. BHIM (Bharat Interface for Money)
5. Bank-specific UPI apps (e.g., SBI YONO, ICICI iMobile)

Advantages of UPI:

1. Speed and Convenience: Fast and easy money transfers.
2. Cost-Effective: Generally, no transaction fees for UPI payments.
3. Security: High-security standards with encrypted transactions and two-factor authentication.
4. Wide Acceptance: Accepted by numerous merchants and service providers.

Disadvantages of UPI:

1. Dependency on Internet: Requires a stable internet connection to perform transactions.
2. Technical Issues: Potential for occasional technical glitches or downtime.
3. Transaction Limits: Daily transaction limits may apply, which could be a limitation for large transfers.

UPI has revolutionized the way people in India perform financial transactions, making digital payments accessible, fast, and secure.

AEPS (Aadhaar Enabled Payment System)

AEPS is a type of payment system that is based on the Unique Identification Number.

It allows Aadhaar Card holders to seamlessly make financial transactions through Aadhaar based authentication.

It helps all individuals carry out financial transactions on a Micro-ATM. It helps in empowering all sections of the society by making financial and banking services available through Aadhaar.

USSD

USSD stands for "Unstructured Supplementary Service Data."

It is a protocol used by GSM (Global System for Mobile Communications) cellular telephones to communicate with their service provider's computers.

USSD can be used for various purposes, such as querying balances, recharging prepaid services, and accessing different types of informational services.

Key Features of USSD:

1. Real-Time Communication: USSD messages create a real-time connection during a session, allowing for interactive communication between the user and the service provider.
2. Session-Based: Unlike SMS, which is a store-and-forward service, USSD is session-based. This means it allows for an interactive session between the user and the application.
3. Short Codes: USSD uses short codes (e.g., *123#) to initiate communication with the network.
4. No Internet Required: USSD operates over the GSM network and does not require an internet connection, making it accessible on basic mobile phones.
5. Fast and Responsive: USSD is generally faster and more responsive than SMS because it operates in real-time.

Applications of USSD:

1. Balance Inquiry: Users can check their mobile account balance by dialing a specific USSD code.
2. Mobile Banking: Banks use USSD for services such as balance checks, mini-statements, and fund transfers.
3. Prepaid Services: Recharging prepaid mobile accounts or data plans is a common use of USSD.
4. Service Activation/Deactivation: Users can activate or deactivate mobile services such as caller tunes, roaming, and more.
5. Information Services: Accessing information such as weather updates, news, and other alerts.
6. Customer Support: Providing interactive customer support without the need for a smartphone or internet access.

How USSD Works:

1. Initiating a Session: The user dials a USSD code on their mobile phone (e.g., *123#).
2. Connection Established: A real-time connection is established between the user's phone and the network's USSD gateway.
3. Interaction: The user interacts with the system through a series of menu options or prompts. For example, they might enter a number to select an option.
4. Response: The network sends back a response in real-time, which is displayed on the user's phone screen.

Example USSD Codes:

• Balance Inquiry: *123#
• Mobile Recharge: 456PIN#
• Customer Care: *789#
• Banking Services: *99# (a common code used for mobile banking services in India)

Advantages of USSD:

1. Accessibility: Works on all GSM phones without needing an internet connection.
2. Speed: Provides fast and real-time communication.
3. Cost-Effective: Often free or cheaper than SMS for the user.
4. Interactive: Allows for interactive and dynamic user sessions.

Disadvantages of USSD:

1. Session-Based Limitations: USSD sessions can time out if not completed quickly.
2. Character Limit: Limited to 182 characters per USSD message.
3. Security: Less secure compared to internet-based transactions, as data is not encrypted.

USSD is widely used in regions with limited internet access, providing essential services to a broad user base without the need for advanced technology. It is particularly prevalent in mobile banking and telecommunications services.

Credit Card

It is a thin rectangular slab of plastic issued by a financial company/

It lets cardholders borrow funds with which to pay for goods and services.

Credit cards impose the condition that cardholders pay back the borrowed money plus interest as well as any additional agreed upon charges.

A credit card owner can borrow money from the issuer of the credit card and will not have to pay interest if the borrowed amount is repaid within 30 days.

Debit Card

It is a payment card that deducts money directly from a consumer’s account to pay for a purchase.

Debit cards eliminate the need to carry cash to make purchases.

In addition, debit cards, also called check cards, offer the convenience of credit cards and many of the same consumer protections when issued by major payment processors like Visa or Master Card.

Types of Debit Card

Online Debit Card

Online debit cards need electronic authorization, every time a transaction is reflected in the user’s account. The transaction of an online debit card is further secured with a personal identification number (PIN) verification system for added safety. The PIN has to be validated during each and every transaction.

Offline Debit Card

This generally includes the logos of major cards such as Visa or Master Card. This type of card requires the cardholder’s signature for validation during each and every transaction. Offline debit cards usually have a daily limit restricted to the value of transactions.

Prepaid Debit Card

These cards are also referred to as reloadable debit cards. To use this type of debit card, the user has to pay the entire amount in advance and later use the money according to his/her discretion.

eWallet

eWallet (Mobile Wallet) is a type of prepaid account in which a user can store his/her money for any future online transaction.

An eWallet is protected with a password.

With the help of an eWallet, one can make payments for groceries, online purchases and flight tickets among others.

An eWallet needs to be linked with the individual’s bank account to make payments.

The main objective of eWallet is to make paperless money transaction easier.

Types of eWallet

Paytm

Wallet Paytm is India’s largest mobile commerce platform launched in 2010.

Paytm Wallet, because of its amazing marketing and operation strategies, has been able to capture maximum market share of this industry. The wallet can be used to send money directly to bank accounts as well.

Paytm is the first company in India to receive a license from the Reserve Bank of India (RBI) to start a payment bank.

Freecharge Wallet

This service was launched in September, 2015 and has ever since introduced many attractive features.

This will enable all customers to send and receive funds through the UPI system.

Freecharge UPI will allow users to initiate fund transfers instantly on a 24/7 basis on all 365 days in a year, including bank holidays.

Mobikwik

It is a digital wallet that can be used for a number of online payments including transferring money, accepting payments, mobile recharge, payment of utility bills, such as electricity, DTH, online shopping etc.

Mobikwik has received an approval from the Reserve Bank of India (RBI) and has tied up with a number of retails and online merchants in the country.

Airtel Money

Airtel money is the Mobile Wallet from the successful and popular telecom company Airtel.

It allows you to use your smartphone as an electronic wallet to make and receive payments. Originally launched in 2012, this app offers customers with an efficient alternative to cash transactions.

Citrus Wallet

It is an app that lets you send money to and receive from anyone who has a phone number or E-mail.

It lets your transfer money to friends, colleagues and family members within seconds.

PayZapp

PayZapp offered by HDFC bank is an ideal mobile payment wallet.

With PayZapp, you can shop on your mobile at partner apps, bus and movie tickets, groceries, book flight tickets and hotels, pay bills and recharge your mobile.

With the HDFC PayZapp eWallet app, customers do not need to depend on card-based transactions and can enjoy secure and convenient payments.

PoS (Point of Sale)

POS stands for "Point of Sale."

It refers to the place where a retail transaction is completed.

At the point of sale, the merchant calculates the amount owed by the customer, indicates the amount, may prepare an invoice, and provides options for the customer to make a payment.

The Point of Sale (PoS) or Point of Purchase (PoP) is the time and place where a retail transaction is completed.

At the Point of Sale, the merchant would calculate the amount owed by the customers and indicate the amount.

He may prepare an invoice for the customer (which may be a cash register printout), and indicate the options for the customer to make payment. PoS is also the point at which a customer makes a payment to the merchant in exchange for goods or after provision of a service.

Types of POS Systems

1. Traditional POS Systems:

Typically found in brick-and-mortar stores.

Consists of hardware like cash registers and barcode scanners.

Software is installed on a local server or computer.

2. Mobile POS Systems:

Uses tablets or smartphones as the primary device.

Provides flexibility and mobility for sales staff.

Common in retail, restaurants, and outdoor markets.

3. Cloud-Based POS Systems:

Operates through the internet with data stored on the cloud.

Allows access from multiple locations and devices.

Simplifies updates and maintenance.

4. Self-Service Kiosks:

Allows customers to complete transactions on their own.

Common in fast-food restaurants and retail stores.

Benefits of a POS System

1. Efficiency: Streamlines the transaction process, reducing wait times and improving customer service.
2. Accuracy: Minimizes human error in transactions and inventory management.
3. Inventory Management: Tracks stock levels in real-time, helping to avoid overstocking or stockouts.
4. Sales Tracking: Provides detailed reports on sales performance, helping businesses make informed decisions.
5. Customer Data: Collects and stores customer information, aiding in personalized marketing and loyalty programs.
6. Employee Management: Tracks employee performance and hours worked, simplifying payroll and scheduling.

 

Internet banking

Internet banking, also known as online banking, is a digital platform provided by banks that allows customers to perform financial transactions and manage their bank accounts over the internet. It offers a convenient way to access banking services from anywhere, at any time.

Key Features of Internet Banking

1. Account Management:

View account balances and transaction history.

Download and print account statements.

Manage multiple bank accounts from one platform.

2. Fund Transfers:

Transfer money between your own accounts.

Transfer money to other accounts within the same bank.

Transfer money to accounts in other banks (interbank transfers).

Schedule recurring payments and transfers.

3. Bill Payments:

Pay utility bills (electricity, water, gas, etc.).

Pay credit card bills.

Set up automatic bill payments.

4. Loan Services:

Apply for personal, home, auto, or other loans.

View loan statements and repayment schedules.

Make loan repayments.

5. Investment Services:

Open fixed deposits or recurring deposits.

Invest in mutual funds or other securities.

View and manage investment portfolios.

6. Customer Service:

Communicate with customer service representatives.

Report lost or stolen cards.

Request cheque books and other banking services.

7. Security Features:

Two-factor authentication (2FA) for login and transactions.

Secure login with passwords, PINs, and biometrics.

Transaction alerts via SMS or email.

Secure encryption for data transmission.

Benefits of Internet Banking

1. Convenience:

Access banking services 24/7 from anywhere with an internet connection.

Avoid the need to visit physical bank branches.

2. Time-Saving:

Quick and efficient way to manage finances and perform transactions.

Eliminate the need to wait in lines at bank branches.

3. Cost-Effective:

Reduce or eliminate fees associated with traditional banking (e.g., paper statements, cheque processing).

4. Accessibility:

Easy access to account information and banking services for people with disabilities.

5. Enhanced Financial Management:

Tools and features to help track spending, budget, and manage finances.

How to Get Started with Internet Banking

1. Registration:

Visit your bank’s website and look for the internet banking registration link.

Provide required details such as account number, mobile number, and email address.

Set up a username and password.

2. Login:

Use your username and password to log in to the internet banking portal.

Complete any additional security steps (e.g., entering an OTP sent to your mobile).

3. Explore Features:

Familiarize yourself with the various features and services available on the platform.

Customize your dashboard for easy access to frequently used features.

Security Tips for Internet Banking

1. Strong Passwords:

Use strong, unique passwords and change them regularly.

Avoid using easily guessable information (e.g., birthdates, common words).

2. Secure Connections:

Always use a secure, private internet connection when accessing internet banking.

Avoid using public Wi-Fi networks for banking transactions.

3. Monitor Accounts:

Regularly check your account statements and transaction history for any unauthorized activity.

Set up alerts for significant transactions.

4. Logout:

Always log out of your internet banking session when finished, especially on shared or public computers.

5. Update Software:

Keep your computer, browser, and mobile apps updated to protect against security vulnerabilities.

Electronic Fund Transfers

NEFT (National Electronic Funds Transfer), IMPS (Immediate Payment Service), and RTGS (Real-Time Gross Settlement) are three primary methods for electronic fund transfers in India.

NEFT (National Electronic Funds Transfer)

NEFT is a nation-wide payment system that facilitates one-to-one funds transfer.

• Purpose: To transfer funds from one bank account to another.
• Processing Time: Operates in half-hourly batches. Transactions are settled in these batches.
• Usage: Suitable for regular and low to medium-value transactions.
• Cost: Generally low fees; varies by bank.
• Availability: 24/7, including holidays, since December 2019.
• Limit: No minimum or maximum limit; however, some banks may impose their own limits.

2. IMPS (Immediate Payment Service)

IMPS is an instant payment service used for transferring funds between banks and accounts 24/7.

• Purpose: To provide immediate, real-time transfer of funds.
• Processing Time: Instant, within a few seconds.
• Usage: Small to medium value transfers, accessible via mobile, internet banking, and ATMs.
• Cost: Varies by bank but generally affordable.
• Availability: 24/7, including holidays.
• Limit: Up to ₹2 lakh per transaction (limit may vary by bank).

3. RTGS (Real-Time Gross Settlement)

RTGS is used for the real-time, high-value transfer of funds. Unlike NEFT and IMPS, RTGS transactions are processed individually in real-time.

Purpose: For high-value, time-critical transfers.

Processing Time: Real-time, immediate processing.

Usage: Large value transactions, corporate and business payments.

Cost: Higher fees compared to NEFT and IMPS due to the instant and high-value nature of transactions.

Availability: Generally available during bank working hours; some banks may offer extended hours.

Limit: Minimum amount of ₹2 lakh; no maximum limit.

Key Differences

Feature	NEFT	IMPS	RTGS
Purpose	Regular, low to medium value	Instant, small to medium value	Real-time, high-value payments
Processing	Batch (half-hourly)	Real-time	Real-time
Speed	Settles in batches	Instant	Instant
Usage	Personal and business transfers	Personal transfers, 24/7	Large transactions, business transfers
Availability	24/7, including holidays	24/7, including holidays	Bank working hours (extended in some regions)
Cost	Low	Affordable	Higher
Limit	No specific limit	Up to ₹2 lakh (may vary)	Minimum ₹2 lakh

Detailed Explanation

NEFT (National Electronic Funds Transfer)

How it Works: Transactions are processed in batches. Transfers initiated during the NEFT timings are settled in these batches. Since December 2019, NEFT is available 24/7.

Example: A person transfers money to a friend’s bank account using NEFT. The transaction will be processed in the next available batch.

IMPS (Immediate Payment Service)

How it Works: Users can initiate transfers via mobile banking, internet banking, or ATMs. IMPS ensures immediate transfer of funds, making it ideal for urgent transfers.

Example: A person uses IMPS to transfer money to a friend instantly, even on a bank holiday, through their mobile banking app.

RTGS (Real-Time Gross Settlement)

How it Works: RTGS processes each transaction individually in real-time, ensuring immediate transfer and settlement of funds between banks. It is used for large value transactions.

Example: A business uses RTGS to transfer a large payment to a supplier. The transaction is processed immediately, and the supplier’s account is credited in real-time.

Online Bill Payment

Online bill payment system is an internet-based method of processing economic transactions.

It allows a vendor to accept payments over the web or over other internet connections such as direct database connections between retail stores and their suppliers.

Online payment systems typically are run by third party corporations, such as PayPal, Google, Click2Pay, etc.

1. ...... is a term used to describe organizations that deal with the management of money.  

(a) Financial tool  

(b) Economic tool  

(c) Financial product  

(d) None of these

Answer: a

2. Which of the following is a string of characters or numbers automatically generated for single login attempt?  

(a) Password  

(b) OTP  

(c) QR code  

(d) USSD code

Answer: b

3. Many companies use ………… to provide temporary passcode.  

(a) Email  

(b) SMS  

(c) Phone Calls  

(d) None of these

Answer: b

4. Which of the following refers to the instant access to the information hidden in the code?  

(a) OTP  

(b) USSD code  

(c) QR code  

(d) UPI

Answer: c

5. Which type of QR code is displayed in advertising materials, on television and in newspapers?  

(a) Static QR code  

(b) Dynamic QR code  

(c) Both (a) and (b)  

(d) None of these

Answer: a

6. Which QR code can be edit at any time by owner?  

(a) Static QR code  

(b) Dynamic QR code  

(c) Automatic QR code  

(d) Perfect QR code

Answer: b

7. UPI has been launched by  

(a) RBI  

(b) IFSC  

(c) USSD  

(d) NPCI

Answer: d

8. Which of the following is a system that facilitates users to access multiple bank accounts with a single mobile application?  

(a) UPI  

(b) AEPS  

(c) USSD  

(d) OTP

Answer: a

9. How many digits are there to set UPI Pin?  

(a) 3  

7  

5  

6

Answer: d

10. Which of the following is a type of payment system that is based on the Unique Identification Number?  

(a) USSD  

(b) AEPS  

(c) PoS  

(d) QR code

Answer: b

11. AEPS is another initiative taken by the ……… to encourage cashless transactions in India.  

(a) NPCI  

(b) RBI  

(c) ICICI  

(d) HDFC

Answer: a

12. Which services are offered by AEPS?  

(a) Cash deposit  

(b) Payment transaction  

(c) Balance enquiry  

(d) All of the above

Answer: d

13. ...... is a communication protocol available every GSM enabled mobile device.  

(a) USSD  

(b) AEPS  

(c) UPI  

(d) NEFT

Answer: a

14. To use USSD mobile banking, users will have to simply dial ...... .  

(a) *99*#  

(b) *99 #  

(c) *# 99 #  

(d) *999*#

Answer: b

15. Which information/details are required for USSD fund transfer?  

(a) MMID  

(b) MPIN  

(c) Registered mobile number  

(d) All of the above

Answer: d

16. For this card, cardholders borrow funds with which to pay for goods and services.  

(a) Credit Card  

(b) Debit Card  

(c) ATM Card  

(d) None of these

Answer: a

17. Which Credit Cards are meant for those who already have a lot of credit card dept?  

(a) Balance transfer  

(b) Secured  

(c) Low interest  

(d) Reward

Answer: a

18. Which of the following is/are type of Credit Card  

? (a) Reward  

(b) Low interest  

(c) Secured  

(d) All of these

Answer: d

19. Debit Cards are also known as  

(a) Credit Cards  

(b) RuPay Cards  

(c) Check Cards  

(d) Shopping Cards

Answer: c

20. ......... cards need electronic authorization, every time a transaction is reflected in the user’s account.  

(a) Online debit  

(b) Offline debit  

(c) Prepaid debit  

(d) All of these

Answer: a

21. eWallet is also known as ………… protected with a password.  

(a) Pocket wallet  

(b) Mobile wallet  

(c) Prepaid wallet  

(d) None of these

Answer: b

22. Which of the following facilities available under eWallet?  

(a) Cash back  

(b) Rewards  

(c) Both (a) and (b)  

(d) None of these

Answer: d

23. Which eWallet is the first company in India to receive a license from RBI to start a payment bank?  

(a) Freecharge  

(b) Mobikwik  

(c) Airtel Money  

(d) Paytm

Answer: d

24. Which bank offered the eWallet app PayZapp?  

(a) ICICI  

(b) HDFC  

(c) SBI  

(d) PNB

Answer: b

25. ………… provides an online payment system based on Unified Payments Interface (UPI).  

(a) PayZapp  

(b) PhonePe  

(c) SBI Buddy  

(d) Citrus

Answer: b

26. Which of the following is the time and place where a retail transaction is completed?  

(a) Credit Card  

(b) Debit Card  

(c) PoS  

(d) eWallet

Answer: c

27. Which type of PoS is a software/ hardware-based system that carries add-on peripherals?  

(a) Terminal  

(b) Cloud  

(c) Mobile  

(d) None of these

Answer: a

28. Internet banking is also known as  

(a) online banking  

(b) web banking  

(c) Both (a) and (b)  

(d) None of these

Answer: c

29. What is the meaning of N in NEFT?  

(a) Net  

(b) New  

(c) National  

(d) Next

Answer: c

30. The timing of NEFT is from  

(a) 9 AM to 6 PM  

(b) 9 AM to 7 PM  

(c) 10 AM to 8 PM  

(d) 8 AM to 7 PM

Answer: d

31. What is the meaning of T in RTGS?  

(a) Time  

(b) Text  

(c) Term  

(d) Transfer

Answer: a

32. The minimum amount to be remitted through RTGS is  

(a) 1 lakh  

(b) 1.5 lakhs  

(c) 2 lakhs  

(d) 2.5 lakhs

Answer: c

33. Which internet banking service is available 24×7 throughout the year?  

(a) RTGS  

(b) IMPS  

(c) NEFT  

(d) None of these

Answer: b

34. In IMPS, the transfer limit is also considerable approximately………per day.  

(a) 50,000  

(b) 1, 00, 000  

(c) 1, 50, 000  

(d) 2, 00, 000

Answer: d

35. ...... is an internet-based method of processing economic transactions.  

(a) Online bill payment  

(b) eWallet  

(c) USSD  

(d) All of the above

Answer: a

36. Online payment systems typically are run by third party corporations such as  

(a) PayPal  

(b) Google  

(c) Click2Pay  

(d) All of these

Answer: d