A digital payment, sometimes called an electronic payment, is the transfer of value from one payment account to another using a digital device such as a mobile phone, POS (Point of Sales) or computer, a digital channel communications such as mobile wireless data or SWIFT (Society for the Worldwide Interbank Financial Telecommunication). This definition includes payments made with bank transfers, mobile money, and payment cards including credit, debit and prepaid cards.
There is no single, universally accepted definition of digital payments because digital payments can be partially digital, primarily digital, or fully digital. For example, a partially digital payment is one in which both payer and payee use cash via third party agents, with providers making digital bank transfers in the backend. A primarily digital payment might be one in which the payer initiates the payment digitally to an agent who receives it digitally but the payee receives the payment in cash from that agent.
So, the definition must be fit-for-purpose. One definition emphasizes the payer-payee interface as the defining element. Another defines digital payments based on the payment instrument, or some other variable. These definitional choices become particularly relevant when the objective is to estimate the number or share of digital payments in a specific use-case, organization, company, country, or region. The definition of digital payments determines how they are measured. For more details about definition and measurement Box 1 further down.
Regardless of the definition, some things we know for sure: Digital payments offer significant benefits to individuals, companies, governments, or international development organizations. The benefits of going digital include:
To realize the benefits of digital payments, they must be done responsibly and in ways that protect and promote the well-being of the end-user. The Better Than Cash Alliance’s Responsible Digital Payment Guidelines (RDPG) help define responsible digital payments. The Guidelines identify eight good practices for engaging with clients who are sending or receiving digital payments and who have previously been financially excluded or underserved.
These eight guidelines specifically address the challenges of shifting from cash to digital. Digital payments can raise security and privacy concerns, therefore, the guidelines recommend measures to ensure the confidentiality and security of client data.
The resilience or reliability of the digital payment system and infrastructure is equally crucial. System outages might unreasonably prevent users from accessing their funds, therefore, it is imperative that providers keeping funds safe – that robust steps are taken to ensure network reliability and system capacity, as well as a payments channel secure from fraud, hacking, and any other form of unauthorized use.
Furthermore, costs and other ongoing fees for payees need to be transparent. Ultimately, affordability is key for sustainability and long-term usage – and the solutions need to remain so over time. It is also important for products and services to be gender intentional, by designing solutions that take into account the needs of women and to ensure that women are not excluded due to lack of digital access or confidence.
Finally, the recourse mechanism needs to be clear and be designed with a “client-centric” approach in order to raise trust amongst users.
The pace of digital innovation in payments is driving a reduction in costs projected double compound annual growth rate. It is resulting in new business models and a more competitive environment as new players emerge. These are some of the innovations: