What is Digital Payment?
Digital payment, sometimes known as electronic payment, stands for the transfer of value from one payment account to another through digital means such as a cell phone, computer, or POS.
Typically, there are two kinds of digital payment methods: primary digital payment and partial digital payment. In the case of partial digital payment, both trading parties use cash via third-party agents to make digital bank transfers in the back-end. In the case of making a primary digital payment, the process of transfer is initiated digitally, wherein the receiver receives the payment in cash from the agent.
It's important to have a clear understanding of the different kinds of digital payments, particularly, when the objective is to estimate the number or share of digital payments in a specific use case, organization, company, country, or region.
Modes of Digital Payment
Following are some of the modes of digital payment used by individuals:
- Contactless payments
- Credit and debit cards
- Online payments
- Mobile Money
- Chip and Pin
Why Should You Choose Digital Modes?
There are several reasons to opt for different digital payment systems. Some of these are as follows:
- It is cost-efficient
- The payment process is transparent and secure
- It offers financial inclusion, meaning, you get access to affordable and useful financial services and products
- It reduces the chances of cash-based financial crimes
Challenges Of Digital Payment
Despite the benefits, there are several challenges posed by digital payment systems. Some of them are mentioned below:
Technical Concerns: The most commonly faced challenge of digitization is technical issues like low internet bandwidth, and software bugs while using a technical system. Such technical failures can be fixed instantly or may take longer based on how severe the issue is. Problems of software downtime may annoy consumers, especially the ones who cannot pay through cash and this might have an impact on the funds.
Security Concerns: Security is always a major issue regarding monetary values. There could be open vulnerabilities in the digital system that allow intruders to have access to private data. Malicious attacks may result in a monetary loss if a person intentionally or unintentionally discloses sensitive information to the hackers.
Increased Costs: Not only is it costly to set up and maintain digital payment infrastructure, but it is equally expensive to ensure the security of the system.
Payment Processing Charge: Some digital options charge fees from payers to complete a transaction. This forces consumers to choose alternative options like cash to avoid spending money on unnecessary charges.
No Visible Control Over Spends: It is most commonly observed that people spending money online tend to spend more money than expected as they lose physical checks on their money.
How Can Blockchain Resolve the Challenges of Digital Payments?
Blockchain technology is the talk of the town. It is a distributed ledger that records immutable transactions and tracks assets in a peer-to-peer network.
This technology has immense potential to have a positive impact across different industry verticals. Due to its unique properties like a decentralized structure, security, privacy, speed, visibility to all, and immutability, blockchain technology has already made major impacts across several industries like automotive, banking and financial services, healthcare, insurance, and media.
One of the critical parts of the business is to keep the data records and transactions intact. Transaction details have to be shared with the third parties through lawyers or banks which is a time-consuming process. So, blockchain technology has solved this problem through the use of a distributed, shared ledger so everyone has updated transaction copies available, that is, everyone is up to date with current transactions.
One of the important features of blockchain technology is the security it offers. As we know, a blockchain is a ledger that keeps the records of every transaction in an encrypted form. This encryption adds a layer of security to the blockchain. There is no central authority or third party available in blockchain, and hence, no one can alter the transaction.
How Cryptographic Hash Make Blockchain Secure?
Every piece of data has a unique identity which is achieved through hash cryptography. These cryptographic hash functions are pillars of security for blockchain. Each block has its private key which can only be verified through the public key. The unique key becomes invalid in case of a change in transaction data. This block is not added to the blockchain and is removed from it.
How Can Blockchain Technology Solve the Challenges of Digital Payments?
There are several ways in which blockchain technology can help to counter the problems of digital payment systems:
Cross Country Payments: Cross country payments involve lots of steps and mediators. Also, the payment transfer can prove to be a time-consuming process.
Blockchain technology has resolved the problem: payments using blockchain do not involve any lengthy procedures, and hence, they can be comparatively faster compared to other digital cross-country payments.
Mediators in Transactions: The use of digital payment is increasing day by day but there is always a mediator involved in digital payment. For example, if you are purchasing something from any store and using digital payment for the payment, then apart from the buyer or seller there are other parties like buyer bank, payment gateway, exchange, and seller bank that are also involved. Blockchain solves the problem of mediators, as with blockchain transactions, there is no mediator involved, hence there is a direct peer-to-peer transfer of funds involved.
Security Issue in Digital Payments: Though the use of digital payments is increasing nowadays, security issues are also increasing. There is always a risk of cybercriminals hacking the database of banks to gain access to personal information. Blockchain technology takes care of this. Blockchain transactions are so fast that unauthorized users get very little time to perform malicious activities. Once the transaction is done, data is recorded and it is not possible to alter the data once the block is added to the blockchain. This ensures the overall security of personal data.
Transaction Cost: Digital payment involves the transaction fee or commission which, in some cases, is very high, sometimes as high as 7%. Blockchain-involved payments have less number of mediators therefore the transaction fee is comparatively less compared to other modes of digital transactions.
Confidentiality Issue: The confidentiality or anonymity of any transaction can be breached by hackers. In one of the studies commissioned by IBM in the year 2018, $4 billion was lost due to the theft of personal data from businesses. Blockchain can improve data security by storing the data in the node network. It makes it difficult to tamper with or steal the data stored in the blockchain.
From these advantages, we can conclude that blockchain technology offers several advantages over traditional payment gateways.
Regular Digital Payment
- Regular digital payment involves actual physical currency that can be ultimately converted into the physical currency.
- It takes 1-5 days for settlement of all payments or successful transaction of payment.
- Digital payments involves commissions which make payments costly.
- There is a lack of transparency while doing digital payments.
- Security in the case of regular digital payment is less.
- Cross-border digital payment is not possible in case of no communicator available.
Blockchain Payment Method
- Blockchain-based payments cannot be converted into physical currency.
- It is a real-time payment which is visible to all members on blockchain once confirmed.
- In blockchain payments, there is no mediator involved so no commission charges have to be paid.
- The transaction is visible to all members on the blockchain after confirmation.
- Blockchain ledger has immutable transaction data as it is encrypted with a cryptographic hash.
- Blockchain payment does not have any limitations on borders. No communicator is required to do cross-border payments.
Blockchain QA Testing Implementation in Digital Payments Testing - Workflow and Tools
Blockchain refers to a decentralized, distributed network, which consists of digital transaction records or ledgers. The transaction detail is shared with each node and it is used for mounting a ledger that stores an indissoluble record of transactions which ensures security.
Due to the irreversible nature of transaction records added to the blockchain, its good to ensure the efficacy of records or smart contracts. QA Engineers play an essential role by performing manual or automated testing on contracts so that before going into production the issues are identified and fixed. Here automation testing makes the task more accessible and reduces business expenses hence improving the release cycle of the product.
Data is collected into blocks and then chained together using cryptography to enhance security. Below are the basic concepts of blockchain.
Truffle is a testing framework that generates asset pipelines for blockchains using Ethereum virtual machines (EVMs). By using truffle, we can develop a test network for Ethereum and deploy our smart contracts there.
Solidity is a programming language designed to develop smart contracts that run on the Ethereum virtual machine. There is no special authority over smart contracts, which are executed inside a peer-to-peer network.
Smart Contract Automation
Smart contracts are straightforward programs stored on a blockchain that can only run when specific conditions are met. We can write our smart contract test cases using Solidity and Truffle.
Future Predictions for Solving Digital Payments Issues With Blockchain
Following are some future predictions that involve how blockchain will be solving digital payment issues and why you should look forward to it:
- The virtual currency will be created or adopted by most governments around the world.
- The number of trillion-dollar tokens will exceed the number of trillion-dollar companies.
- There will be a cross-border, blockchain-based, self-sovereign identity standard that will apply to both physical and virtual assets.
- Blockchain technology will be used to conduct most of the world's trade.
- Blockchain technology will improve the standard of living around the world significantly.
It is time to secure your digital payment software with blockchain. Do this by investing in blockchain QA testing and working with professional quality assurance engineers. Contact us today to let us know how we can help!