15th September 2021

Payment instruments are ways by which customers can make payments. Ex: Cash, Credit cards, Debit cards, UPI, Wallets, Banking account, Buy Now Pay Later or BNPL, Cheques, etc. These instruments are:

  1. Issued (operated and distributed) by various financial institutions - Banks, non-banks
  2. Linked to a source of fund (bank account, prepaid, credit or postpaid)

Payment Instruments

Payment Instruments

Credit and Debit cards

  1. Credit cards are issued by non-banks, NBFCs, and card networks whereas Debit cards are issued by customer's bank in alliance with card network. (Card networks ex: Visa, Rupay)
  2. The spending limit of a credit card is limited and defined according to the profile and background of the user. The user can spend within the credit limit and repay all together at the end of the month. Late repayments will cost fees and affect the credit score.
  3. In the case of debit card, the spend limit is user's bank account balance.

<aside> 💡 Credit cards continue to survive well due to good credit period (30-45 days), EMI options, reward and discount programs, easier cross purchasing.

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Prepaid cards and wallets

  1. They are issued under PPI (Prepaid Payment Instruments) License of RBI.
  2. Spend limit is the balance loaded on the instrument.
  3. Available balance doesn't earn any interest (unlike net-banking) as funds are parked in a temporary/ intermediary account .
  4. Types can be:
    1. Non-reloadable but can be used multiple times (Gift cards)
    2. Reloadable and can be used multiple times (Paytm, PhonePe)
    3. Closed, Semi, Open loop cards based on their acceptance network (are they accepted by one or some or all merchants)

<aside> 💡 PPIs sure did lose their charm due to the UPI wave but are still used by merchants to increase customer retention and push refunds easily. New guidelines by RBI have also announced interoperability and cash withdrawals of PPI instruments. Let's see if they survive.

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Prepaid cards and Wallets

Prepaid cards and Wallets

Net Banking

  1. It was the earliest birds in the online transactions' sky, when people were afraid to use cards online. It is generally used for large ticket inter account transfers and bill repayments.