2 min read
Traditional payment methods like cash and paper cheques are being steadily phased out in favour of digital transactions. There are plentiful benefits to digital financial transactions, and with multiple types on offer you’ve probably already incorporated some form of digital payment system into your business. So, what are digital transactions, and what are their pros and cons?
What is a digital transaction?
A digital transaction refers to any transaction that takes place from beginning to end without any need for cash or paper. It might involve a single party or multiple participants and can also involve multiple forms of payment. Fintech companies have transformed what financial transactions look like in today’s world, with cash becoming increasingly obsolete as a result.
What are a few examples of a digital transaction?
Making an in-person purchase on a contactless point-of-sale device
Signing a contract online with an e-Signing service
Making an online purchase using direct debit
Sending money to a friend using a mobile banking app
In all of these examples, technology allows you to complete your transaction digitally, without any need for paper to exchange hands. Overall, digital transactions are more accurate, convenient, and speedy for both customers and merchants.
Types of digital transactions
As you might expect from the multiple examples above, there are many types of digital transactions out there. When it comes to digital payment types, these include:
Online card payments
Contactless card payments
There are a few different types of cashless payment systems to choose from, each of which will have its own benefits. All work with the basic premise of transferring funds automatically from one bank account to another.
Many of these payment types include sub-groups of transactions. For example, some digital wallets will store electronic tickets and coupons for you as well as your card details. Presenting an e-ticket for a concert is a digital transaction, as is tapping your mobile device on a contactless card reader to make a purchase.
Advantages of digital transactions
The advantages of digital transactions are clear to anyone who’s used these services. Digital payments are fast and efficient. When you make a payment using cash, it must be counted and stored, with change returned to the customer. The cash deposit must be physically guarded and transported to the bank. By contrast, digital transactions are much faster. They also make it easier to take international payments online, including instant currency exchange at lower fees.
They’re more secure too. Cashless premises don’t hold funds, which is a deterrent to petty thieves. Digital transactions leave an online footprint that can be tracked with secure banking systems, making it easier for security experts to sniff out fraudulent activity.
From a business perspective, one of the main advantages of digital transactions is the ability to monitor cash flow in real time. Activities such as crowdfunding also make it easy for businesses to access financing using technology.
Disadvantages of digital transactions
While there are numerous benefits to consider, there are also a few disadvantages of digital transactions that we’d be remiss to include. Digital financial transactions don’t carry the same anonymity that a cash transaction does, which might be unappealing for some consumers. Those who worry about the safety of their data might prefer to use cold, hard cash instead.
With the right security measures in place, digital payments are very secure. However, if you don’t implement basic layers of encryption, you leave client data open to hackers.
Finally, some fees are involved with online payment processing, so if you want to facilitate these digital transactions you should compare options carefully to avoid overpaying.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.