Last Updated on
Traditionally, banking transactions were conducted physically, using cheque books, deposit and withdrawal slips, passbooks, demand drafts, and so on. All of these transactions and services required the presence of the account holder at the bank branch.
Today, physical boundaries are no longer a barrier to business, which can be conducted across cities, states, and even countries. While we are less dependent on traditional methods of banking, they are not obsolete. Technological innovations and developments have not just introduced new methods of banking, but they have also helped revitalise traditional banking methods, improving convenience for users.
Here are some of the most commonly used payment mechanisms that are available to customers.
1) Paying through cheques: This method is still used by several customers. The cheque deposit system has also been modernised with cheque-deposit kiosks. These automatic terminals were popularised by Kotak Bank, which was among the first to introduce this technology. Most customers prefer to use these automated services as they eliminate and reduce dependence on the manual intervention of bankers.
Pros
- No need to wait in queue
- Eliminates the need to fill deposit slips
Cons
- Maybe complex for those not comfortable with technology
- Person may not know the account number
2) Payments through demand drafts (DD): These instruments are secured payment mechanisms. Banks issue a DD to the drawer (client) providing directions to the drawee, which could be another bank or one of its branches, to disburse a specified amount to the payee.
Pros
- Safer than cheques
- Does not require signature of the account holder when encashing
Cons
- Possibility of an inaccurate payee name resulting in non-payment
3) ATM cards: Most banks offer ATM cards to account holders. These cards can also be used to make payments. Similar to credit cards, these cards can be swiped at merchant outlets to pay the desired amount. One difference between these cards is that an ATM card can only be used to pay an amount if the funds for that transaction are available in the connected bank account.
Pros
- Users do not need to carry cash reducing the risks of traveling with huge amounts
- Ensures you do not overspend as the amount is limited to the balance available in your bank account
Cons
- If you lose the card, there may be unauthorised transactions until you block it
- Most banks confiscate the card if a user enters incorrect PIN more than 3 times; retrieving the card is a time-consuming procedure
4) Credit cards: These are widely used by people because of the convenience they offer. Credit card holders can conduct transactions with ease in multiple outlets, without having funds in their banking accounts. In addition, they can earn rewards and loyalty points on the amount they spend using these cards.
Pros
- Users do not need to carry cash reducing the risks of traveling with huge amounts
- Widely accepted across shops, restaurants, cinemas, and other merchant outlets
- Allows users to acquire things on credit for a certain period of time while deferring the actual payments
- Users earn reward points as they use their card and these points can be redeemed to make further purchases
Cons
- Since the payment on the card is not due until a later date, there is a high risk of overspending
- Can lead to debt traps and liquidity crises in case the outstanding bills are not immediately paid
- Interest rates and transaction fees are applicable, making it an expensive option
Every banking institution in India provides multiple payment options for the convenience of customers. Although a number of banks have taken an initiative in expanding banking services, Kotak Bank’s efforts in this regard are laudable. In addition to modernising traditional services, the bank has also pushed the boundaries of digital and mobile services.