In the finance world, several variant methods exist in order to move capital from one hand to another. Each of these methods have their own advantages in which distinguish them from the others; features such as use case, speed, fee, and also the risks.
Cash
The most traditional method for paying is physical money issued by central banks and typically used for retail, with an immediate settlement speed that needs no intermediary technology. Although it has the mentioned advantages, there is the issue of security and storage risks specially if the amount is large or the transaction is international.
Electronic bank transfers
The electronic fund transfer between banks or bank accounts is also another way of payment. Networks such as Fedwire, SEPA, and SWIFT are the networks that provide individuals with the mentioned service, which takes hours to days to complete a transfer. These transfers are suitable for large value transactions due to the fact that they are safe and secure; though cross-border transfers can be slow in speed and expensive in terms of the fees they take from you to complete the transfer.
Cards
Prepaid, credit, and debit cards are all card-based payment methods in which you use a card to transfer the value you have been asked to transfer.
- Prepaid card: pre-loaded cards, meaning that they have been filled with a certain amount of money, like a gift card.
- Credit card: the organization (like American Express or DFS) that gave you the card extends your credit on it, and you can use it afterwards. In this case, you pay now with your credit and pay after a certain period of time instead of paying exactly at the moment. The downside of this method is that the interest can go through the roof if you don’t pay up at the time you have been asked to.
- Debit cards: unlike credit cards, which you pay for later, with debit cards (such as Visa or Mastercard), when you pay for something, the money will be deducted directly from your bank account balance. Although they are widely accepted and have lower debt risks, they still have fraud issues in some jurisdictions.
Digital payments
This system of payment includes easy access to your accounts and less banking infrastructure. This method includes digital wallets such as PayPal, Apple Pay, and Google Pay; QR code payments, namely Alipay and WeChat; and phone-based financial services like M-Pesa. These methods don’t have a certain risk due to the high security of these systems.
Cryptocurrency
Cryptocurrencies are assets that operate on decentralized blockchain networks, such as Bitcoin and Ethereum, which enable you to transfer your assets anytime you want and wherever you want. The problems you face with cryptocurrencies are their price volatility and some cybersecurity issues, which, after a while, Stablecoins (like Tether) came to the market to solve these issues, being connected to fiat currencies. Another form of this method used by banks is called central bank digital currencies “CBDCs”, which is basically a digital form of that country’s money, like digital euro.
Market-specific institutional payment systems
One form of this system is the Automated Clearing House “ACH”. The batch-processing systems for recurring and low-value payments, such as salaries, direct debits, or utility bills, with a low cost of operating, it’s worth mentioning that they have a slower settlement than RTGS.
Real-time gross settlement, the high-value payment systems where transactions settle individually, is what “RTGS” stands for and is used by major financial organizations and banks such as Fedwire in the United States.
Conclusion
We can’t say for sure which one is better due to the fact that each one of the methods have a specific usage; central banks and RTGS systems are for high-value institutional settlements, commercial banks handle transfers, cards, and deposits; and blockchain networks introduce decentralized alternatives. All that have been mentioned above is proof for realizing that each one of them have a role to play in money transactions and do their part in the economy.
References and further study
https://www.bis.org/publ/econ36.htm
