We have seen various ways of transactions, be it the barter system where goods were acquired in exchange for other goods, then money came into existence but lately physical coins and notes have started losing currency as digital cashless transactions became the order of the day.
It took years of advancements in the digital system to create infrastructure for a cashless payment system to take place smoothly.
The idea of cashless transactions got a booster in India as well, considering digital transactions were on the cusp of a major boom after demonetisation, and now Covid-19 has changed the consumer sentiment, the way one shops, pays bills, and makes other transactions.
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The digital ways of transaction gained everyone's fancy and fintech companies were in a nick of time to bring virtual cards that made credit accessible and quickly available to everyone -- from students in metropolitan cities or small loan seekers in small towns.
Here's how virtual cards changed the loan system dramatically
1) Paradigm shift in transactions: Before the pandemic, digital payment tech was limited to a few as only a small chunk of the population was getting versed with the latest microfinance platforms, thanks to e-commerce sites, shopping websites, food delivery apps.
Amidst the pandemic, many found themselves in the cobweb of the financial crisis, as salaries were delayed and in some cases, people lost their jobs. To meet urgent financial commitments, they explored ways to get rid of temporary financial burdens, and virtual cards were one of the options that came in handy.
This was possible as the use of smartphones for mobile banking, investing, and cryptocurrency made financial services more accessible to the general public. The shifting paradigm gave a new boost to cashless transactions in the country and also influenced people's perceptions. The major factor behind this boom is the convenience and ease virtual card provides; giving a quick line of credit to people in urgent need.
Earlier, the credit card was one of the primary ways for people to take small loans and repay, however, exorbitant interest rates, hidden charges, other fees, and heavy penalties pushed people to explore cheaper and flexible loans. Besides, not everyone is eligible for a credit card and sometimes the process of approval takes so much time and paperwork that people end up looking for conventional loans which cost them more money. The pre-approved loan is also not for all, it's available for a select few and for a limited time.
Virtual cards have solved these issues to an extent for small loan seekers. Even people in small-town can take instant loans with just a few taps on the mobile screen, without the need for Point of sale (PoS) machines or time-consuming paperwork for loan approval.
The availability of loans with minimum documents and within seconds across the country, through an app, has made life easier for many.
2) Credit for all: A major boom in e-commerce and the adoption of digital currency have paved the way for virtual cards. Sometimes, people are less on cash or wish to keep the cash till their next salary, especially in the case of millennials and Genz, who have less experience in handling personal finance, and this is where virtual cards come in handy.
They are in need of a credit limit for a short period but due to the extensive paperwork requirements and hidden terms and conditions, they stay away from credit cards.
Making credit easily accessible to customers who are hardly entertained by established lenders makes virtual cards popular among those seeking a quick loan of as little as Rs 5,000 to anywhere near Rs 100,000. Thus, virtual cards solve these concerns with instant loans and flexible ways to repay.
People who are creditworthy sometimes face a cash crunch and their only alternatives are high-priced loans that take time for approval. A virtual card is a perfect solution for them to manage minor cash flow crunches in their daily lives.
The virtual cards also empower people in smaller towns, or tier-2 or tier-3 cities as digital ways of the transaction are making inroads as these people were at the mercy of moneylenders who put exorbitant interest on top of several terms and conditions. Virtual cards are widely accepted now, hence it gets easy to shop or pay bills as well.
3) Managing cash flows: An easy one-time loan helps people manage money better as they don't have to deal with multiple EMIs and other conditions that credit card companies or other lenders usually have. In fact, multiple loan inquiries are seen as a bad sign. Hence, virtual cards help people maintain a decent credit profile. The fintech companies have also removed the language barrier with regional language integration. Hence, one app is enough for anyone to learn and understand the terms and get insights into spending patterns.
4) Convenience: Unlike physical credit cards, application for a virtual card is easy; by filling in basic details along with a PAN card and Aadhaar card, a person can acquire a virtual card within minutes. The chances of fraudulent activities are reduced with virtual cards given that technology such as authentication, biometrics, 3D security, Artificial Intelligence, is updated over time to prevent any fraud. Besides, the KYC is done and transactions are authenticated by one-time passwords (OTPs) sent on registered mobile numbers. Virtual payment cards do not require a person to share a bank account number or other details. This way, chances of cyber fraud are reduced.
5) E-payments are the future: With more and more consumers having access to smartphones and the internet, the surge in digital payments can go many folds. Amid the Covid-19 pandemic, digital payment systems have seeped into the system and the ease and flexibility are likely to pull more people towards it.
Conclusion
Modern problems call for dynamic solutions, especially in the financial space. Virtual card payments are a smart and quick way to get short-term loans with flexible and transparent repayment terms. The new credit method is likely to see an uptick in demand as more and more people get used to the digital currency space.
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The author is Founder of GalaxyCard
DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.
