Cash payments and money transfers
A payment moves value from a payer to a receiver, for goods, services or a debt.
Cash is notes and coins. It moves from hand to hand. It is instant, needs no bank, and leaves no record. Its problems: it can be lost or stolen, and it is hard to send over long distances.
A cash transfer means sending money to someone without meeting them. For example, you give cash at a bank counter or a post office, and the receiver collects it far away. Today most transfers are done through bank accounts instead.
Cashless payments: internet, POS and mobile wallets
A cashless payment uses no notes. Only account balances change. The steps are: 1) the payer starts the payment, 2) a message goes to the bank, 3) the bank checks the balance and approves, 4) the payer's account goes down and the receiver's goes up.
- POS (point of sale): a card machine in a shop. You tap, insert or swipe a card.
- Internet payment: you pay online with a card, net banking or a transfer.
- Mobile payment: you pay with a phone app, or by scanning a QR code (UPI in India works like this).
Good things: fast, safe from theft of notes, and it leaves a record. Risks: fraud and phishing, so never share your PIN or OTP.
E-money
E-money (electronic money) is value that you pay in advance and that is stored electronically, for example in a prepaid wallet or card. The company that issued it promises to give you real money back.
Each time you pay, the balance goes down. When it is low, you top up. A bank account is different: you can spend a bank balance up to what is in it, but e-money is held in the wallet.
E-money is different from a cryptocurrency. E-money is the same money as ₹ or €, only stored digitally. A cryptocurrency is a separate digital asset that most countries do not treat as ordinary money.
Payment systems, clearing and SWIFT
A payment system is the set of rules, tools and networks that move money between banks. Two big steps happen behind every payment:
- Clearing: banks send each other lists of payments and add them up. They find who owes whom and how much.
- Settlement: the final move of money between the banks, usually through their accounts at the central bank.
Clearing usually uses netting. If Bank A owes Bank B ₹100 and Bank B owes Bank A ₹60, only ₹40 is settled. This saves a lot of movement.
SWIFT is a secure messaging network used by banks around the world. It tells a foreign bank, "pay this person this amount". It sends messages only. The money moves through the banks' accounts. Each bank has a SWIFT (BIC) code, like an address.
Key formulas and definitions
- Payment = payer → message to bank (if cashless) → receiver
- Net settlement = (total owed to B) − (total owed to A)
- SWIFT = message only; settlement = money moving in bank accounts
Worked examples
1. You buy a book for ₹180 using a prepaid wallet with ₹500. What is left?
Wallet balance = 500 − 180 = ₹320. The seller gets ₹180.
2. Bank A must pay Bank B ₹100, and Bank B must pay Bank A ₹60. How much is settled after clearing?
Net = 100 − 60 = ₹40. Bank A pays Bank B ₹40. Only one small move instead of two.
3. In a UPI payment of ₹50, which things move: notes, messages, account balances?
No notes move. Messages go between the apps and the banks. The balance in the payer's account goes down by ₹50 and the receiver's goes up by ₹50.
Common mistakes
- Thinking SWIFT sends money. SWIFT only sends messages. The money moves in the banks' accounts.
- Thinking a cashless payment leaves no record. It always leaves a record, which is good for safety but means less privacy.
- Mixing up e-money with a bank balance. E-money is stored in a wallet or prepaid card that was paid for in advance.
- Thinking clearing means paying every single payment one by one. It adds them up and settles only the net difference.