Why transactions are made in money

Payments are made using various methods that include the following. Credit and debit cards are widely used for purchases and payments. However, many businesses that accept cards are charged a fee from the merchant that provides the machine and payments infrastructure as well as their financial institution.

This fee is often a percentage of the transaction amount or a flat fee for each payment. Cash is still used for many businesses, such as the retail industry. Coffee shops and convenience stores, for example, still accept cash payments. Considering the fees associated with debit and credit cards, many retail small businesses prefer cash payments from their customers.

Cash has its own disadvantages, as it can be lost, stolen, or destroyed. Businesses dealing in large transactions must often incur additional expenses to pay for related security measures.

The contactless payment technology that has emerged in recent years has made payments easier than ever. The credit or debit card machine—called a point of sale terminal POS —can read the customer's banking information through the software application that's installed on the mobile device.

Once the phone reads the information from the POS terminal, a signal is generated to inform the customer that the payment has been made. Checks have fallen out of favor over the years due to advancements in technology, allowing payments to be electronically submitted. However, there are instances when checks might be helpful, such as when the seller wants a guaranteed payment.

A bank cashier's check or a certified check are two types of checks that banks offer to help sellers receive the money owed from the buyer. Wire transfers and ACH payments Automatic Clearing House are typically used for larger or more frequent payments in which a check or credit card wouldn't be appropriate. A payment from a manufacturer to a supplier, for example, would typically be done via wire transfer, particularly if it was an international payment.

An ACH payment is often used for direct deposits of payroll for a company's employees. The payee may choose to compromise on debt and accept partial payment in lieu of full settlement of the obligation, or it may offer a discount at their discretion. The payee may also impose a surcharge, for example, as in a late payment fee, or for the use of a certain credit card.

Bearer securities, held outside a recognized custodial system, are extremely portable and anonymous instruments which may serve the purposes of the money launderer well. Their presentation in settlement or as collateral should therefore alwaysprompt further enquiry as should the following:.

Money Laundering involving financial institution employees and agents changes in employee characteristics, e. Sales and dealing staff New Business Although long-standing customers may be laundering money through an investment business it is more likely to be a new customer who may use one or more accounts for a short period only and may use false names and fictitious companies. Abnormal transactions a number of transactions by the same counter-party in small amounts of the same security, each purchased for cash and then sold in one transaction, the proceeds being credited to an account different from the original account; any transaction in which the nature, size or frequency appears unusual, e.

The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors that the banks actually maintain the cash balance. Similarly, the RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries and small borrowers etc.

Periodically, banks have to submit information to the RBI on how much they are lending, to whom and at what interest rate etc. This means that the currency is authorised or guaranteed by the Central Government and no one can refuse payment made in it. Banks keep only a small proportion of their deposits as cash with themselves. Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people.

Increased connectivity is also at the core of efforts to increase financial inclusion through digital money, where a lack of bank and cash infrastructure and ability of individuals to authenticate their credentials is traditionally cited as an underlying challenge. The final factor driving adoption is mobility. People, devices and transaction locations are literally moving and consumers are seeking more convenient ways to pay.

Consumers can and want to shop from their own home, send a payment from an app on their PDA, wave a contactless card to use mass transit or pay for their Uber ride automatically. And as people have migrated, so too has boomed the digital money of International remittances.

On a twin track to the three underlying drivers comes innovation and competition. As banks and payment schemes struggle to cope with legacy technology and stifling regulation, new entrants have arrived.

In the case of Square, Paypal and Stripe, the competition is aiming to reduce the cost of accepting digital money or making digital payments. These new entrants in the main seek to digitise and substitute previous cash-based payment. The most disruptive new entrants may prove to be the crypto-currencies , for example Bitcoin, and the associated underlying and de-centralised blockchain technology.

Alongside the commercial innovation sits moves by both governments and central banks to accelerate the move towards digital money. While reduced costs form part of the logic to do this, so too does the inherent ability of digital money to carry a negative interest rate, something which it is not possible to do with cash.

In Denmark, the Government has gone further, announcing in that selected retailers will be able to refuse cash, paving the way for a truly cashless society. Supporters say that not only will this enable banking systems to become more productive but that it will also ensure that taxes will be paid and only legal transactions will take place, putting pressure on both the informal and black economy.

One downside of the shift to digital money has been the enormous growth in fraud. Physical money has been with us for thousands of years for a reason.