Digital currency

Digital currency is a method of payment that is similar to paying with coins and bank
notes. However, rather than using physical monies to make the payments, the
currency is exchanged digitally using computers.
There are several different types of digital currency, the most popular being credit
cards, mobile phones and smart watches.
A common reference for this kind of payment is that it is like having an electronic
wallet.

Credit cards
Credit cards can be used with card payment machines in 2 different ways:

The magnetic stripe can be swiped, then the card is inserted into the machine
and the chip is read;

Or touching the card to the computer using a method called contactless

payment.

The data that is stored on the credit card is read by the computer. The data contains
the information required to locate the user’s bank account. The business can then
request that the correct sum of money is deducted from the user’s bank account and
sent to the business’ account.

Stored value card

Another form of digital currency that is similar to a credit card is a stored value card.
This type of card has a set amount of currency stored on it, e.g. $100. It can be used
to pay for items, and the value on the card will decrease until it reaches 0.
These cards are often provided by banks to people who can’t have a credit card due
to issues such as credit rating.

💡 A credit rating is an evaluation of the creditworthiness of an individual or

organization, based on their history of borrowing and repaying debts.
Credit ratings are assigned by credit rating agencies, which analyse
financial data to determine the risk of default on loans or bonds.

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 There’s 2 kinds of stored value card:

closed-loop card

open-loop card

With a closed-loop card, money can only be loaded onto it once, and the card is
discarded once all the currency has been used.
An open-loop card, however, can be recharged as necessary (money can be
repeatedly loaded onto it).

Mobile phones and smart watches/Mobile devices

These can be used in a similar way to the contactless payment that can be made
with credit cards.
A user can install an app one their mobile phone/device that acts as a digital credit
card. Examples include Apple Pay, and Google Pay.
The user can touch their mobile device to the card payment machine and the app will
provide data to access the user’s bank account, similar to credit cards.

Advantages Disadvantages

No need to carry physical money around, Often a monetary limit on contactless

which can easily be lost/stolen. payments.

If card/mobile device is lost/stolen, user can As data is sent electronically, there is always
contact bank to freeze transactions through it. a risk of the transactions being hacked into.

Some people are anxious about contactless

All transactions are completed using payments, believing that they could walk near
encrypted methods, so data is sent securely. a payment machine and money would be
deducted from their account.

Some think that it is easy to lose track of

Contactless payments can speed up payment
one’s spending, as they are not handing over
for products and services.
physical money for the transaction.

If the user is in a different country, there is no

need to have that country’s currency If a card/device is lost, another person can
physically inside their wallet. They can use a use it for contactless payments before the
digital method and the banks involved will user has a chance to cancel it.
electronically convert the currency.

No need to always remember the PIN, if the

user is using contactless methods.

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 Advantages Disadvantages

The use of payment methods, such as stored

value cards can prevent a person from falling
into debt, as there is set amount of money
that they can spend.

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