Digital Payments: Benefits, Challenges and Future in India

 


India is a massive cash dependent economy with a 13% cash-to-GDP ratio to the global average of 2.5 to 8%. This invites many illegal transactions and black money within the system.

The government hence, figured out that going cashless can be a solution to reduce these money laundering transactions, and a fair play in the economy of the country will persist.

In 2005, a tax named ‘Banking Cash Transaction Tax’ was one of the steps taken towards the removal of black money by the then finance minister of U P A government, which levied a tax of 0.1% on withdrawals of cash above 10,000 rupees.

But this mainly focused on the banks, while blurring the cash users like merchants or businessmen.

Why Digital Payments:

Billions of dollars in cash payments are made daily in emerging and developing countries, including salaries, social transfers, humanitarian relief and payments to suppliers and farmers. Shifting these payments from cash to digital has the potential to improve the lives of people on low income, particularly women.

It also means that governments, companies and international organizations can make and receive payments in a cheaper, safer and more transparent way, helping build economies that are inclusive. 

We do not want to abolish physical cash, but rather, we aim for choice in how to make and receive payments. We want all digital payment options to be responsible and “better than cash”.

Impact of Demonetisation on Digital Payments:

Since the attack of demonetization by the government has been taken, digital and online transactions have had a steep up-rise in its graph. The rate of digital cash users is increasing exponentially day by day.

Mobile transaction applications like Pay TM says that there has been a 200% increase in its mobile app downloads in recent times and a 250% increase in their recent transactions.



Applications like MobiKwik, Oxigen and U Pay also reports the growth of digitization in their statistics after the widespread of demonetization. Demonetization is the biggest and the most effective step taken so far by the Indian government towards digitization.

The dumping of 500 and 1000 notes has triggered the wealth of black money holders massively. Though the economy country-wide has dropped, the black money and big-fat illegal cash transactions have also been minimized greatly.

New portals for online digital transactions have been opened on a wide-scale, encouraging more customers or users of cash to dump the old techniques and go cashless.

The government must propose more secure and tight algorithms to stop the intervention of cyber-attacks on top security databases for big companies, governments and systems, as well as on personal accounts for the public.

Going digital will help in keeping track of the monetary transactions taking place and will pose more security on individual’s wealth. Digital payments will also be a step for an eco-friendly environment as the usage of paper reduces.

A drawback factor to the making of a digital India will be the high rates of illiteracy and poverty.

Challenges/ Issues to Digital Payments:

1.   Fraud and Security:

The security breaches and risks for data security is the biggest concern among the consumers and can be considered as a key factor for the adoption of digital payments.

The industry is constantly trying to introduce new ways for secure transactions and upgrading their current modes accordingly, hackers are also evolving their techniques.

Making a safer route for transactions is imperative and not a choice as, hacking and security breaches can cause financial as well as a reputational loss for the company.

2.   Awareness and Adoption:

India is a cash dominant society, even though there is a rapid increase in using digital payment modes, there is still a lack of awareness among people concerning security, data privacy, etc. which is leading to them believing that making payments via cards or cash is better than paying mobile application.

Consumers still don’t consider mobile wallets as a safe mode for payment and the mobile wallet industry needs to invest a good amount of time and effort to overcome this.

Though there is a clear dominance of using cash over other methods for transactions, many of the consumers prefer using credit or debit cards for transactions as the next option.

There are certain limits for mobile payments, which are more wider for using cards. So, competition with debit/ credit cards can be another key point to the further adoption of mobile wallets.

3.   Merchant Support:



Adopting to the mobile wallets is putting many merchants into the dilemma. Many merchants (from small as well as big businesses) are still resisting to upgrade to EMV standards and contactless payments.

This is resulting in customers sticking to the traditional/old methods of payments (if their merchants are not accepting digital wallets/digital payments why would they adapt to them?).

4.   Compliance:

Mobile wallets need to be compliant with all legal requirements of government standards. Becoming compliant is indeed a difficult task, but it is of utmost necessity. The mobile wallet industry should take needed efforts in the best interest of customers as well as for themselves.

5.   Compatibility:

Mobile wallets need to be compatible with all the mobile models and their operating systems. The customer is the king and he is looking for a seamless and convenient way of digital transaction, it is required that compatibility should exist across all os and mobile devices.

Benefits of Digital Payments:

In a country like India, where disparities are sometimes poles apart, ensuring financial equality becomes an issue of prime importance. One of the reasons why our government started vocalizing Cashless Economy and Digital India was to improve access to financial resources.

There are multiple benefits that digital payments bring to the table:

1.   Ease and Convenience:

One of the most significant advantages of digital payment is the seamless experience they provide to customers. Reduced dependency on cash, fast transfer speed, and the ease of transacting make online payments a preferred option.

Traditional payment methods like cash and cheques add to factors like risk, steps, and physical presence. With digital payment, we can send and receive funds from anywhere in the world at the click of a button.

2.   Economic Progress:

Customers transact more online when they see the ease, convenience, and security of online payments. This means that more and more people feel comfortable buying online, investing digitally, and transferring funds via electronic mediums.

The increase in money movement and online business contributes to the progress of the economy. This is why online ventures are being launched every day and even more are making profits daily.

3.   Safety and Efficient Tracking:

Handling and dealing in cash is a cumbersome and tedious task. Along with the risk of losing money, there is the hassle of carrying cash everywhere you go and keeping it safe. With digital payments, one can keep their funds secured in online format effortlessly.

Nowadays, our mobile phone alone is enough to make and receive payments – thanks to UPI, net banking, and mobile wallets. Additionally, most digital payment channels provide regular updates, notifications, and statements for a customer to track his funds.

4.   Provision of Discounts:

Going digital can benefit the users in terms of discounts provided to them for various occasions as well as purchases. For example, for encouraging people to use the digital method of making transactions, the government announced a waiver of service tax on debit and credit card transactions up to Rs 2,000.

Such incentives and measures by the government help people be more digital-friendly, and thus, helps the government keep tabs on tax evasion. Moreover, the customer avails the benefits of discounts online every now & then and gets a fair price for the product/service needed.

5.   Better way to observe spending:

With digital payments being convenient not only in other aspects but also in terms of keeping a record of the payments done so far, it is but easy to be accountable. When the payments are made via digital channel, it is easier to file income tax returns and also is easier to explain the spends in case of scrutiny.

6.   Helps in Better Investments:



As making transactions digitally helps individuals observe their spending, psychologically speaking, it becomes obligatory to ward off some of the expenditures.

This, in turn, helps increase savings, which can lead to an increase in investments. Hence, with online payments, there are better chances of people being able to save more for investments. More investments lead to more earnings and thus, it proves to be quite beneficial for the users.

7.   Option to deactivate in case of theft or any accident:

Payments have evolved from the barter system to cash to card payments to digital payments. According to Statistics, in India, the total transaction value of digital payments in 2019 amounts to US$64,787 million.

Digital payments have the upper hand over making cash transactions since a digital payment platform can be blocked immediately in case of theft.

But it is not the same with cash payments, since the cash once gone, has minimal to zero possibility of coming back to you. Moreover, carrying bundles of cash with oneself while traveling is never recommended and neither is easy.

Future of Digital Payments:

Many companies are developing the applications and methods more seamless for both customers as well as merchants.

Now there is no need for customers to give their card information for digital payment (epos link), as for merchants, they can accept bulk payments, split payments with just a click (WhatsApp link). And everything is possible because of using means of digital payments.

Many Payment services provide as well as financial institutions are opting for secure ways to make online payments secure for both merchants and customers.

India is among the top nations with the world’s fifth-biggest online customer base and majority of them are only using mobile internet which indeed is a driving force for the success story of digital payments.

The rise of new-age technologies such as e-wallets, UPI, tap, and pay, has further allowed people to look beyond the conventional mode of payments. The technological transformation which the country is witnessing has both pros and cons which are necessary to be addressed for a better future. 

 

Written by – Sakshi Chauhan


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