The advent of digital technology and its surging efficiency has superseded traditional cash transactions, initiating commerce through digital payments. Technological advancement supported by customer-centric innovation has facilitated the expansion of continuous and personalized payment channels within the sectors of finance and banking.
Digital payments are crucial in strengthening economic development and achieving financial inclusion. In the course of time, mobile and internet technologies have emerged as strategic assets in accelerating digital acceptance and fostering India’s digital payment ecosystem.
Today, digital payments play a catalytic role in driving the growth of the internet, the adoption of ICT, and increasing productivity through improved supply chain management.
Widespread uses of the internet, government initiatives, and mobile penetration have led to an upsurge of digital payments in India. Let’s examine these closely to understand the customer tilt towards digital payments.
Banks Pioneering Issuance of Digital Payments
In India, the growth of financial services is largely shouldered upon by the banks. Although the initial thrust of digital payments is led by banks, non-banks are also expanding their online payment services.
This thrust of a partnership between banks and non-banks endorses the digital payment ecosystem in India. Bank branches, bank accounts, mobile phones, cards, business correspondence, among others are supported by a competent and robust payment infrastructure including AEPS, APBS, ATMs, BHIM, BQR, Card Networks, ECS, IMPS, Mobile Wallets, NACH, NEFT, POS, RTGS, and UPI.
Proliferating Mobile Commerce
Mobile commerce has become a significant primary payment option for Indians. Consumers increasingly prefer transactions from smartphones and tablets with in-store apps such as PayPal, Mobile Wallets, among others. The simplified payment process, a personalized transaction with unique code, along with fall in smartphone prices, fast internet penetration, cheap data plans, government programs to foster connectivity in rural areas such as ‘Digital India’, ‘Skill India’ have augmented mobile payment preferences.
The Popular Appeal of Digital Wallets
An upward surge of digital payments was marked by the emergence of digital wallets and digital wallet companies. Digital wallets further initiated the trend of cashless and cardless transactions.
Google Pay, PayPal, Visa Checkout, Masterpass, AliPay, among others, conveniently allow consumers to store complex payment and card information, along with elaborate credit and debit card numbers, loyalty card numbers, etc. The convenient payment method of using Near Field Communication (NFC) technology further simplifies transactions.
Prepaid e-wallets, on the other hand, help to make easy peer-to-peer transfers and enable payments at both physical and online stores. The simple software solutions and customer loyalty have increased the value of transactions made through digital wallets.
The Thrust of Government Initiatives
Demonetization profoundly encouraged digitization of payment in India. Consumers were compelled to use alternative payment methods for the purchase of goods and services to refrain from using cash. TDS deduction, BHIM, UPI, Aaadhar Pay, NEFT, RTGS, DigiVaarta, DigiDhan Abhiyan, Vittia Saksarta Abhiyam, Rupay Card were initiated to achieve the aim of a digitally included society.
Furthermore, the government encourages digitization by ensuring transparency, security, and discounts on payments. For instance, social security pension payments through digital smart cards eliminate bribery; consumers now avail discounts for purchasing rail tickets digitally, and for paying highway tolls through a digital payment mode.
Digital Payments to Curb Tax Evasions
Incentivizing of digital payments has helped the government to put a curb on fake input tax credits, claims on ineligible ITCs, and has also helped in nabbing temporary businessmen, who disappear after claiming ITC. Digitization has prevented tax evasion practices and in return boosted government revenue.
In addition to efficiency, digital payments also ensure transparency and electronic maintenance of records within the tax-system. The e-government initiatives allow citizens to pay taxes, fines, and license fees online, thus benefiting from lower transaction costs, timely payments, and higher revenue collections.
The Lavish Business of E-commerce
One of the most cited reasons identified by online shoppers for shopping over the internet is lower prices and the availability of exclusive online products. High-quality, foreign electronic and lifestyle products, in particular, are popular purchases from abroad among Indian consumers. When split by value, transactions through cards, digital wallets, and bank transfers are among the most preferred.
The Pandemic Push
In times of COVID-19, digital payments have witnessed an upward surge. The RBI is also encouraging the public to use online modes of payments from the convenience and safety of their homes. Stress on social distancing has thus put remote banking, e-commerce, and online transactions to work.
Digitization and its Impact on Sales
If you own a small or medium business (SMB), you are in luck! Digital payments such as mobile wallets, bankcards guarantee a positive impact on your business because they are cheaper to process. The acceptance cost of digital payments is 57 per cent less than other payment methods such as cash, cheques, money orders, etc.
You can further boost sales and consumer spending by providing enhanced customer experiences such as loyalty programs, online ordering, and e-commerce.
Security is one of the topmost reasons, followed by convenience, which induces incremental sales uplift through digital payments. In a study undertaken by PayPal, consumers said they wouldn’t have opted for online purchase if PayPal was not offered as a payment method. This trend is observed across other similar alternatives to online payments.
Digital-based commerce positively harnesses trade and sales platforms. It fosters not only the customer base but also encourages the entry of new products. Through online payments, you can also widen entrepreneurial scope with cross-border trade.
The far-reaching benefits of digital payments are also realized in the public sector. Digital payments, for instance, accommodate a large number of credit card companies, and banks that offer alternative payment as service. They make profits through commission received through online transactions or fees.
Although digital payments have steadily penetrated into the payment ecosystem, the underdeveloped and hesitant approach to digital payment systems makes India a largely cash-driven economy. Inadequate authentication & infrastructure concerns over misuse of personal account information and the threat of fraud further cause a drop in digital payments.