digital payment in india essay

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Digital Payment In India Essay – Know the types of digital payment platform & their benefits

The Indian Government initiated a flagship program named ‘Digital India’ with an objective to promote digital payments and it aspires to convert India into a digitally empowered society and knowledge economy. Recently, Ms. Nirmala Sitaraman made a statement in Budget 2022 to establish one digital payment system in 75 districts across the country. In this post we have talked about  digital payment in India essay  followed by the pros and cons of digital payments across the nation.

Table of Contents

Digital Payment In India Essay – Introduction

A digital payment, commonly known as an electronic payment, is an electronic transfer of funds from one account to another. As a result, no real money or instruments such as cash, cheques, or other similar things are exchanged. However, one should be aware that digital transaction does not only refer to online transactions; it also includes transactions processed in a physical location. This indicates that both the payer and the payee exchange currency via digital means. ATMs aren’t the only way to make digital payments, online banking and UPI are also options. RTGS, NEFT, and IMPS are examples of online banking. Nearly every single bank in India offers digital payment systems, allowing customers to pay and receive payments electronically in a timely manner.

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Essay On Digital Payment In India – Kinds of Digital Payments

Following the advent of Cashless India, India now has ten different digital payment options. Some approaches have been in use for over a decade, while others have only lately gained popularity. Let’s take a look at some of the most common digital payment platforms and see which one would be the best fit for you based on the features they provide.

Mobile Banking

Several banks offer mobile applications that can be downloaded from App stores. It allows customers to conduct various types of transactions using a smartphone from a distance. It enables customers to conduct various types of financial transactions using a smartphone or tablet from a distance. Mobile Banking is a terrific method to keep track of the bank accounts in today‘s world.

Micro ATM systems are used by thousands of Entrepreneurs to provide basic banking services. The said entrepreneurs utilizes a gadget that authenticates the fingerprint and allows the customer to transfer money from your Aadhar-linked bank account. Banks all around the country are linked to the Micro ATM devices. It allows a person to transfer or withdraw funds instantaneously to any bank.

Internet Banking

Customers can process transactions and other financial operations over a bank’s website using Internet Banking. It  enables customers to conduct all of their banking transactions online. Customers must first register for online banking with the bank where they have a Savings Account.

Mobile Wallet

A mobile wallet/digital wallet/ e-wallet is a sort of virtual wallet that allows a person to link the debit or credit card details to your mobile wallet software and transfer funds to the wallet online. Instead of physically utilizing cards, this app can be used to make transactions digitally. A customer must link their bank account to their mobile wallet in order to transfer money into it.

Bank Prepaid cards

These are plastic cards provided by banks that are pre-loaded with funds and can be used in the same way as a debit card. These are not linked to an account and must be charged with funds from your bank account, either online or in-person.

Unified Payment Interface (UPI)

It connects several bank accounts (from any partner bank) to a single mobile app, allowing for multiple banking functions, smooth fund routing, and merchant payments all under one roof. Transactions can be carried out 24*7*365 via UPIs.

AADHAAR Enabled Payment System (AePS)

The AePS was created to help accelerate financial inclusion in the country by leveraging the visibility and reputation of Aadhar. It allows banks to safely and securely route Aadhar-initiated interbank transfers via a central switching and clearance service.

Unstructured Supplementary Service Data (USSD)

The system is intended to promote financial inclusion and development in remote areas with limited internet access. The transfers are limited to Rs 5,000 for each transaction for security reasons.

Banking Cards

It encompasses all card kinds, including debit, credit, and prepaid cards. Visa, MasterCard, and RuPay are the most popular card payment methods in India. Banking cards have become one of the most popular payment methods due to the immense convenience, control, flexibility, and security they provide when compared to other options. 

Point of Sale (POS) Terminals

A POS is a location where sales are carried out. As a result, a POS can be anywhere. It’s readily available and has no transaction limits set by the RBI, making it a suitable and safe way to pay for things.

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 Importance Of Digital Payments In India 

• Digital payments are a speedy, friendly and safe mode of payments.
• Most of the digital payment wallets and other modes don’t charge anything as processing fee and thus it is economical for most of them.
• Users also get rewards and other benefits on certain digital transactions.
• Digital wallets help in maintaining the transaction records.
• With the help of digital payments, govt. can keep track of unappropriate transactions.

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Conclusion of Digital Payment In India Essay

Firstly due to demonetization and then because of COVID-19 and India’s push for cashless transactions, our reliance on cash has decreased significantly with the emergence of many digital payment options. These approaches are not only simple and friendly to use, but they also provide additional protection, cost savings, and adaptability.

Check the details about Digital Payment in India

Digital payment is an electronic transfer of funds from one account to another.

Read the above mentioned part in this post to read about the advantages of digital payment in india.

Currently, there are 10 kinds of digital payments in India. Please read above to know more about the types of digital payments.

Yes, digital payments are safe in India.

RBI governs all transactions related to digital payments.

By Skandh Gupta

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Digital Payments In India: Meaning, Types, How Does It Work, and Benefits

Table of Contents

What is Digital Payment?

Digital payments are transactions that occur via digital or online modes. This means both the payer and the payee use electronic mediums to exchange money.

The Government of India has taken several measures to promote and encourage digital payments. As part of the ‘Digital India’ campaign, the government aims to create a ‘digitally empowered’ economy that is ‘faceless, paperless, and cashless’. There are various methods and types of digital payments.

You must note that digital payments can take place through the Internet as well as on physical premises. Here are some examples of digital payments, buying something from e-commerce platforms and paying for it via UPI (unified payments interface) qualifies as a digital payment. Similarly, if you purchase something from your local grocery store and choose to pay via UPI, that also is a digital payment. 

Now that you clearly understand what is digital payment, let us understand the process of payments.

How Does Digital Payment Work?

Have you ever wondered how digital payments really work? Let’s simplify it for you in this section.

1. The Parties Involved

In digital payments, simplicity on the surface masks a complex network of intermediaries, ensuring smooth and successful transactions. Key players in digital payment systems include the merchant (payee) and the consumer (payer), whose interactions initiate the digital payment process. Both parties require a bank account and online banking to engage in digital transactions.

Additionally, other key players include the bank and the payment network, which facilitate secure fund transfers.

2. Bank Accounts

For digital payments, merchants and consumers participate as customers, so they need to have bank accounts with online banking features. Bank accounts build up the foundation of conducting e-transactions by storing funds securely and endorsing transfers.

3. Step-by-step Transaction

• The consumer starts payment transactions using UPI, mobile wallets or a similar option of his choice.
• The payment details are transmitted securely into the payment network.
• The payment network checks for the balance, thereafter, funds are moved from the consumer’s bank account to the payee’s bank account.
• A confirmation is sent to both the buyer and seller to confirm that the transaction has been completed.

4. Payment Rail

Payment rails serve as the backbone infrastructure that enables the transfer of funds between banks. They function as the pathways through which transactions move, linking institutions and guaranteeing the smooth flow of funds. Payment rails exist in many formats, such as automated clearing house (ACH), card networks and real-time payment systems, each designed for transaction types and processing speeds.

Types of Digital Payments In India

There are several benefits of digital payments. After the launch of Cashless India,(which aims to promote a cashless economy), we currently have ten digital payment methods available in India. Some digital payment methods have been used for over a decade, some have recently gained popularity, while others are relatively new. 

Here are the types of digital payments that are following:

1. Banking Cards

Indians widely use banking cards, debit/credit cards, or prepaid cards as an alternative to cash payments . In 1981, the Andhra Bank launched the first credit card in India.

Cards are preferred because of multiple reasons, including, but not limited to, convenience, portability, safety, and security. This is the only mode of digital payment that is popular in online and physical transactions. Many apps are being launched to manage card transactions, like Cred, Square, etc.

2. Unstructured Supplementary Service Data(USSD)

The unstructured supplementary service data (USSD) was launched for those sections of India’s population which do not have access to proper banking and internet facilities. Under the USSD, mobile banking transactions are possible without an internet connection by dialling *99# on any essential feature phone.

This number is operational across all telecom service providers (TSPs) and allows customers to avail of services, including interbank account-to-account fund transfer, balance enquiry, and availing of mini statements. Around 51 leading banks in India offer USSD service in 12 languages, including Hindi and English.

3. Aadhaar Enabled Payment System (AEPS)

The Aadhaar Enabled Payment System (AEPS) is a bank-led model for digital payments initiated to leverage the presence and reach of Aadhar. Under this system, customers can use their Aadhaar-linked accounts to transfer money between two Aadhaar-linked bank accounts. According to data from the National Payments Corporation of India (NPCI), the AEPS had crossed transactions over 205 million till February 2020.

The AEPS does not require physical activity like visiting a branch, using debit or credit cards or signing a document. This bank-led model allows digital payments at PoS (point of sale / micro ATM) via a business correspondent, known as Bank Mitra, using Aadhaar authentication. The AePS fees for cash withdrawal at Business Correspondent poin ts are around ₹15.

4. Unified Payments Interface (UPI)

The UPI is a payment system that culminates numerous bank accounts into a single application, allowing money transfers between parties. Compared to NEFT(national electronic funds transfer), RTGS (real-time gross settlement), and IMPS (immediate payment service), the UPI is considered a well-defined and standardised process across banks. You can use UPI to initiate a bank transfer anywhere in just a few clicks.

The benefit of using UPI is that it allows you to pay directly from your bank account without the need to type in the card or bank details. This method has become one of the most popular digital payment modes in 2020, with October witnessing over 2 billion transactions. 

5. Mobile Wallets

As the name suggests, mobile wallets are a type of wallet where you can carry cash in a digital format. Often, customers link their bank accounts or banking cards to their wallets to facilitate secure digital transactions. Another way to use wallets is to add money to the mobile wallet and use the balance to transfer money. You can also check out the digital wallets guide , for necessary details and clarify confusions, if any.

Nowadays, many banks have launched their wallets. Additionally, notable private companies have established their presence in the mobile wallet space. Some popularly used ones include Paytm, Freecharge, Mobikwik, mRupee, Vodafone M-Pesa, Airtel Money, Jio Money, SBI Buddy, Vodafone M-Pesa, Axis Bank Lime, ICICI Pockets, etc.

6. Bank Prepaid Cards

A bank prepaid card is a pre-loaded debit card issued by a bank, usually meant for single use or can be reloaded for multiple uses. It is different from a standard debit card because the latter is always linked to your bank account and can be used numerous times. This may or may not apply to a prepaid bank card.

Customers can create a prepaid card with an account that complies with Know Your Customer (KYC) norms. Corporate gifts, reward cards, or single-use cards for gifting purposes are the most common examples of these cards.

7. PoS Terminals

The PoS is the location or segment of a sale. These terminals were considered checkout counters in malls and stores where payments were made for a long time. The most common type of PoS machine is for debit and credit cards, where customers can make payments by simply swiping the card and entering the PIN (personal identification number).

With digitisation and the increasing popularity of other online payment methods, new PoS methods have emerged. First is the contactless reader of a PoS machine, which can debit any amount up to ₹2000 by auto-authenticating it without needing a PIN.

8. Internet Banking

Internet Banking, also known as e-banking or online banking, allows the customers of a particular bank to make transactions and conduct other financial activities via the bank’s website. It requires a steady internet connection to make or receive payments and access a bank’s website called Internet banking.

Today, most Indian banks have launched their Internet banking services. It has become one of the most popular means of online transactions. Every payment gateway in India has a virtual banking option available. Some of the top ways to transact via Internet banking include NEFT, RTGS, and IMPS.

9. Mobile Banking

Mobile banking refers to conducting transactions and other activities via mobile devices, typically through the bank’s mobile application (app). Today, most banks have mobile banking apps that can be used on handheld devices like mobile phones and tablets and sometimes on computers.

Mobile banking is known as the future of banking, thanks to its ease, convenience, and speed. Digital payment methods, such as IMPS, NEFT, RTGS , and other services like investments, bank statements, bill payments, etc., are available on a single platform through mobile banking apps. Banks encourage you to operate digitally as it makes processes easier for them.

10. Micro ATMs

A micro ATM is a BC device to deliver essential banking services. These correspondents, who could be local store owners, will serve as a  ‘micro ATM’ to conduct instant transactions. They will use a device that will let you transfer money via your Aadhaar-linked bank account by merely authenticating your fingerprint.

Essentially, the BC will serve as a bank. You need to verify your authenticity using UID (Aadhaar). The essential services that micro ATMs will support are withdrawal, deposit, money transfer, and balance enquiry. The only requirement for Micro ATMs is to link your bank account to Aadhaar.

What Are the Benefits of Digital Payments?

Some of the key advantages of digital payment in India that have made them a preferred choice for transactions are:

1. Faster Payments

  Digital payments allow immediate transactions that can be processed immediately, reducing the waiting time that one has to go through with traditional payment methods. This makes transactions seem smooth and efficient.

2. Convenience in the Payment Procedure

Digital payments enable swift and hassle-free transactions from your devices, eliminating the need for physical presence or documents. Whether you’re paying bills, shopping online, or transferring funds, digital payment methods offer a user-friendly experience that saves both time and effort.

3. Better Payment Security

Digital payment systems use encryption and system authentication protocols, which minimise the risk of unauthorised access and effectively prevent fraud. Your financial information is protected, keeping you stress-free throughout the entire process of making digital payments.

4. Improved Efficiency

Automation and digitisation in payment processes have significantly enhanced operational efficiency. By minimising manual intervention, errors are reduced, and financial workflows are streamlined, resulting in a more efficient and error-free system.

Digital Record of Transactions: Digital payments provide a traceable account of transactions, thereby guaranteeing safety. Such efficiency and credibility allow individuals and businesses to maintain accurate financial records. It is easy to monitor the payment history and can be referred to when required.

5. Reduced Costs

The digital payment framework eliminates the requirement of physical infrastructure, paperwork, and manual handling. This reduces the cost of transactions for business enterprises and financial institutions. Also, digital transactions usually include a lower cost of transfer as compared to traditional banking methods.

6. Ease of Use

The payment systems facilitate customer comfort. The old cash-processing machines that could only recognise clear notes and coins are being replaced by ATMs, which are accessible and easy to use. Digital payment systems are easy to operate and will not take additional effort to understand how they work.

7. Low Fees

Digital payment methods typically entail lower transaction fees compared to banking methods, contributing to overall cost efficiency.

8. Boost Revenue

Merchants can benefit from a wider consumer base and better cash flow by utilising digital payment methods, leading to higher revenue. Digital payments offer an efficient system, leading to higher customer satisfaction and smoother transactions, which can attract more customers in the future.

9. Discounts and Savings

Many online platforms provide discounts, cashback, or loyalty programmes. These discounts motivate the customers to go for the digital payment option, which saves them money and provides several benefits.

10. Low Risk of Theft

Digital payments diminish the possibility of the actual loss of money since it’s not physical. Transactions occur in the digital world, therefore rendering the necessity of holding large amounts of currency physically unnecessary. This safeguards payments by preventing direct cash transactions and ensuring their protection.

11. Customer Management

Digital payment systems can frequently oversee and monitor the customers’ transactions, preferences, and feedback, which gives the business more control over these aspects. This improves overall customer management by adjusting service offerings based on customer behaviour.

12. Better Customer Experience

The ease and convenience offered by digital payments enable customers to enjoy superior service, thereby enhancing their experience. Simplified payment processes result in increased customer satisfaction and a greater likelihood of future collaboration with the business.

13. Efficient Record-Keeping Features

Through the digital infrastructure, digital payments for offline businesses are recorded efficiently; thus, the business environment is friendlier than before. Today businesses and individuals can easily track, control, and analyse their financial activities to obtain financial transparency and improve the financial management process.

Razorpay Payment Gateway: Your Digital Payment Partner

Razorpay is India’s first full-stack financial solutions provider and aims to enable all businesses, enterprises, entrepreneurs, and freelancers to adopt digital payment methods to grow their businesses. Razorpay Payment Gateway is the flagship product, providing holistic payment solutions to both big and small enterprises with the lowest payment gateway charges in the market. If your venture has a website or an app, then Razorpay Payment Gateway should be your go-to option. Some of the key features and benefits include:

• Accept all Payment Modes : Multiple options include domestic and international credit & debit cards, EMIs (equated monthly instalments), PayLater, net banking, UPI, and mobile wallets.
• Flash Checkout : Thanks to the option of saving cards, there is no need to type in the card details every time – saving time and increasing sales.
• Powerful Razorpay Dashboard : The dashboard provides efficient monitoring through reports, detailed statistics on refunds and settlements, and much more.
• Protected and Secured : The PCI DSS Level 1 compliance, with frequent third-party audits, and a dedicated internal security team ensures the safety of your data.
• Run Offers Easily : The Razorpay dashboard allows you to run every promotional offer at the click of a button.

Read More: What is Payment Gateway and How Does It Work?

More From the Razorpay Payment Suite

1. razorpay payment links.

Payment Links are one of the easiest ways to accept payments online. You can generate a link from the Razorpay dashboard or ePOS app and share it with your clients. By clicking the link, your customer can pay within minutes.

Razorpay payment links ensure safe money movement with100% secure ecosystem guarded with PCI DSS compliance. These are extremely simple to generate and require no prior coding or design knowledge. It offers more than 100 payment options to a customer, ensuring timely and accurate payment. 

2. Razorpay Payment Button

Since most businesses already have an online presence, we developed a product to integrate digital payments on an existing website. The Razorpay payment button allows you to accept payments on any website or webpage by adding a code line. Within five minutes, a customised code will be embedded on your website to start accepting payments.

Some of the key uses of a payment button:

• Add an integrated checkout on your website
• Start accepting fees without any integration or coding efforts
• Use one of the existing templates or create one of your own

3. Razorpay Payment Pages

For people who want to give information and receive payments simultaneously, Razorpay is a better alternative. With Razorpay Payment Pages , you can set up your venture’s mini-website in less than five minutes. Payment pages allow you to add your business information, showcase pictures, and accept payments – all in one. With our ready-to-use templates, you can accept payments for multiple payment modes.

4. Razorpay Subscriptions

Razorpay Subscriptions is a means to collect recurring payments without troubling the customer to intervene at each payment. This means that professionals can obtain a steady flow of fee payments without worrying about operational barriers. It ensures complete visibility and flexibility, and the customer can control his regular payments.

With the rise of digital payments, recurring payments via cards are becoming less popular. Thus, Razorpay subscriptions also bring with them the valuable features of UPI AutoPay . Under this feature, customers can set up recurring payments within minutes via their UPI app. 

Join India’s Journey Towards Digital Payments

The digital payment wave in India is not going anywhere. With financial literacy and accessibility on everyone’s mind, online payments will grow exponentially. As a business and a professional, this is the right time to onboard the digital payment wagon and enable your customers to transact online securely.

Frequently Asked Questions (FAQs)

1. do digital payments make you responsible.

Yes, digital payments make you responsible as a business owner or individual. When you choose to accept digital payments, you must ensure the security and integrity of the transactions. This includes protecting customer data, implementing secure payment gateways, and staying updated with the latest security measures to prevent fraud or data breaches.

2. Will digital payments replace all cash?

Despite the rise in popularity of digital payment in India, it seems unlikely that physical currency will be entirely phased out soon. Cash still holds significance in various instances and for low-value transactions.

3. Is electronic payment safe to use?

With advancements in digital payment technology, demographic shifts, and the evolving cyber-security landscape, online transactions are more popular and secure than ever.

4. Which digital payment methods are commonly used in India?

In India, popular digital payment options include UPI wallets such as Paytm and PhonePe, internet banking services, debit/credit cards, and AEPS. 

5. How has the government contributed to the growth of digital payments in India?

The Indian government has played a role in promoting payments through initiatives like demonetisation. This initiative aimed to reduce cash-based transactions while encouraging the adoption of electronic payment methods. The introduction of UPI by the NPCI has transformed how people conduct transactions.

6. What is the regulatory framework for digital payments in India?

Digital payment regulation in India is primarily overseen by the Reserve Bank of India (RBI). The RBI establishes rules and standards to ensure payment systems’ security, reliability and effectiveness. 

7. Can you provide examples of successful digital payment implementations in India?

Some notable digital payment initiatives in India include the BHIM app, which facilitates UPI-based transactions. Additionally, integrating Aadhaar with payment platforms has simplified authentication processes for individuals.

8. What are the future trends and innovations expected in the digital payments landscape in India?

Digital payments across India may involve adopting contactless payments, expanding UPI for transactions, integrating voice-activated payments, and emerging blockchain-driven payment solutions.

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Shubhangi is a Content Marketer at Razorpay. A marketing enthusiast, she loves writing about business strategy and technology. You will often find her reading Indian mythology, exploring Delhi streets and taking Buzzfeed quizzes.

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DIGITAL PAYMENTS AND THEIR IMPACT ON THE INDIAN ECONOMY

Recent case studies.

India has a huge potential for digital payments. As of October 2021, the country had around 1.18 billion mobile connections, 700 million Internet users, and about 600 million smartphones. These numbers are growing rapidly each quarter. With about 25.5 billion real-time payment transactions, India ranked first in the world in terms of the number of transactions in 2020.

In 1996, Industrial Credit and Investment Corporation of India (ICICI) introduced online banking services in India, by using electronic banking at its branches. Later in 1999, banks such as HDFC, IndusInd, and Citi launched online banking facilities. The trend continued to grow with increasingly more banks launching net banking services in India. This marked the beginning of the digital transactions era in India – several new banks started offering services to users.

In 2008, the National Payments Corporation of India (NPCI) started its journey. It was formed by the Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) in order to create a robust payment and settlement infrastructure in India. Since then, it has launched several products such as Aadhaar Enabled Payments System, Bharat Bill Payments System (BBPS), BHIM, and Cheque Transaction System.

• Banking Card – This was launched by the Central Bank of India in India in 1980, in the form of the first credit card. MasterCard was introduced in 1988, and until 1993, several PSU banks started issuing credit cards.
• Unstructured Supplementary Service Data (USSD) – The USSD functionality was launched in 2016. This is a mobile banking facility enabling users to use mobile banking without smartphones or an Internet connection.
• Aadhaar Enabled Payment Systems (AEPS) – This is a bank-led model which allows online interoperable financial inclusion transactions at point-of-sale (PoS) through the business correspondent of any bank using the Aadhaar authentication.
• Unified Payments Interface (UPI) – UPI was developed by NPCI in 2016; it facilitates peer-to-peer, person-to-merchant transactions.
• Mobile Wallet – This is a virtual wallet that stores payment card information on a mobile device.
• Bank Pre-Paid Card – Under the motto “Pay Now, Use Later,” the pre-paid cards allow users to buy things with funds available in their cards.
• Point of Sale – Point of Sale (PoS) is a technological instrument provided by a Merchant Establishment (ME) to carry out the sale of goods or services to customers in a cashless environment.
• Internet Banking – This is an online banking method that enables customers of a bank or financial institution to carry out transactions through a portal.
• Mobile Banking – This is a service provided by banks and financial institutions to carry out financial transactions through a mobile device.
• Micro ATM – These are portable devices allowing banking transactions through card swipe machines.

In order to transform India into a digitally empowered society and knowledge economy, the Government of India launched Digital India programme in 2015. The programme focuses on three main vision areas: digital infrastructure as a core utility to every citizen, governance and services on demand, and digital empowerment of citizens. Through the programme, the government wants to ensure the availability of high-speed Internet, provide mobile phones and bank accounts to every citizen, ensure availability of services in real-time from online and mobile platforms, make financial transactions electronic and cashless, and ensure digital literacy and availability of digital resources across the country.

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Essay on Digital Payment in India

Students are often asked to write an essay on Digital Payment in India in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Digital Payment in India

Introduction.

Digital payment is a method of paying for goods or services electronically, instead of using cash or cheques. In India, it’s gaining popularity due to its convenience and efficiency.

Popularity in India

With the rise of smartphones, more Indians are using digital payments. Apps like Paytm, Google Pay, and PhonePe have made transactions easier and quicker.

Government Initiatives

The Indian government is promoting digital payments. Initiatives like BHIM, UPI, and Aadhaar Pay are encouraging people to go cashless, reducing the risk of theft.

Digital payments are transforming India’s economy, making transactions more secure and convenient. It’s an important step towards a digital India.

250 Words Essay on Digital Payment in India

Digital payments in India have revolutionized the financial landscape, transforming the way transactions are conducted. The advent of digital payment platforms has facilitated seamless, secure, and efficient financial transactions, reducing dependency on cash.

Evolution of Digital Payments

The evolution of digital payments in India is a narrative of technological advancement and financial inclusion. The launch of platforms like Paytm, Google Pay and government initiatives such as Unified Payments Interface (UPI) and Aadhaar Enabled Payment System (AEPS) have made financial transactions accessible to the masses.

Impact on Economy

Digital payments have significantly impacted the Indian economy. They have fostered financial inclusivity, bringing the unbanked population into the formal financial system. Furthermore, digital payments have enhanced transparency, curbing black money and tax evasion.

Challenges and Future

Despite the progress, challenges remain. Cybersecurity threats, digital literacy, and network connectivity issues, particularly in rural areas, are areas of concern. However, with continuous technological innovation and government initiatives, the future of digital payments in India looks promising.

In conclusion, digital payments in India have transformed the financial ecosystem, promoting economic growth and financial inclusivity. Despite the challenges, the future trajectory of digital payments is upward, with the potential to make India a cashless economy.

500 Words Essay on Digital Payment in India

Introduction to digital payments.

Digital payments, a concept that was once alien to the Indian populace, has now become an integral part of everyday transactions. The advent of digital technology has revolutionized the traditional methods of transaction, making them more efficient, secure, and convenient.

Evolution of Digital Payments in India

The journey of digital payments in India began with the introduction of internet banking and credit cards, which were initially used by a limited urban population. The real game-changer, however, was the launch of mobile wallets like Paytm, MobiKwik, and FreeCharge, which introduced the masses to the convenience of digital transactions. The government’s demonetization move in 2016 further propelled the growth of digital payments, as cash scarcity forced people to switch to digital modes of transactions.

The Indian government has played a pivotal role in promoting digital payments. Initiatives like the Jan Dhan Yojana aimed at financial inclusion, the Unified Payments Interface (UPI) for facilitating interbank transactions, and the BHIM app for UPI-based transactions have significantly contributed to the digital payments ecosystem. The launch of Aadhaar Enabled Payment System (AePS) has also enabled biometric-based secure transactions, thus ensuring financial inclusion even in remote areas.

The Impact of Digital Payments

Digital payments have had a profound impact on the Indian economy. They have reduced the dependency on cash, leading to a decrease in the parallel economy and increase in transparency. They have also facilitated financial inclusion by bringing the unbanked population into the formal banking system. Moreover, digital payments have made transactions easier and faster, thereby increasing the efficiency of the economy.

Challenges and the Way Forward

Despite the rapid growth, digital payments in India face several challenges such as lack of digital literacy, cybersecurity threats, and inadequate digital infrastructure in rural areas. To overcome these, there is a need for robust cybersecurity measures, widespread digital literacy campaigns, and investment in digital infrastructure.

Moreover, the future of digital payments in India lies in harnessing emerging technologies such as blockchain, artificial intelligence, and machine learning to further enhance the security, speed, and convenience of transactions.

Digital payments have come a long way in India, from being a novelty to becoming a necessity. The journey, although challenging, has been transformative, bringing about a significant change in the way transactions are conducted. As India continues to evolve as a digital economy, digital payments will undoubtedly play a pivotal role in shaping the nation’s economic landscape.

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Digital payments and consumer experience in India: a survey based empirical study

• Original Article
• Published: 05 January 2021
• Volume 5 , pages 1–20, ( 2021 )

Cite this article

• Sudiksha Shree 1 ,
• Bhanu Pratap 2 ,
• Rajas Saroy 2 &
• Sarat Dhal 2  

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Propelled by recent policy initiatives and technological developments, India’s digital payment system is a promising success story in the making. At the same time, the data also points towards an increasing usage of cash. While aggregate country-level data can indicate overall preferences of citizens, we use a novel online survey-based dataset to understand how factors such as ‘perception’ and ‘trust’ in digital payments, and experience with online frauds, affect the payment behaviour of consumers. While demographic factors like age, gender and income are relevant factors which determine this choice, we find compelling evidence that a person’s usage of digital payment methods is influenced by her perception of these instruments, as well as her trust in the overall payments framework and banking system in general. We find that the degree to which past-experience with online fraud deters usage of digital payments varies with the purpose of the transaction.

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1 Introduction

The consensus around the origin and the forms of ancient money has kept changing over the course of recorded history. But, what has not changed over the years is what money does; broadly, it facilitates trade in goods and services as medium of exchange and acts as a credible store of value. Modern day trade demands massive payments to be settled fast over long distances with minimum transaction cost. Evidently, to suit these needs the payment systems are being digitised globally. Cash, however, remains a crucial part of the trade. Therefore, the discourse on the current age payment system revolves around cash vs digital transactions.

While cash might seem convenient as it’s ingrained in our habits and is still readily accepted at more places, digital payments offer convenience by saving time and labour. There are further issues with cash use. While it provides a suitable alternative to aid the informal or parallel economy [ 3 , 21 ], digital payment offers itself as a desirable tool for institutions to fix this problem of traceability. In fact, governments around the world have taken drastic measures at huge costs to clear markets of ‘black money’. Research in the behavioural sciences conveys that people experience higher ‘pain of paying’ when paying in cash than digitally, and this contributes to deferred payments [ 17 , 19 , 20 ]. While cash may not seem to impose any direct transactional cost like digital money, it is still costly for both governments and end-users. A 2014 study found out that residents of Delhi spent around 6 million hours and ₹91 million to access cash, while the Reserve Bank of India (RBI) and commercial banks together spent about ₹210 billion towards currency related operating expenses in the same year. But on the other hand, there are also huge implicit costs to digitise the existing systems and nudge people to change [ 14 ].

In the last decade, India has rapidly digitised its payment systems and promises huge potential in the area. Digital payments recorded an increase of 46.5% in total volume in FY19 on top of an increase of 60.6% in FY18. The Unified Payments Interface (UPI), a payment system that was launched in 2016, has surpassed the milestone of a billion transactions per month. The progress in digitisation has been driven by a healthy mix of technological innovation, policy interventions, and expansion and strengthening of existing infrastructure on the supply side, coupled with an increasing proportion of the population adopting financial and digital instruments on the demand side. The government of India and the RBI have been working in synergy to push for policy and regulatory reforms. Enablers such as Jan Dhan accounts, Aadhaar and penetration of mobiles, and policies like Demonetisation and Goods and Services Tax have brought people closer to technology and banks. Recently, NEFT (National Electronic Funds Transfer) was made operational for 24 h on all days of the week, and RTGS (Real Time Gross Settlement) is expected to follow soon. The launch of UPI, along with already available digital payment modes like NEFT, IMPS, cards and Prepaid Payment Instruments (PPIs) has increased the options available to the consumer. The number of PoS (point of sale) terminals have also increased by about 40 lakhs in the last five years. PoS terminals and lightweight acceptance infrastructure such as QR codes have boosted Card/PPI based payments. Additional payment systems such as Bharat Bill Payment System (BBPS), National Electronic Toll Collection (NETC) system, RuPay cards and AePS have also boosted digital payments and the intent to incorporate modern-day technologies such as tokenisation and contactless payments will further the progress.

Despite this progress, cash use still seems to be on the uptick in India. Our paper seeks to highlight the important factors at the individual level, which influence the consumer’s decisions to use cash or digital payment. While it is critical to push for technological innovations and policy reforms, it is also imperative to understand the aspects that motivate or hinder the adoption of these technologies by the end-user. A recent survey [ 5 ], on the readiness of consumers towards adoption of newer payment technologies, ranked India second out of 27 economies on the FinTech adoption Index. Research conducted at the individual consumer level can provide an insight to understand how certain aspects are at play while making a payment decision. To this end, we use a comprehensive and multidimensional online survey which addresses many hitherto untouched dimensions of this topic, such as the difference in digital spending over various expenditure categories (groceries, e-commerce, utility bills, etc.), the choice of consumers to go purely digital or exercise a mix of cash and digital options, and the effect of psychological factors like perception and trust.

There is a dearth of studies and data covering the behavioural aspects at individual level that have an impact on choice of payment behaviour in the Indian economy. Given the massive heterogeneity of our population, different samples might produce disparate results. The High-Level Committee on Deepening Digital Payments [ 15 ] recommended that there should be periodic surveys to gauge user experience and attitude towards digital payments. The present study, is a small step towards filling the research gap in the context of such analysis.

Our key findings point towards a significant impact of perception of the payment system on how people choose to pay. Not only does a positive perception motivate people to go ‘digital’, but a relatively negative outlook on cash also has a similar impact. This finding is important in light of increasing cash use at the macroeconomic level in the country. Another significant factor is confidence in the payment system. Respondents who trust the service providers and regulators seem to have a greater likelihood of paying digitally. We find inconsistent behaviour when studying the impact of experience of digital payment fraud on choice of payment tool. The impact that experiencing such a fraud has on the choice to pay digitally differs according to the purpose of the transaction. The remainder of the study is presented in five sections pertaining to existing literature, data and methodology, sample summary statistics, empirical findings and conclusion and policy implications.

2 Related literature

The terms digital transaction, electronic transactions, paperless transaction or cashless transaction are almost used interchangeably in common parlance. The RBI Ombudsman Scheme for Digital Transactions (2019) defines digital transactions as “a payment transaction in a seamless system effected without the need for cash at least in one of the two legs, if not in both. This includes transactions made through digital/electronic modes wherein both the originator and the beneficiary use digital/electronic medium to send or receive money”. However, in our paper, a digital transaction is one where the payer and payee both use digital modes of payment.

Policies in many parts of the world are being designed in favour of non-cash payments because of the various problems that cash poses. Cash fuels the parallel or black economy, therefore, phasing it out might solve this problem, especially with large denomination notes [ 20 ]. The cost of printing, destroying and other cash related operational expenses in India are estimated at 1.7% of GDP [ 23 ]. Cash, however, remains a significant part of all the transactions in most countries [ 6 ].

While reading into data on the macro-level can give us a broad idea of people’s overall preferences, data at the individual level gives us an insight into how certain factors impact the choices/decisions consumers make regarding the mode of payment. Following this line of thought, several studies have analysed such issues at the level of the consumers. They reveal that the choice of payment method is impacted by a host of consumer-specific and technological factors. Transaction size has a significant impact on what mode of payment people choose. A cross- country comparison of payment diary survey data of seven countries showed that cash was the preferred mode of payment for smallest 50% and largest 25% of transactions [ 2 ]. In another study, social marginal costs were computed for various instruments for small and large transaction sizes and it was found that for larger transaction sizes, there were significant differences in cost for electronic vs non-electronic payments [ 8 ]. Studies show that demographic characteristics also play a significant role in how people choose to pay. It was found that better education and higher income lead to lower cash use compared to non-cash modes. Certain categories of age show a stronger preference for digital payments Bagnall et al. [ 2 ].

Consumer perceptions on safety/risk, convenience/ease of use, anonymity and costs have been shown to affect payment systems adoption significantly. Png and Tan [ 16 ] show that concerns about privacy emerged as one of the main psychological factors causing a bias towards cash for retail transactions. Kahn et al. [ 10 ] show that business in the unorganised economy was attributed to transactions that could be made in cash and did not reveal the agent’s identity. Bagnall et al. [ 2 ] analysed data from cross-country consumer diary surveys and found that consumers who rated cash high on ‘ease of use’ ended up using it more. In a study assessing payment perception of Dutch consumers, non-price parameters such as ‘acceptance’, ‘convenience’, ‘transaction speed’ and ‘safety’ were used to gauge the perception of payment instruments used at PoS terminals [ 9 ]. Several studies have used the Technology Acceptance Model (TAM) to show ‘perceived usefulness’ and ‘perceived ease of use’ have a significant impact on behavioural intention and thus, actual use of electronic payment systems [ 12 , 18 ].

Perceived trust in the payment system is shown to have a positive effect on the usage of digital modes of payment [ 13 ]. While the central bank and banks are traditional regulators and service providers of payments systems respectively, non-banks have also emerged as new players in the framework. A recent empirical study conducted by the Monetary Authority of Singapore [ 16 ] found that trust in banks impacts the nature of the transaction. A cross-country analysis shows that residents in countries that reported lower trust in banks preferred cash for making transactions. In some cases, while an increase in trust can lead to the opening of accounts, it might not translate to actual usage of those accounts [ 7 ]. Central banks also play a pivotal role in ensuring safety, integrity and stability of the payments system. Experience of online fraud can shape beliefs of perception and trust and can have a direct impact on payment behaviour. Media coverage of these incidents is shown to affect card payment [ 11 ]. The direction, strength and frequency of media coverage affected debit card use. Few studies show that people simply use digital modes of payment because they have exhausted their stock of cash in hand. It is called ‘cash first’ or ‘cash-burning’ and is perceived to be an optimal policy by the consumer [ 1 ]. Some studies also point that people still pay in cash simply because it is difficult to grow out of habits [ 9 ].

3 Survey data and empirical methodology

For the purpose of this study, primary data is collected using a structured questionnaire circulated online (Appendix 1). Following snowball sampling, the survey was shared on various social media platforms for better reach. The questionnaire was drafted in English and Hindi, to both expand and diversify the sample. It consists of 28 questions that are divided into seven sections viz. demographics, access to and usage of technology, awareness of different modes of digital payment, preference and perception on cash and digital payment systems, spending habits, experience related to fraud, and feedback on awareness campaigns.

Our study broadly aims to understand the impact of user perception, trust in payment systems, and experience of online fraud on the choice of mode of payment. For regression analysis, mode of payment is taken as the dependent variable and the independent variable is added to a baseline model according to the hypothesis being tested. Firstly, a baseline model is obtained for all five types of purchases—grocery, utilities, online shopping, durables, and gold. These transactions range from low to high value transactions. The responses recorded for different types of purchases have the following three alternatives:

Always pay in cash,

Always pay digitally, and

Sometimes pay in cash and sometimes digitally.

Since the dependent variable is categorical and has more than two categories, a multinomial logistic regression is best suited for regression analysis. A multinomial logit model is an extension of logit model, with more than two categories, in no particular order. Maximum likelihood estimation is used to obtain the parameters of the model.

Let the model have j  = 1, 2 …, J categories for the dependent variable y , and X be the matrix of independent variables. In a multinomial logit model, we estimate a set of coefficients β j  = ( β 1, β 2…, β J ) corresponding to each outcome j . Setting j  = 1 as the reference or base category ( i.e ., β 1  =  0) , we have:

The parameters of the model are reported in terms of odds or log odds. Given any two possible categories for the dependent variable:

where ( β m  −  β n ) is the  effect of X on log of odds of m versus n . To get parameters of other categories of the outcome, they are similarly compared to the common reference category. For our study, cash usage is taken as the reference category. We begin by creating a baseline logistic regression model by taking demographic characteristics such as gender, age, education, family income, occupation, and place of residence as categorical independent variables. The dependent variable is coded as:

y  = 0 for cash (reference)

y  = 1 for digital payments

y  = 2 for sometimes cash and sometimes digital payments

The following multinomial logistic model is estimated:

The parameter β kj is a vector of β 0j, β 1j … β kj where j ( j  = 0, 1, 2) is the category of dependent variable and there are K  +  1 ( k  = 0, 1, …, K ) independent variables. Since cash is the reference category, β k0 is set to 0. Therefore, β k1 and β k2 are respective log odds relative to the reference category.

Since, all the independent variables are categorical, they are coded as dummy variables. The reference categories for each of the independent variable in the baseline model are mentioned in the first column of Table 1 below.

Next, we add four additional independent variables of interest to the baseline model one by one, to observe the impact of perception (of both cash and digital payment modes separately), confidence in the payment system and fraud experience on the choice to pay digitally.

The perception of cash and digital modes of payment is recorded for four parameters- cost, convenience, safety and privacy/anonymity on a three-point Likert scale with the alternatives ‘bad’ (0), ‘okay’ (1) and ‘good’ (2). The mean score for perception is computed as the simple average of parameter-wise scores for cash and digital payments. Confidence in payment systems is measured on the parameters- trust in the RBI, trust in your payment service providers (e.g. FinTechs) and trust in stability and integrity of your bank. A five-point Likert scale is to measure responses, ranging from strongly agree (0) to strongly disagree (4). The mean score is computed as a simple average of the four parameters. Online fraud experience is quantified based on familiarity with such incidents. The respondents were asked to choose from following alternatives-

I have been a victim to digital payment frauds.

I have received such calls/mails/texts but carefully avoided them.

I have not received such calls/mail/texts but know someone personally who has been a victim.

I have not received such calls/mail/texts and do not know anyone personally who has been a victim.

4 Sample summary statistics

A snapshot of our sample of 640 respondents is given in Chart  1 . The respondents are mostly male and educated. Most of them are either salaried employees, working in the government or private sector. This may be due to the online nature of the survey, and circulation limited to the social circles of the authors, which occurred due to the enforcement of the COVID-19 induced nationwide lockdown in India during the survey period. Responses were received from twenty states of India. The corresponding districts were divided into three tiers according to the HRA (Housing Rent Allowance) classification by the Department of Expenditure, Government of India.

Demographic characteristic of the sample

The responses are summarised in Appendix 2. Awareness as well as usage regarding various digital payment instruments were high in the sample. It is important to keep this in mind while interpreting how payment behaviour is affected by other variables. Our respondents, being from the relatively well-off sections of society, were much more aware and comfortable with cards and UPI, rather than AEPS and USSD code-based payments. Digital mode was preferred for online shopping, paying utility bills, and purchasing durables (mostly medium to high value transactions). A combination of cash and digital modes was preferred for purchases of grocery and gold, which are starkly different in terms of transaction value. Being solely dependent on cash was relatively less preferable for all purposes.

The perception of cash and digital payments are recorded on four parameters viz., ‘convenience’, ‘cost of payment’, ‘safety’, and ‘privacy/anonymity’. It is observed that on an average, digital payments perform better than cash on all four fronts. Confidence in digital payment systems is assessed on four parameters, with regards to banks (preference for depositing money in a bank, as well as trust in one’s own bank), the central bank and in other participants like payment aggregators. Respondents seemed more confident in the RBI and banks, as compared to other service providers.

Technical issues, followed by low acceptance and lack of trust were identified as the major hindrances with digital payments. The experience of online fraud is divided into four categories based on their potential intensity of impact of the fraud. Out of 630 respondents that answered the question, 532 have had some experience of online fraud. Out of 411 respondents who had experienced the incident personally, a majority (279) reported no change in the nature of payments and only 26 mentioned that either they had completely switched to cash or had reduced the use of digital mode of transaction. Respondents were also asked if they reported the incident to the concerned authority after they experienced the fraud personally. Most of the respondents did not report the incident, especially if they had not faced any losses.

5 Multinomial regression model: results and analysis

The baseline model (Appendix 3) provides insights on the effect of demographics on the choice of mode of payment.

5.1 Effect of demographics on mode of payment

Males are more likely to use digital modes of transaction as compared to their female counterparts for both purely digital or a combination of cash and digital instruments. With respect to age, there is pressing evidence in the case of online shopping that older individuals are less likely to pay digitally. While the coefficients are not statistically significant for other kinds of purchases, their signs support this general observation. Education is also seen to have an enabling effect on people when it comes to going digital. The tendency to avoid paying solely with cash for groceries and utilities dwindles with an increase in the level of education of the respondent. Income levels have a statistically significant, positive impact when it comes to online shopping and gold purchases through the exclusively digital payment route. Lower income groups may prefer paying using cash on delivery. Occupation and place of residence have a significant impact on choice of mode of payment for mid and high-value transactions. Homemakers, unemployed and self-employed respondents are least likely to pay digitally. For place of residence, respondents living in Tier-1 cities are more likely to pay digitally.

In general, our results point out that more affluent and privileged groups are still more likely to go digital, compared to disadvantaged groups. Hence, while efforts to expand relevant infrastructure and nudge behavioural change are welcome, an upliftment of the general standard of living of the public, education and urbanisation may also be important ways to promote digitisation of payments.

5.2 Experience of online fraud

The experience of digital payment fraud is measured on a scale of four, with ‘0’ implying ‘I have been a victim of digital payment fraud, which is the highest possible impact of fraud on a person. At the other end, ‘3’ stands for ‘neither experienced digital payments fraud nor know anyone who has been a victim’. The baseline model is augmented with these additional categorical variables, and the results are presented in Table 2 . The reference category for the four fraud indicator variables is the response ‘3’, i.e., the respondent has neither been a victim of digital payment fraud, nor do they know of someone who has. Our paper highlights that frauds have differential impact based on the purpose of the transaction. For grocery payments, experiencing such frauds, first hand or otherwise, seems to demotivate people from using digital payment modes, but there is no such evidence for other types of transactions. In fact, respondents preferred using a mix of digital payments and cash for utilities and durables even if they had previously fallen prey to such frauds. It may be easier for consumers to switch to cash for grocery purchase, as compared to settling utility bills or buying durables.

5.3 Perception of cash vs digital payments

Perception of cash is scored on four parameters- cost of payment through cash, convenience of payment, privacy or anonymity concerns about the payment, and safety of payment. The scores range from 0 (bad) to 2 (good). The total score is computed by taking an average of all the four parameters. The total score is a continuous variable and is added to the baseline model. The resultant coefficient is reported in log odds. As is evident from Table 3 , perception of cash has a strong and significant impact on which mode of payment is chosen by the respondent. As the perception of cash improves, the likelihood of paying digitally decreases across all purchase categories. The reference alternative for payment is taken as payments made only/ always in cash, implying no (zero) relation with perception of cash. As perception improves the likelihood decreases most for grocery (low-value payment) and online payments and least for payments made for purchasing gold followed by durables, both high-value payments.

On the flip side, we also consider the total score for perception of digital payments, which is calculated similar to that for cash above. The coefficients (Table 4 ) are positive and statistically significant, implying that as perception improves, so does the likelihood of paying digitally. Here also, the reference alternative is using only cash. In terms of magnitude, the perception variables seem to affect grocery spends the most and gold spends the least. It can be inferred that a positive outlook on digital payment modes motivates the respondent to pay digitally. However, digital payments still have a long way to go if they are to prove themselves as good substitutes to the cheapness, convenience and privacy of cash use. Another observation from the above results is that high-value payments (gold and durables) are relatively less affected by perception of modes of payment, when compared to low- value payments (grocery).

5.4 Trust in payment system

Besides their perception of payment modes, respondents were also asked about their trust or confidence in the payment system as a whole, which was measured on four parameters. A five-point Likert scale is used, with ‘0’ or ‘strongly agree’ implying high confidence in the payment system and ‘4’, which stands for ‘strongly disagree’ implying extreme lack of confidence in the payment system. The total score is computed by taking an average of scores obtained on all the parameters. As expected, a deterioration in consumer confidence in digital payment systems (or an increase in the ‘lack of trust’ score) worsens the likelihood of paying digitally (Table 5 ).

At the end of the survey, respondents were also asked to give their feedback on digital payments. This gives us an indication of overall sentiments and main concerns of consumers towards digital payments. In Chart  2 , a ‘ wordcloud ’ based on 50 most frequently occurring words in the feedback highlights that consumers favour the ‘convenience’ offered by digital payment methods and have an overall positive sentiment towards such technology-based inventions.

Textual analysis on feedback

6 Conclusion

While governments, regulators and service-providers are working in synergy to enhance the electronic payments systems and related infrastructure, it makes sense to study how these options are perceived by the end-user. The key policy recommendation from our study is that incorporating feedback and gauging public perception can further catalyse digitisation. We observe through our study that perception of digital payment instruments affects the payment behaviour of an individual. Digital payments were not only driven by a positive outlook on digital payments but also a negative outlook on cash. Contrary to popular belief, customers were seen to be willing to discount online fraud experience in the face of higher convenience offered by digital payment modes. The impact of experiencing fraud on the choice to pay digitally differs according to the purpose of the transaction. Also, we cannot ignore the role played by demographic factors in better digital payment adoption. Digital payments adoption is expected to increase in line with the overall socioeconomic development of the population.

While our collected data is from a geographically diverse set of respondents, it is still limited to a certain part of the population. The data has been collected during a country-wide lockdown and therefore could only include respondents who were willing to fill the survey online (English or Hindi). Thus, most of the respondents were already digitally literate, educated and economically sound when compared to the population. This is one of the major limitations of the study. Further, since responses were collected in extraordinary circumstances of nationwide lockdown, they may be biased in the sense that these were times when many were compelled to pay digitally for fear of contracting COVID-19. Also, e-commerce and technology firms (with higher acceptance of digital payments) had stepped up their services, filling in the vacuum created by closure of brick and mortar stores. Various central banks around the world conduct payment diary surveys to gauge useful variables at the individual level and observe their impact on payment behaviour. In the future, surveys like these could be taken up with a broader sample and in a more structured manner, as things gradually return to normal.

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Survey on consumer experience and perception about digital modes of payments: questionnaire

See Appendix Tables 6 , 7 , 8 , 9 , 10 , 11 , 12 .

See Appendix Fig. 3 . 

Data summary

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Shree, S., Pratap, B., Saroy, R. et al. Digital payments and consumer experience in India: a survey based empirical study. J BANK FINANC TECHNOL 5 , 1–20 (2021). https://doi.org/10.1007/s42786-020-00024-z

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Received : 16 October 2020

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DOI : https://doi.org/10.1007/s42786-020-00024-z

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Current Affairs for UPSC IAS

Digital payments - trends, issues and opportunities in india.

• Category Economy
• Published 30th Oct, 2019

According to a survey conducted by ACI Worldwide and YouGov 42% Indians prefer digital payments over cash during shopping.

• According to NITI AYOG, the digital payments market In India is all set to grow to $1 trillion by 2023 led by growth in mobile payments, which are slated to rise from $10 billion in 2017-18 to $190 billion by 2023.
• In the light of such a tremendous growth of digital payments, the regulations and security of the users’ data has become a challenge for the government.
• Accordingly, a committee on Digital Payments was constituted by Department of Economic Affairs, Ministry of Finance in August 2016 under the Chairmanship of Ratan P. Watal to recommend medium term measures of promotion of Digital Payments Ecosystem in the country. The Committee submitted its final report to Hon’ble Finance Minister in December 2016.
• On the basis of recommendations a group of stakeholders from different Departments of Government of India and RBI was constituted in NITI Aayog under the chairmanship Ratan P. Watal to facilitate the work relating to development of a metric for Digital Payments which was the most important recommendation of Watal committe. This group prepared a document on the measurement issues of Digital Payments. Accordingly, a booklet titled “Digital Payments: Trends, Issues and Challenges” was released in July 2017.

Segments of Digital Payment Systems

The payment system has two main segments.

• Systemically Important Financial Market Infrastructure (SIFMIs): It is defined as a multilateral system among participating institutions, including the operator of the system, used for the purposes of clearing, settling, or recording payments, securities, derivatives, or other financial transactions.
• Retail Payments: Under the Retail Payments segment which has a large user base, there are three broad categories of instruments. They are (1) Paper Clearing, (2) Retail Electronic Clearing, (3) and Card Payments.

SIFMI has a very low share in the overall Digital Payments transactions whereas in terms of value it has a significant share i.e. 89%.

Growth Trends in India (2017-18)

• Digital Payments have registered robust growth in 2017-18 both in volume and value terms.
• In volume terms the growth during the year 2017-18 was much higher than the trend growth rate during the last five years (2011-16)
• Growth in Total Retail Payments in value terms has been three times higher than the trend rate of the last five years.
• The UPI and IMPS Segment in volume of transactions registered a spectacular growth during 2017-18. UPI, despite being new product in the payment segment has shown great adoption rate among consumer and merchants
• Total Card Payments continued its growth momentum and exceeded the trend growth rate of the last five years both in volume and value terms

Policy Initiatives to promote Digital Payments

• In the Union Budget 2017-18, major policy announcements were made by the Hon’ble Finance Minister for promoting Digital Payments.
• Ministry of Finance has taken a major initiative in drafting a Bill for amendment of Payment and Settlement Systems Act, 2007, as envisaged in the Report of the Committee on Digital Payments 2016
• National Electronic Funds Transfer (NEFT) system – Settlement at half-hourly intervals
• Master Directions on Prepaid Payment Instruments (PPIs)
• Rationalisation of Merchant Discount Rate
• Storage of Payment System Data

Emerging Global Trends

As per the report of Capgemini, a global leader in consulting, technology services and digital transformation, on ‘Trends in Payments 2018’, the Top 5 trends in Digital Payments across the world are as follows:

• Alternate payment channels such as contactless and wearables gain acceptance
• Banks and FinTech’s explore distributed ledger technology to transform cross-border payments.
• Instant payments processing likely to become the ‘new normal’ for corporate treasurers, industry at large.
• As global cyber-attacks rise, regulators focus on data-privacy law compliance.
• Infrastructure rationalization is likely as payments intermediaries come together or evolve.

Challenges in India

• The costs associated with online payment through RTGS and NEFT systems have also created a hindrance. These methods are not only expensive but also time-consuming at a time when there are a number of technologies available that offer real-time fund transfer.
• India is far from creating a robust digital payment ecosystem. There are several structural challenges that are hindering the growth of digital payments in the country and the biggest among them is the cyber-security.
• Digital inequality in India is also a challenge for deeper penetration of digital payments.

Opportunities

• Digital Payments offer unique opportunities. The Global trends indicate heightened customer expectations for value-added services, increased competition due to the emergence of FinTechs, new technologies, and an ever-changing regulatory landscape
• These emerging global trends are expected to impact the Indian Digital Payments ecosystem and provide impetus to the growth of Digital Payments.

Way Forward

• Measurement of Digital Payments is extremely important to monitor progress. The different components of Digital Payments have to be comprehensively studied with respect to global best practices and the list of indicators which are universally acceptable and relevant in the current context may be considered by RBI.
• A handbook of statistics may be prepared giving time series data on Digital Payments based on these standardized indicators which could be followed for all data collection and reporting agencies. This would bring uniformity and will reflect the growth in Digital Payments more accurately.

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• Descriptive Contest

Essay – Digital Banking – Pros & Cons | Descriptive Paper Writing for Mains

Hello and welcome to  exampundit . Here are the winners of EP’s Descriptive Contest Part 2. The topic “Digital Banking Essay – Pros & Cons” is topped by Pallavi and the runner-up is Pruthvi Ghanta.

Digital Banking Essay – Pros & Cons by Pallavi (Winner)

The drastic digitalization over the past few years has indeed affected almost every sphere of our lives. One of the most recent effects has been the move towards a cashless economy in India. Starting with the note ban in November 2016 due to the sudden withdrawal of the notes of Rs.500 and Rs.1000 denominations from the economy overnight, the Indian economy is going cashless.

In other words, least paper transactions will be involved, substituted by more digital transactions with the help of internet banking, digital wallets, Point-of-Sale machines, credit and debit cards, etc. These are having multiple implications on the economy with the following advantages and disadvantages.

ADVANTAGES:

• A cashless economy will allow less tension of tackling a wallet full of notes along with us, which is not at all safe in a world full of anti-socials. We can rather use our mobile as a one-stop solution for all kinds of transactions such as bill payments, fees payments, funds transfer, recharge, etc.
• It will ensure a ‘black-money free India’ or rather the so-called ‘parallel economy’ where people collect money in their closets at home without coming under the purview of tax .
• Crime rates have already started diminishing due to cash ban as most of the terrorist activities are funded with black money that has bore the brunt of this. In addition to this, other crimes such as burglary, extortion, bank robbery, etc. are also declining.
• One of the biggest advantages is the increase in the span of the income tax. Due to least involvement of cash, transactions have to be done through banks where proper KYC verifications will be done prior to banking transactions and hence, it will be easier for the Government to monitor and mend the income tax evasion by the unscrupulous persons. This will, in turn, enhance the revenue received by the Government.

Above all, the cashless economy will lead to the most convenient and secure economy for all.

DISADVANTAGES:

Apart from the brighter side of the digital economy , there are also some darker side associated with it as explained below :

• The cashless economy will see a hike in the hacking of the personal information over the internet such as credit and debit card numbers, PINs, passwords and other sensitive information due to an increase of digital transactions. In short, cyber crimes will escalate like anything if proper internet security measures are not taken.
• The poor section of India who is in majority and is scarcely covered under conventional banking system will suffer a lot, as they are solely dependent on cash for their daily wages.
• Sectors such as real estate, retail, restaurants, cement and other MSMEs, where huge cash transactions are involved are going to be affected terribly.
• Inadequate internet facility, low internet speeds, limited smartphone and broadband penetration, very less PoS machines are the roadblocks towards achieving full digitalization that is here the main substitute for cash transactions.

In short, a cashless economy can only be possible with sufficient infrastructure and planning that are required for supporting an economy like India.

Digital Economy – Pros & Cons by Pruthvi Ghanta

The term digital economy was first coined by Don Tapscott in his book “ The Digital Economy : Promise and Peril in the age of Networked Intelligence.

Few decades ago India faced severe problem , Nearly half of our country’s population didn’t have any form of identification, later Aadhar Cards provided digital identity to our people. Likewise now India is facing another problem of tax evasion and black money. So to curb these pitfalls Finance Minister Arun Jaitley in his Budget 2017-18 speech promoted digital economy with a string of measures to make e-transactions easier. Also Ratal.P.Watal who headed the committee on Digital Payments termed “ Digital payments are to finance what the wheel is to transport.”

Indian government is spending huge money for schemes to make people use digital currency like Digi Dhan Melas, schemes like Lucky Grahak Yojana, Digi Dhan Vyapar Yojana, No cash transaction above 3 lakh rupees, referral and cash back schemes to use BHIM app,etc., Government decided to remove all the duties on point of sale machines to promote digital transactions which is a part of govt’s target of 2500 crore transactions in 2017-18. Also banks have targeted to introduce additional 10 lakh PoS terminals by March 2017.

This is a good business opportunity for new companies like payments banks, Digital economy increases India’s tax base so that this amount can be utilised for more developmental activities. The cost benefit ratio is high using digital currency as there is no printing, manual security, life duration to the currency.

But in other aspects there are  several problems using digital economy , the first and foremost one is security from hackers as many confidential passwords are stored online there is high probability that hackers may steal one’s personal information.  In addition to this operational costs are high as the services offered charges as per your transactions like gateway fee, transaction fee etc. Another biggest problem vests with the illiterate as majority of Indians are living in rural and are illiterates, as they don’t know how to use these and they even don’t believe all this stuff.

So, by increasing banking penetration towards the masses, Decreasing the costs of Point of sale terminal, ensuring high security features to the digital economy may paves way to a New India.

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• Digital India

The First Step Towards transforming into a Digital India!

Digital India is a massive campaign that the Government of India launched in the year 2015. The implementation of this would give easy access to government services in different regions of the country. This Digital India essay in English is for the students of Class 5 and above. This essay on Digital India in English is written in an easy-to-understand manner for a better understanding of the students. Students should read the following long essay on Digital India to be able to write an essay on Digital India in 1000 words on their own.  

In the same way, the below written short essay on Digital India will help the students write an essay on digital India in 500 words on their own. 

Long Essay on Digital India  

The “Digital India” campaign was launched by the government of India to uplift the usage of technology in India. The objective was to make Government services easily available to the citizens electronically by improving its online infrastructure all over the country. The process would be structured to increase internet connectivity to make the country digitally empowered. It helps to reach out to the masses and encourages them to use technology in their daily lives. Prime Minister Mr. Narendra Modi launched the campaign on July 1, 2015. The initiative aims at connecting rural India with the help of high-speed internet connectivity. 

There are three components at the core of the “Digital India” campaign. 

Creation of Digital Infrastructure  

To be able to deploy various digital services across the country, it is necessary to create a strong digital infrastructure, especially in rural areas of the country. The interior regions of the country either have very little or mostly do not have any electronic network. This is the reason behind establishing a digital network across the country. Bharat Broadband Network Limited, the governmental body that is responsible for the execution of the National Optical Fiber Network project is responsible for the Digital India project as well. Bharat Net aims to connect 2,50,500 gram panchayats across the country to a high-speed internet network via an optical fiber network. 4,00,000 internet points will be established all across the country as part of the program, from which anybody will be able to access the internet. 

Delivery of Digital Service  

A major component of the Digital India campaign is to deliver government services and other essential services digitally. It is easier to change the way of delivering services from physical to digital. Many services of the Government of India were digitized under the Digital India Campaign. 

All ministries would be linked under this scheme, and all departments will be able to reach out to the people with fundamental services like health care, banking, education, scholarships, gas cylinders, water and electricity bills, and judicial services. The daily monetary transactions of people were also converted into digital mode. To ensure transparency in the transactions and curb corruption all the money transactions are being made online, and are supported by one-time passwords. 

Digital Literacy  

For full participation of the people of India, the competency that they need to have is called Digital Literacy. The basic behavior, knowledge, and skills required to effectively use digital devices are mandatory. Desktop PCs, laptops, tablets, and smartphones are the digital devices used for the purpose of communicating, expressing, collaborating, and advocating. The mission of Digital Literacy will be covering over six crore rural households. 

With the Digital India Programme, the Government of India is hoping to achieve all-around growth on multiple fronts collectively. The objective of the Government is to target the nine ‘Pillars of Digital India’ that are identified as follows. 

Broadband Highways 

Universal Access to Mobile Connectivity 

Public Interest Access Programme 

E-Governance 

E-Kranti 

Global Information 

Electronics Manufacturing 

Training in Information Technology for Jobs 

Early Harvest Programmes

To directly benefit the citizens of all future government schemes. 

The awareness of the importance of technology has been successfully created among the masses of India by the Digital India campaign. There has been a vast growth in the usage of the internet and technology in the past few years. The Panchkula district in Haryana was awarded the best and top performing district under the Digital India campaign on the 28 th of December 2015. 

So far, services such as digital lockers, my government website, e-education, scholarships, pensions, ration cards, PAN cards, Aadhar cards, e-insurance, and e-health have been made accessible under this plan. The goal has been established for the Digital India project to be completely implemented by 2019. 

Technology giants from all over the world paid attention to the Digital India campaign and are readily and happily supporting the initiative. Even Mark Zuckerberg, the CEO of Facebook, had changed his profile picture to support Digital India. He started a trend on Facebook and promised to get the WiFi Hotspots in rural India working. Google started on its commitment to providing broadband connectivity at 500 railway stations in India. Microsoft agreed on providing broadband connectivity to 5,00,000 villages in the country. Microsoft is also making India its cloud hub via the Indian data centers. Oracle planned on investing in 20 states to work on Smart City initiatives and payments. 

Some of the digital frameworks that are established under this scheme are given here: 

Accessible India Campaign and Mobile App  - It is also known as Sugamya Bharat Abhiyan. Its principal goal is to make all services open to individuals with disabilities. 

Mygov.in  - This forum allows users to voice their thoughts on the government's administration strategy. It has been implemented so that locals may actively participate. 

Unified Mobile Application for New-age Governance (UMANG)  - This mobile platform can be used on any device. This software is available in a variety of Indian languages. This software allows users to access a variety of services. Education portals, a digital locker, Aadhar, tax, and train ticket purchasing are among the services available. 

Agri market App  - It was created to make agricultural prices known to farmers and discourage them from selling too soon. 

Beti Bachao Beti Padhao - Ensuring the welfare and nurturing of a girl child and also making sure that every girl child attends school. 

Bharat Interface for Money (BHIM) - It makes payments quickly, easily, and simply through the Unified Payment Interface (UPI). It also allows the bank to accept instant payments and money collections using mobile phone numbers. 

Crop Insurance Mobile App - Used to calculate crop insurance premiums depending on numerous characteristics such as area or loan amount, if a loan is taken out. 

E-Hospital - It's an HMIS (Hospital Management Information System) for hospitals' internal workflows and operations. 

E-Pathshala - The National Council of Educational Research and Training (NCERT) created it to make all educational resources, such as books and videos, available online. 

EPFO Web Portal and Mobile App - Allow workers to check the amount of their provident fund using an e-passbook, which is a virtual equivalent of a real passbook. 

Start-up India Portal and Mobile App - It is a government of India program to encourage entrepreneurs to develop businesses (start-ups) in the country to expand sustainably. 

Benefits of Digital India

It makes health care and literacy more accessible since one may use a hospital service to receive online registration, a doctor's appointment, payment of the charge, a diagnostic test, and a blood test, among other things. 

It allows consumers to submit their paperwork and certifications online from anywhere, reducing the amount of physical work required. 

Citizens can digitally sign their records online to sign the framework. 

It benefits the beneficiaries of the National Scholarship Portal by allowing them to submit applications, have them verified, and then be paid or disbursed. 

BSNL's next-generation network will replace 30-year-old telephone exchanges for improved administration of online services on mobile devices like voice, data, multimedia, etc. 

Flexible electronics will be promoted with the support of the National Center for Flexible Electronics. 

As all transactions are completed through the digital method, it also aids in the reduction of black marketing. 

Write a Short Essay on Digital India  

A very ambitious initiative called Digital India got launched on a Wednesday, the 1 st of July in the year 2015 at the Indira Gandhi Indoor Stadium in Delhi. Various top industrialists like Cyrus Mistry- the then Tata Group Chairman, Mukesh Ambani– Chairman and Managing Director of Reliance India Limited, Azim Premji– Chairman of Wipro were all present at the launch. They all shared how they plan on bringing a digital revolution to the masses of India in cities and villages. 

The execution of this program is expected to cost around one lakh crore rupees. However, Mr. Ambani, Chairman, and CEO of the Reliance Group have made a significant effort by spending 2.5 lakh crore on the digital India initiative. Many different events were held along with the IT companies to aid more than 600 districts in India. The digital India program was a big step taken by the Government of India to transform India into a digitally empowered country. 

Several schemes have been launched around this plan which are worth more than one lakh crores. They are e-health, e-sign, e-education, national scholarship portal, Digital Locker, etc. The program is such which would benefit both the consumers and the providers of the services. Free WiFi will be available in 2.4 lakh schools and institutions under this scheme so that students may work online without difficulty. A goal has been established for 1.7 lakh persons to be employed as part of this initiative. 

Summary  

A digitally connected India is aimed at the growth of the social and economic status of the masses in the country. The development of non-agricultural economic activities could pave the path for such an achievement, for providing access to financial services, health, and education. Information and Communication Technology alone cannot directly impact the overall development of a country. Basic digital infrastructure could help achieve overall development. 

Literacy and regulatory business environments also could help achieve the same. It will be a very profitable approach because it relieves the burden of spending time on paperwork and allows people to dedicate their time to other aspects of government. It is extremely efficient and beneficial for government employees who operate on a big scale.

FAQs on Digital India

Q1. What is Digital India?

It is an initiative taken by the Government of India to provide government services to citizens electronically, create digitally literate citizens, and eventually transform India into a digitally empowered economy.

Q2. Mention the Benefits of using a Digi Locker.

A Digi Locker eliminates the usage of physical documents and enables the sharing of verified documents electronically in a secure manner across government organizations.

Q3. Which Indians have played a big role in the global digital transformation?

Much like Narendra Modi, who officially launched the Digital India project in India, leaders like Nandan Nilekani, Sanjeev Bikhchandani, Ruchi Sanghvi, Ben Gomes, and Rikin Gandhi have put India on the map of digital leaders and have played a big part in the global digital transformation.

Q4. In what areas is India expected to develop even more digitally in the future?

Fields like education, telecommunication, business operations, healthcare, and hospitality are areas where India is slowly but steadily transforming into a digital model.

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Central Bank Digital Currencies in the Middle East and Central Asia

Author/Editor:

Serpil Bouza ; Bashar Hlayhel ; Thomas Kroen ; Marcello Miccoli ; Borislava Mircheva ; Greta Polo ; Sahra Sakha ; Yang Yang

Publication Date:

April 26, 2024

Electronic Access:

Free Download . Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: The views expressed herein are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Against the backdrop of a rapidly digitalizing world, there is a growing interest in central bank digital currencies (CBDCs) among central banks, including in the Middle East and Central Asia (ME&CA) region. This paper aims to support ME&CA policymakers in examining key questions when considering the adoption of a CBDC while underscoring the importance of country-specific analyses. This paper does not provide recommendations on CBDC issuance. Instead, it frames the discussion around the following key questions: What is a CBDC? What objectives do policymakers aim to achieve with the issuance of a CBDC? Which inefficiencies in payment systems can CBDCs address? What are the implications of CBDC issuance for financial stability and central bank operational risk? How can CBDC design help achieve policy objectives and mitigate these risks? The paper provides preliminary answers to these questions at the regional level. A survey of IMF teams and public statements from ME&CA policymakers confirm that promoting financial inclusion and making payment systems more efficient (domestic and cross-border) are the top priorities in the region. Payment services through CBDCs, if offered at a lower cost than existing alternatives, could spur competition in the payment market and help increase access to bank accounts, improve financial inclusion, and update legacy technology platforms. CBDCs may also help improve the efficiency of cross-border payment services, especially if designed to address frictions arising from a lack of payment system interoperability, complex processing of compliance checks, long transaction chains, and weak competition. At the same time, CBDCs could negatively impact bank profitability while introducing a substantial operational burden for central banks. However, the exact economic and financial impacts of CBDCs need further study and would depend on estimates of CBDC demand, which are uncertain and country- dependent. CBDC issuance and adoption is a long journey that policymakers should approach with care. Policymakers need to analyze carefully whether a CBDC serves their country’s objectives and whether the expected benefits outweigh the potential costs, in addition to risks for the financial system and operational risks for the central bank.

Departmental Paper No 2024/004

Central Bank digital currencies Commercial banks Digital financial services Financial inclusion Financial institutions Financial markets International organization Payment systems Political economy Technology

9798400263798/2616-5333

Please address any questions about this title to [email protected]