From A Cash Intensive Economy To Digitization-India Road to Online Payments

From A Cash-Intensive Economy To Digitization-India Road to Online Payments; Digital Payments are gradually paving their way into the Indian psyche following demonetization. The growth of India’s financial sector has largely been led by banks. Banks are still the kingpins that support the digital payment infrastructure. Third-party payment gateways are entering the market to expand the plethora of digital payments and platforms available to the Indian consumers, backed by their strength in technology and customer-centric innovations. The shift to digital payments has become so evident in some of the data that reflects a significant increase in the acceptance locations within the country from 1.2 million in December 2015 to over 5 million by the end of 2018, almost three times growth in less than three years.

The best of both worlds

The approach could be termed as ‘the best of both worlds’ approach, which has promoted a significant growth in the number of digital payments, and it shall continue. The Indian payments ecosystem has made substantial progress on the insurance side. A wide range of services has been offered through bank accounts, branches, business correspondence, cards, and the most popular medium these days, smartphones. Robust and resilient payments infrastructure includes RTGS, NEFT, BHIM, IMPS, UPI, ATMs and Mobile Wallets.

It is very interesting to see the change in the spending patterns of Indians in the past two years. Online (Internet-based) shopping transactions now account for 35 prevent of all Mastercard card spends. This serves as a clear indication that Indians are getting comfortable using their debit, credit, and prepaid Mastercard cards for online shopping and online payments as compared to face-to-face POS transactions at a merchant site. The change in the behavior is thanks to e-commerce giants like Flipkart and Amazon, mobility operators like Ola and Uber, food delivery partners like Zomato, Swiggy, and UberEats, who are incentivizing digital payments are driving customers away from Cash on Delivery.

The most commonly used digital payments platform in India PayTM has raised USD 1 billion in a recent round of funding. The fresh investments will be leveraged for growing the payments and the financial services business in the country. PayTM also plans to invest over USD 100 million over the next three years to bring financial inclusion to more under-served users across India.

In the initial stages of its growth, PayTM mastered low-cost digital payment accessibility in India through its QR-code technology in local shops and small scale retailers. The platform, which serves retailers and merchants in more than 2,000 towns and cities spanning across 650 districts, aims to bring low-cost mobile-enabled financial services in rural India. The company aims to support and drive millions of odd rural Indians towards self-sustainability and job creation.

PayTM has been in talks ever since the start of this year to raise funds amid facing losses, growing competition in the digital payment sector, and not a clear vision of revenue growth and the path to increase its customer base. But now, PayTM is firmly locked in a market share war in digital payments with Google Pay and PhonePe. The three platforms are competing for neck-to-neck and are coming up with the most innovative features they can offer.

Digital Wallets are taking over

Digital Wallets are another efficient tool for easy online payments. To expand their reach, the digital wallets started encouraging customers to use them for offline points of sale (POS) transactions, too, like at grocery stores, supermarkets, shopping malls, restaurants, movie theatres, and gas/petrol stations. POS transactions are expected to become a major contributor to the digital payment platforms in the coming years. Clearly, digital wallets are playing a unique role in driving the growth of the digital payment sector in the country.

Cashless transactions enable consumers to make more purchases in a shorter time. Many people end up purchasing items spontaneously, thus contributing to economic growth. A rise in the demand for goods will lead to more production and supply, which will promote the retail sector, adding up to employment and higher revenue. More digital transactions provide more data to the government for research and better framing of policies. This could be a huge game-changer for India as the financial growth can be mapped accordingly.

Transparency and Convenience

Digital payments ensure accountability in all transactions. Since all the transactions are recorded digitally, there is always a way to go back and review the transaction history and keep track of the payments. While using cash payments, it might be difficult to hold anyone accountable for any additional expenditure. For instance, when the government made digital smart cards mandatory in cases of pension payments, replacing the system of manual payouts in villages and rural areas, a 47 percent reduction in bribery was reported. In cases of fraudulence also, it is easier to detect the fraud faster because everything is recorded digitally. Online transactions are also fast and convenient for those who feel unsafe while carrying money around.

The digital online payments industry will continue to create new user experiences which serve the need of the hour, are innovative and fresh. For instance, some digital payment platforms offer features like “payment reminders” or “pay later,” where users can set payment reminders for the recurring monthly bills. Similar to this feature, the “auto-payment” option has also added a dash of convenience for daily commuters who use cabs and buses. The idea is to create a value-added and swift transaction experience for the user.

Moving Forward to Cash-less India

While India still needs to adopt cashless transactions completely to embark on the journey of becoming a well-balanced economy in the next few years, there are still a few obstacles that need to be tackled. While IoTs and artificial intelligence are coming up with new technological tools every day, it is also important to have a sustainable and lucrative business model that supports the new-age digital environment with a strong cyber-security system. While the challenges are plenty, banks, third parties, and the government are creating a strong team to race towards a safer and brighter, cash-less future.

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