Digital Payments: Revolutionizing India’s Economy
Digital payments in India have experienced remarkable growth, outpacing global trends. Safeguarding digital payments for consumers, micro, small, and medium-sized enterprises (MSMEs), and businesses is now a paramount concern. A digital payment is a transaction conducted through electronic or online means, where money changes hands virtually without any physical exchange. In such transactions, both the payer and payee employ electronic mediums to transfer money securely.
Benefits of Digital Payments
Digital payments offer a multitude of advantages. They provide a seamless, user-friendly experience, reducing reliance on cash. Speedy transfers and convenience make online payments the preferred choice. Furthermore, digital transactions are more secure compared to traditional methods. They are processed through secure gateways, which are highly resistant to tampering. Most platforms adhere to strict regulations and security protocols to safeguard users’ funds.
Digital payments also contribute to efforts to eliminate black money and counterfeit currency in circulation. Additionally, they reduce the cost of producing physical currency. Digital payments take various forms, including debit/credit cards, internet banking, mobile wallets, digital payment apps, Unified Payments Interface (UPI), Unstructured Supplementary Service Data (USSD), bank prepaid cards, mobile banking, and more.
According to the Government of India, the digitization of financial transactions will boost employment, and minimize the risk of issues associated with cash, such as corruption, theft, and the need to carry or store large sums of cash. This transition to a cashless economy promotes secure and efficient money transfers.
The Journey to a Cashless Economy
India has witnessed tremendous digitization across all sectors in recent years. Demonetization was a pivotal step towards realizing a cashless economy. The Cashless India initiative, spearheaded by Prime Minister Narendra Modi’s government, aims to reduce the country’s dependence on physical currency. A cashless economy is one in which the flow of physical cash is almost nonexistent, with all transactions conducted electronically through channels such as direct debit, credit cards, debit cards, electronic clearing payment systems, Immediate Payment Services (IMPS), National Electronic Fund Transfer, and Real Time Gross Settlement.
The benefits of a cashless economy include reduced operating costs for ATMs, faster, queue-free transactions that ensure customer satisfaction, and minimal interactions with bank staff. Going cashless not only simplifies life but also formalizes and authenticates transactions, which aids in combating corruption and the circulation of black money. Additionally, the reduced need for printing and transporting currency notes translates to cost savings. It also allows the government to bolster consumer spending and combat black money. A cashless economy facilitates government oversight to prevent cash flow to terrorists and related activities. Implementing a cashless policy can significantly boost economic development.
Challenges on the Path to Digital Payments
One of the foremost challenges confronting stakeholders in the digital payment ecosystem is cybersecurity. Risks such as online fraud, information theft, and malware or virus attacks are on the rise. In India, digital payment fraud accounts for about half of all banking frauds. Operational issues, like card machines failing during peak usage times due to network congestion, also affect the adoption of digital payments.
To promote a cashless society, connectivity issues need to be addressed, especially in rural areas. While the younger generation is tech-savvy, computer literacy among individuals over 50 remains low. Many people still rely on their children to use mobile phones and computers. Bridging the digital divide in terms of cashless transactions is more pronounced in rural areas compared to metro cities.
Government Initiatives for a Cashless India
The journey towards a cashless economy in India commenced with demonetization in November 2016, which led to a significant reduction in the cash-to-GDP ratio. Afterwards, the government promoted mobile wallets, enabling users to perform various transactions, from bill payments to mobile recharges and ticket bookings.
The Reserve Bank of India (RBI) issued guidelines allowing users to increase their limits to ₹1,00,000 based on Know Your Customer (KYC) verification. The government’s push for digital transactions began with initiatives like Jan Dhan Yojana to Jan Dhan Aadhar Mobile (JAM). It was further reinforced by the Micro Units Development and Refinance Agency Ltd.
The global digital payment market is anticipated to reach $76 trillion by 2024, with an average Compound Annual Growth Rate (CAGR) of 13.7 per cent between 2019 and 2024. The future promises even more advanced and groundbreaking payment methods, such as blockchain payments, voice-initiated payments, biometrics and social media-based transactions, cryptocurrencies, cloud-based payments, enablement payments, and many other innovative avenues.
In Conclusion: The Path to a Digital India
Embracing digital payments offers a secure and eco-friendly way to track financial transactions. It reduces reliance on paper currency, contributing to a greener environment. While high illiteracy rates and poverty levels pose challenges to the realization of a Digital India, the government’s efforts are directed towards making this initiative a success.
