How digital payment methods are changing the face of the Indian economy

We are moving towards a contactless world and paperless and digital payments are here to stay

How digital payment methods are changing the face of the Indian economy

India has joined other countries in the digital payment revolution a lot faster than the past where we often lagged behind in adopting technology, especially in the financial sector. Demonetisation of 2016 was a big catalyst in digitising the country. This is set to have a transformative impact on our country, especially as digital payments spread into rural areas.

With the pandemic disrupting our lives, the world is going to become contactless and digital payments are going to play a major role in helping people adjust to the new normal. 

India is expected to see a swift growth in transaction value of mobile payments. According to Statista, India will witness CAGR of over 20% between 2019-2023. Digital payments will reach 660 million Indians in this time frame and will contribute about 2.2% to the world’s digital payment market. The popularity of digital payment system has been rising due to factors like a young population, rising number of smartphones and Internet users, a friendly regulatory environment, and a booming e-commerce sector.

Methods of digital payments include:

  • Debit and credit cards
  • Prepaid and electronic cards
  • Smartphone apps including banking apps and other mobile wallets in India
  • Payment banks
  • The Unified Payment Interface (UPI)  
  • Unstructured Supplementary Service Data (USSD)
  • Aadhaar Enabled Payment System (AEPS)
  • Point of Sale (PoS)
  • Internet Banking
  • Bharat Interface for Money (BHIM) app

Related: 42% Of Indian Consumers Prefer Digital Payments: Survey

As of 2020, the total transaction value of digital payments is US$69,168 million. With an estimated annual growth rate of 19.5%, it is expected to touch US$141,256 million by 2024. Numbers apart, how has India adapted to the digital payment revolution?

Incentive-centric Demand

In other countries, convenience and ease of use have been the primary reasons for people adopting digital payment system solutions. However, in India, especially in non-metro cities, more than 60% of respondents in the Google-BCG market study, cited offers, discounts and cashbacks as the reason for using digital payments. 

Simply put, making a digital payment in India was helping people save money, which encouraged them to spend more, which in turn encouraged sellers to continue offering more incentives. This means those who would otherwise not buy products or services online are doing so because making the digital payment method is a money-saving proposition.

Digital payments is primarily used for purchases in the organised sector. Digital commerce or e-commerce is the market’s largest segment with transaction value of US$57,574 million in 2020. Other popular options comprise bills, recharges, and utility payments, modern trade and payment of rent and other professional services.

Related: Countries That Have Moved To Digital Payments

Technology, not Security, is the Biggest Challenge of digital payments in India

Another finding of the digital payment revolution is the fact that complexity of use is a very big barrier in India, especially in rural areas. Exchanging physical cash is more reassuring than swiping a card or completing the 2FA (two-factor) authentication process. This is why reasons like difficulty in remembering passwords and using technology pose more of a problem than issues of security such as identity theft or phishing.

Enthusiastic Sellers on the digital payment system in India

Just one out of four sellers in India feels that the digital payments system will not help their business grow faster. The general view is that enabling customers to pay digitally will boost sales, increased volumes, attract more customers, and increase brand recall.

This is probably why the push for digital payments methods has come in the form of discounts and incentives for buyers. E-commerce sites, in particular, stand to gain a lot by making people comfortable with the idea of paying for products and services through digital transfers.

Ease of Use

The modified UPI (Unified Payment Interface) seeks to use Aadhaar, registered mobile number with bank or UPI ID to facilitate instant money transfer. So, instead of paying cash when buying groceries, you can do so by just using the vendor’s mobile number or UPI ID.

This is likely to be a significant game-changer that will break barriers for adoption of digital payment methods, especially in rural areas.

Ground Impact of the digital payments revolution

While cash still comprises a major chunk of transactions in India, citizens are slowly and steadily converting to digital payments. Not surprisingly, non-cash transactions are likely to exceed cash-based transactions in the country by the end of this decade. Take this quiz to check how smart you are with your digtal payments.