Digital Payment System in India

“Faceless, Paperless, Cashless” is the professed role of Digital India envisaged by the Ministry of Electronics and Information Technology^[1] (MEITy), Government of India, across the country, especially in rural and remote parts of India. It is expected to boost Digital payment system in India.

MEITy further encourages and promotes common e-Governance infrastructure, offering an end-to-end transactional experience for citizens, businesses as well as internal government functions, including access to various services and making payments and receipts through electronic modes. A targeted and time-bound approach has been recommended by the Apex Committee on Digital India to implement digital payments for citizens across all the e-services of Government Ministries and Departments.

Meaning of Digital Payment System

Payments can be made through digital modes where both payer and payee make use of the technology to send and receive money. The requirement of hard cash is being eliminated in this system of digital payment. It is also known by the name of electronic payment as all the transactions are completed online, making it an instant and convenient way to make payments.

Types of Digital Payments Method

• UPI Apps

This method makes use of mobile apps to make and receive payments. The funds can be transferred between two accounts by the use of UPI Apps^[2]. Firstly, one has to register for mobile banking with his/her bank to make use of the UPI apps. The limitation is that only an android user can take advantage of this facility as the service can only be run on Android phones. Lack of a good internet connection further adds difficulty to the situation.

• AEPS

The term AEPS stands for “Aadhar Enabled Payment Service”. The payment is made under this system by making use of the Aadhar Number. This results in the bank to bank transactions under which the payment is deducted from the payer’s account and is credited to the payee’s account.

• USSD

It is a mobile banking based digital payment mode, but you do not need to have an Android-based smartphone or internet connection to use USSD (Unstructured Supplementary Service Data) banking. This service can be used for various financial and non-financial operations such as checking balance, sending money, changing MPIN and getting MMID.

• Banking Cards

These include credit cards and debit cards. Now prepaid cards and Rupay Debit cards are also joining the trend. Although cards are the most convenient methods of digital payment, it charges 0.75% to 0 % on transactions.

• E-wallets

The e-wallets are the easier and faster way to make payments. But, as in the case of UPI payments, there is a need for Android-based smartphones and stable internet connection for making or receiving payment through e-wallets. On the whole, the rise of the FinTech companies has led to the increased use of digital payment methods in India. Some of the commonly used e-wallets are Paytm, Freecharge, StateBank Buddy etc.

Advantages of digital payment system in India

There are various advantages being offered by the digital payment methods, which are listed as follow:

• Easy and convenient: All the hassles connected with cash dealings are eliminated in case of payment by digital methods. Therefore, round trips to the ATMs are also reduced. All you need to do is carry your mobile phones or cards etc.
• Send and receive money from anywhere: The flexibility provided by the digital payment methods is wide. This helps in transactions anytime, anywhere.
• Tax Discounts: Many tax discounts have been initiated by the Government in order to promote the digital payment methods in India.
• Written Records of transactions: It is very common for us to lose track of our cash spending. Even if we keep proper records, it is a time-consuming process. The payments through digital methods automatically keep written records of the transactions processed by us.

The wide use of the digital payment instruments is necessary for fulfilling this purpose. But every coin has two sides, so does digital payments. Despite many advantages, there are a few limitations surrounding this. Some of them are as follows:

• Not user-friendly for a non-technical person: The individuals who are not technically sound or who have limited access to technology, such as farmers, workers etc. do not feel it’s convenient to make use of the digital payment methods.
• Risk of data theft: Hackers breakdown the servers to get access to your personal information, which they use to steal money from your account.
• Overspending: The limited cash available in wallets makes you think twice before spending. With cards, all your money is always with you, which leads to overspending.

Conclusion

The digital revolution is at its active stage, thereby providing an easy way to go for digital payments. Fintech companies are making the most use of it, showing a positive trend in the growth of NBFCs, Credit Co-operative societies, etc. With more than 100 crore active mobile connections and more than 22 crore smartphone users, India is playing a major role in the field of digital payment system. This number is rapidly increasing with a faster internet speed. The digitalization of remote areas is further adding grace to the whole process.

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