India is one of the leading emerging growing economies and a front runner in shaping the financial revolution. The financial market is becoming cashless and a leader in digital payments.
Over the last decade, payment mode has transformed dramatically in its payments landscape, largely driven by consumer habits and experience and government initiatives. With over 1.7 billion people having different habits, demands and experience, India requires a landscape providing different payment methods and solutions solving customer problems for e.g. from traditional cash transactions to cutting-edge digital solutions. In line with the transformation, let us examine the factors that are driving the transformation and future potential, along with the factors that affect the process and various challenges in the journey payment transformation.
Historical Background of Financial Transaction
It’s vital to know the financial transaction historical background of cash which further aids in upgrading the financial transaction process. For many decades the financial go-to method has been in cash as common people like mid-scale merchants, street vendors etc. perform cash transactions for their everyday purchases, in rural or urban areas. However, with the accessibility of the internet and digital technology to common people, digital financial transactions initiated over the last decade. India being one of the leaders in the digital and software industry led to development of digital solutions suiting our requirements. It led to further development of digitization in the financial industry.
India has such a diverse user base that in spite of rapid developments in digital financial transactions, cash transactions are still quite often made. Several programs aimed at advancing digitization and financial inclusion have led to change in consumer behavior. In addition, a youth and tech-savvy population, government incentives, and technological developments have all been major factors in this change. The demonetization effort in 2016 and COVID19 forced the users to use the digital transaction instead of cash. In addition, cancellation of high-value banknotes and promotion of digital transactions has sped up the country’s move towards digital payments, despite some challenging consequences.
Digital Payments Steep Rise : An Overview
Post demonetization, a remarkable increase in the use of digital payments happened in India. The digital financial industry got leveraged with the launch Unified Payments Interface (UPI) in 2016. It changed the way of financial transactions from cash to cashless transactions. UPI revolutionized the landscape by enabling instant fund transfers via mobile devices, eliminating the need for intermediary. This ability to make real-time payments has changed the way merchants and consumers engage, making digital transactions more attractive than cash. Further development of numerous platforms like Paytm, PhonePe, Google Pay, based over similar UPI technologies further provided improved experience to common people which further led to rise in digital payments. With various platforms providing different user-friendly payment methods such as QR codes, mobile wallets, and digital banking, India’s payment ecosystem has become increasingly inclusive and diverse. Furthermore, the expansion of the fintech industry has fueled the growth of digital payment solutions, making them accessible to a broader audience and reducing cash transactions.
As per government data, National Payments Corporation of India (NPCI), UPI transactions exceeded 45 billion in the fiscal year 2022-2023 and showed yearly growth over 80% – highlighting the change in industry. The convenience, variety of payment options, and robust security features have been crucial in popularizing digital payments across the country. In addition, now the government has partnered with other countries to enable UPI transactions from foreign countries too.
Government Facilitating Digitalization
The Indian government has been instrumental in promoting the digital payments landscape. With initiatives such as Digital India, it has established itself as a leader in financial inclusion and digitization. The government’s vision to meet the nation’s larger objectives like boosting economic efficiency, reducing black money, and improving tax compliance also fits with the digital payment landscape. The financial governing policy maker in India, Reserve Bank of India (RBI), has introduced regulatory frameworks that facilitate secure and dependable digital transactions. These guidelines from the RBI focus on consumer protection, foster interoperability, and support the growth of innovative startups. Additionally, incentives like cashbacks and extra rewards for digital transactions motivate consumers to prefer digital payments over cash.
Cultivating a Digital Payment Culture
Cash transactions have numerous disadvantages and limitations like requiring additional effort to maintain and store transactional information, requiring physical presence to perform the transaction i.e. inability to perform any transaction from anywhere, creating and maintaining cash which has its own challenges like dealing black money, fake currency etc. The change in transaction process from cash to digital payments is a cultural shift which requires collaboration from various stakeholders. One of the major obstacles in implementing digital payments is the lack of awareness and understanding of digital transactions among various sections of society. In rural and semi-urban areas, educational initiatives focused on financial literacy and digital skills can help individuals feel more comfortable with digital commerce. Additionally, businesses need to keep up with these changes. Retailers and small merchants should consider investing in point-of-sale systems that make digital transactions easy and efficient. Collaborations between traditional banks and fintech companies can drive innovation and improve access to digital payment options.
Challenges in Digital Payment Transition
While the transition to digital payments offers many advantages, it also presents several challenges. Digital payment possesses security as one of its major obstacles for common person concerns. Several instances of cyber fraud and data breaches have led to a lack of trust, particularly among older generations and people who may not be as comfortable with technology. This issue becomes quite prevalent considering varied digital literacy levels across pan India, organizations need to focus on investing in strong cybersecurity measures and consider user friendly ease. Furthermore, infrastructure problems in rural areas, such as unreliable internet access and limited smartphone availability, create significant hurdles for adopting digital payments. In summary, to realize the dream of becoming a cashless society, it is paramount to provide a secured payment system and requisite infrastructural challenges which shall ensure that the benefits of digital payments are accessible to everyone across the country.
Future Landscape of Payments : Cash, Digital, or a Hybrid Approach?
As we look to the future, it’s important to understand the demographic and evolution of payment across India. In our opinion, the future landscape will see a combination of cash and digital payments. Cash will continue to be a vital means of exchange for many, especially among low-income groups and in regions with limited internet connectivity.
At the same time, as technology progresses, countries around the globe are already shifting towards cashless and contactless payment options. This shift provides businesses new opportunities, making it crucial for them to adapt and stay ahead. Emerging technologies like blockchain and artificial intelligence could further simplify payment processes, improve security, and enable more seamless transactions.
Conclusion : Digital Payment
The move towards a cashless society is ongoing. In India, both cash and digital payments are expected to work together, giving people options to choose what suits them best. This change will not only affect the economy but also how people interact, making India more connected and financially inclusive. As everyone, from policymakers to consumers and businesses, supports this shift, India’s financial future looks very promising.