India's current state of digital payments: Opportunities and

Challenges

L. PADMAVATHI, III year Business Administration Department National College Autonomous

Tiruchirappalli

Abstract:
The modern world has transitioned to a digital one. India attempts to move toward
electronic payment systems. A payment system over an electronic network is known
as an electronic payment system. To put it another way, e-payment refers to a way for
anybody, anywhere at any time, to make online payments for the goods and services
they have purchased without physically transferring cash or checks. India is currently
going through a demonetization phase, so given the current circumstances, it is
necessary to do this study in order to control the e-business environment and make
electronic payments whenever needed through the internet. The purpose of this study
was to define the problems and difficulties associated with electronic payment systems
and provide recommendations for how to make them better. Along with increasing
potential, electronic payment systems also provide a number of risks.
Keywords: E-payment, Digital payment, Cashless
Objectives of the study:
 To know the different modes of e- payment.
 To know the opportunities and challenges of e- payment system in India.
 To identify the future of digital payment system in India.
Research methodology:
The study based on secondary information/data. Different journals, newspapers, books and relevant
websites have been consulted in order to make the study an effective one. The present study is an attempt to
examine the E- payment system in India.

E- Payment options in India

The Digital India programme is a flagship programme of the Government of India with a vision to
transform India into a digitally empowered society and knowledge economy.―Faceless, Paperless,
Cashless‖ is one of professed role of Digital India. As part of promoting cashless transactions and converting
India into less-cash society, various modes of digital payments are available.

 E Wallets – Paytm, Freecharge etc.

 UPI – Unified payments Interface Apps
 Plastic Money – Debit/Credit Cards
 Net Banking – Online Fund Transfer
 Aadhaar Card – Aadhaar Enabled Payment System

E Wallets
Mobile wallets are digital instruments where you can store money for instant payments. You load money
from your bank account via credit/debit cards or net banking. Most wallets are semi- closed wallets, i.e. you
can transfer money to people who have the same wallet, or make payments at merchants who are authorized
to accept from that particular instrument. There are also many other electronic wallets available in app stores
like google play. You can download any of them to make digital payments easily. They include jio money,
Vodafone mpesa & airtel money. Even banks have launched their own e wallet apps like State bank buddy
and Yes Pay.
Payments through E-Wallets

Requirements Transaction Process Limitation/Risk

1. Online Account in 1. Download wallet app 1. Consumer Wallet Limits:

Digital Wallet. Forin mobile and create account Rs.20, 000/month for all. Rs.1
example few popular e
using mobile no. Mobile number lakh/month with KYC
wallets are PayUmoney, is treated as wallet account no. 2. Merchant Wallet Limits:
Paytm, Pockets, Oxygen 2. Load money using Rs.50, 000/month with Self
wallet, Mobiwiki etc. debit/credit card or net Declaration. Rs.1 lakh/month
2. A mobile phone with banking. with KYC
wallet app loaded. Bank 3. Link your bank account with 3. Money can be transferred to
wallets are also digital wallet to transfer same company wallet.
used operated through money in advance to your
desktop PC. wallet.
3. Internet connection. 4. Transfer money from one
wallet to other
using mobile number.

Unified Payments Interface (UPI)

Unified Payments Interface (UPI) is a payment system launched by National Payments Corporation of
India and regulated by Reserve Bank of India which facilitates the fund transfer between two bank accounts
on the mobile platform instantly.
Unified Payment Interface is an electronic funds transfer instrument that enables all bank account holders to
send and receive money from their smartphones without the need to enter bank account information or net
banking user id/password. This requires only the recipient’s mobile number or Virtual Payment Address
(VPA). UPI is an advanced version of Immediate Payment Service(IMPS) platform designed for transferring
funds using: Transfer through Virtual Payment Address (Unique ID provided by bank) or Account Number +
IFSC or Mobile Number +
MMID(Mobile Money Identifier) or Aadhaar Number or Collect / Pull money basis Virtual ID. A MPIN
(Mobile banking Personal Identification number) is given to the banking customer once they register for UPI
which is required to be entered while confirming a money transfer. Banks supporting UPI payment have
started to upload their own UPI enabled Apps on Google Play store as well as on Apple App Store also.
[National Payments Corporation of India has launched a Payment app BHIM and NUUP service for
performing transaction using Aadhaar number over UPI
Payments through UPI (Unified Payment Interface)
Requirements Transaction Process Limitation/Risk

1. A Bank account for 1. Download bank UPI app 1. Maximum transaction

registration only of mobile banking apps of banks limit is Rs 1 lakh
2. Any smartphone with internet 2. Register by creating 2. Sender and Receiver of
connections 2G/3D/4G/wifi. your Virtual Payment money must have VPA
3. UPI Apps of bank (28 banks Address (VPA) (Virtual Payment Address )
have enabled upi) e.g sujith@icici or for fund transfer
julieebi@s bi 3. Smartphone is required
3. For money sending you just
need the VPA of payee
4. After entering amount and
VPA of payee you will be
asked for confirm payment
and it is done.
5. Account details of payee is
not required only VPA is
required

Plastic Money
Plastic money means debit cards and credit cards that are used at ATM’s for cash withdrawal and POS
machines while shopping. Having a debit or credit cards make you burden free from carrying cash. Also risk
of theft goes down to zero as it needs a PIN carry out transactions. You don’tneed to carry huge amount of
cash with you. Just swipe and go. Debit card payments are made through bank account. Bank account gets
debited while paying using debit card. But in case of a credit card, it is a monthly postpaid bill payment system
that takes place.
Payments through Debit/ATM Cards

Requirements Transaction Process Limitation/Risk

 1. Issue of 1. Bank issue ATM card 1. POS of Swipe machine
with a PIN no. at merchant is a must.
Debit Cards by Bank. Card
Pin/password or mobile for 2. Used to withdraw cash from 2. Cloning of card is a security
OTP (One Type Password) any ATM machine using threat.
verification. PIN no.
2. Bank ATMs 3. Used at any POS for
shopping. Also
3. Swipe machine or POS for online shopping
(Point of Sale) machine at 4. SMS notifications come
merchant. in mobile for every
4. Online payment portal transaction.

Payments through Credit Cards

Requirements Transaction Process Limitation/Risk

1. Issue of Credit Cards by 1. Bank issue 1. Every card has a credit

Bank. Card Pin/password Credit cards with a PIN no to limit, beyond that you cannot
or mobile for OTP (One Type only eligible customer. shop.
Password) verification. 2. There is credit limit for 2. Cash withdrawal is possible
2. Swipe machine or POS (Point issued cards, limit vary from but at huge interest rate.
of Sale) machine at merchant. person to person depending
upon income.

3.Online payment portal 3. Used at any POS for 3. POS of Swipe machine at
shopping. Also for online merchant is a must.
shopping or transaction.

4. Every month Bill is 4.Cloning of card is a security

generated, the total dues is to threat.
be paid before the due date,
otherwise interest is charged.
5. SMS notifications come
in mobile for every
transaction.

Net Banking
Net banking is another way for making transactions electronically. All you need is a bank account with e
banking facility enabled on it. You can transfer funds to others account from the comfort of your home. There
is no need of going to your bank to get transfers done. You can make all payments and transfers yourself. This
is a very convenient way to go cashless in India as well.

Online Transaction through Net Banking

Requirements Transaction Process Limitation/Risk

 1. Activation of Net 1. First add the bank 1. Takes time to add payee.
banking facility Account of payee in fund
2. Internet facility in PC transfer page of your 2. Not instantaneous for inter-
or mobile. bank portal. bank transfer
Adding payee take time, exact
time vary from bank to bank.
2. 3. Transfer of fund is carried
out using NEFT, RTGS, and
IMPS mode.
Aadhaar Enabled Payment System
Aadhaar Enabled Payment System is a way to get money from the bank account. This system of getting money
neither requires your signature nor Debit card. You don’t even need to visit a bank branch for getting money
through the Aadhaar Enabled Payment System. Rather, it uses Aadhaar data for the authentication. Like UPI and
USSD, this is another initiative by the NPCI.

Payments Using Aadhaar Card (Aadhar Enabled Payment System, AEPS)

Requirements Transaction Process Limitation/Risk

1. Aadhaar Card 1. Go to a MicroATM or 1. Micro ATMs are

banking correspondent required
2. PoS (MicroATM)
2. Provide your bank name 2. There is limitation on banks
and Aadhaar called as Net Debit Cap
3. Choose which transaction to (NDC), It is net of total
do outward and inward for the
day.
4. Provide finger print on
scanner
5. on successful transaction,
take the print slip
6. Process completed

Advantages of Digital Payments

Easy and convenient: Digital payments are easy and convenient. You do not need to take loads of cash with you.
All you need is your mobile phone or Aadhaar number or a card to pay. UPI apps and E-Wallets made digital
payments easier.
Pay or send money from anywhere: With digital payment modes, you can pay from anywhere anytime. Suppose
your close friend’s mother fell ill at night. He called you at midnight and asked some money. Don’t worry, you
can send money to your friend using digital payment modes such as UPI apps, USSD or E-Wallets.
Discounts from taxes:
Government has announced many discounts to encourage digital payments. If you use digital modes to make a
payment up to Rs. 2000, you get full exemption from service tax. You also get 0.75% discounts on fuels a nd
10% discount on insurance premiums of government insurers.
Written record: You often forget to note down your cash spendings. Or even if you note, it takes a lot of time. But
you do not need to note your spendings every time with digital payments. These are automatically recorded in
your passbook or inside your E-Wallet app. This helps to maintain your record, track your spendings and budget
planning.
Less Risk: Digital payments have less risk if you use them wisely. If you lose your mobile phone or debit/credit
card or Aadhar card you don’t have to worry a lot. No one can use your money without MPIN, PIN or your
fingerprint in the case of Aadhar. But it is advised that you should get your card blocked if you lost it. Also call
the helpline of your E-wallet to suspend the wallet account to prevent anyone from using your wallet money.

Challenges of Digital Payments:

Every coin has two sides so as the digital payments. Despite many advantages, digital payments have a few
drawbacks also.Difficult for a non-technical person: As most of the digital payment modes are based on mobile
phone, the internet and cards. These modes are somewhat difficult for non-technical persons such as farmers,
workers
.
The risk of data theft:
There is a big risk of data theft associated with the digital payment. Hackers can hack the servers of the bank
or the E-Wallet you are using and easily get your personal information. They can use this information to steal
money from your account.
Overspending:
You keep limited cash in your physical wallet. Hence, you think twice before buying anything. But if you
use digital payment modes, you have all your money with you always. This can result in overspending.
Intermediaries in the payment process: The payments sector operates through several intermediaries which
create the front-end payments interface. There are instances where banks or other licensed entities enter into
arrangements with the mobile app developers for compliance purposes. The app developers maintain the
software and the IT systems but the transaction is ultimately routed through the licensed entity (read the
bank/mobile wallet/the payment gateway). This increases the costs of doing business through commissions
and forces payment companies to shell out more to facilitate access to their services by the consumer.
Advantages Of Going Cashless Economy Convenience:
The ease of conducting financial transactions is probably the biggest motivator to go digital. You will no
longer need to carry wads of cash, plastic cards, or even queue up for ATM withdrawals. It’s also a safer and
easier spending option when you are travelling. ―The benefits are enormous if you leave out the low-
income group, which will face a huge challenge,‖
Discounts: The recent waiver of service tax on card transactions up to Rs 2,000 is one of the incentives
provided by the government to promote digital transactions. This has been followed by a series of cuts and
freebies. It’s a good time to increase your savings if you take advantage of these. For instance, 0.75%
discount on digital purchase of fuel means that the petrol price in Delhi at Rs 63.47 per litre can be brought
down to Rs 62.99 with digital payment.
Similarly, saving on rail tickets, highway toll, or purchase of insurance can help cut your costs. Add to these
the cashback offers and discounts offered by mobile wallets like Paytm, as well as the reward points and
loyalty benefits on existing credit and store cards, and it could help improve your cash flow marginally.
Tracking spends: If all transactions are on record, it will be very easy for people to keep track of their
spending. It will also help while filing income tax returns and, in case of a scrutiny, people will find it easy
to explain their spending. Budget discipline: The written record will help you keep tabs on your spending
and this will result in better budgeting. ―Various apps and tools will help people analyse their spending
patterns and throw up good insights over a couple of years,‖ says Jhaveri. Controlled spending could also
result in higher investing. If the same amount of cash does not flow back into circulation and people continue
to use mobile wallets and cards, it is also likely to bring down the latte factor. This means that the Rs 10 you
spent on candy or chips, or that regular cup of coffee office is likely to take a hit since you will be short of
loose change and smaller currency notes. There’s a lesser chance of budgetary leaks and unaccounted for
spends sneaking into your budget at the end of the month.The government's demonetization move, and the
subsequent cash crunch, has led to a surge in digital payments. According to the government data, the
number of daily transactions through e- wallet services such as Oxigen, Paytm and MobiKwik has shot up
from 17 lakh — recorded on November 8 when demonetisation was announced — to 63 lakh as on
December 7 (a growth of 271%). In terms of value, the surge has been 267%, from Rs 52 crore daily to Rs
191 crore now
Future of Digital Payments:
The future of digital payments is very bright. India is experiencing a remarkable growth in digital payments.
In 2015-16, a total of Rs. 4018 billion transacted through mobile banking as compared to Rs. 60 billion in
2012-13. The percentage of the digital payments through other modes is also increasing in a significant
speed.There are many factors which are affecting the future of digital payments.
Digital revolution
Digital revolution has provided an easy way to go for digital payments. India has more than 100 crore active
mobile connections and more than 22 crore smartphone users as of March 2016. This number is going to
increase further with a faster internet speed. The reach of mobile network, Internet and electricity is also
expanding digital payments to remote areas. This will surely increase the number of digital payments.
Government’s support
The government is supporting digital payments a lot. It has reduced some taxes and announced incentives for
digital payments. It has launched Lucky Grahak Yojna for customers and Digi Dhan Vyapar Yojna for
shopkeepers. You can get cash prizes up to 1 crore if you pay digitally. Due to these incentives and waivers,
more people are showing interest in digital payments.
Go Digital, Get Discounts
Service tax: Waiver of service tax of 15% on digital transactions up to `2,000.
Fuel: 0.75% discount on digital purchase of fuel through credit/debit cards, e-wallets or
mobile wallets.
Rail tickets: 0.5% discount on monthly and seasonal suburban railway tickets from 1 January 2017. Online
rail ticket buyers get up to `10 lakh free accident insurance too. Rail catering: 5% discount on digital
payments for railway catering, accommodation, retiring rooms,etc.
Highway toll: 10% discount on NH toll payment via RFID or fast-tags in 2016-17. Insurance: 10%
discount by government general insurers on premium paid online via their portals. 8% discount on new LIC
policies bought online via its site. POS: Rs 100 a month is the maximum rent that PSU banks can charge for
PoS terminals.

Conclusion
Electronic payment refers to the mode of payment which does not include physical cash or cheques. It
includes debit card, credit card, smart card, e- wallet etc. E-commerce has its main link in its development on
–line in the use of payment methods, some of which we have analyzed in this work .The risk to the online
payments are theft of payments data, personal data and fraudulent rejection on the part of customers.
Therefore, and until the use of electronic signatures is wide spread, we must use the technology available for
the moment to guarantee a reasonable minimum level of security on the network.

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