It is not a very old story when we used to do everything by cash, from purchasing our monthly grocery items to booking movie tickets at Inox, standing in a long queue. A few Mobile Wallet service providers like Paytm or Freecharge was started providing App-based Mobile Recharge services with some Cash Back features which can be utilized for the next mobile recharge. But after November 8, 2016, everything was drastically changed. It is very hard to change someone’s behavior pattern if he/she is not forced to do anything. Many people have reluctantly adopted the alternate payment system due to the cash crunch. And now more and more people are willingly adopting this alternative Payment solution leaving traditional cash-based payments system. Yes, we are talking about the digital payments in India and its burgeoning popularity amongst the all, no matter whether he/she is young or old. Because it is fast, secure, convenient & less time-consuming.
Today, in this article, we will try to cover all the Facts, Features & Futures of the Digital Payment system in India along with its implications, uses in the Indian Payments landscape.
What are Digital Payments?
Digital Payments is nothing but the transfer of money between the two Bank Accounts or Mobile Wallets in Digitalised form. There is no involvement of physical cash transactions. The Bank Accounts may be between any same Banks or other Banks or mobile wallets between the same service providers or the different providers. In Digital Payments, Payer and Payee both uses digital mode to send and receive money in real-time.
(As per the RBI directives, the interoperability of mobile wallets can only be possible if they are both KYC verified. As of now, only a few mobile wallets are KYC verified, though RBI directs all the wallet service providers to complete customers KYC verifications within August 2019.)
Further, Digital Payments can be online or offline depending on the mode of payment instruments, you can send money using your smartphone or PC with internet or using simple mobile devices without using any mobile data.
Some Common Facts about Digital Payments System in India
Here are some common Facts about Digital Payments system in India
- The total transaction value of Digital Payments system was around USD 65,000M as of March 2019 and expected to increase by 20% for the next few years.
- Swiping of Debit Card at Point of Sale (PoS) has increased by 27% and swiping of Credit Card grew by 22% as in March 2019 as compared to the corresponding period last year. Whereas ATM withdrawal increased by merely 15%, according to RBI data. (Source: ET)
- Aiming at “Cash-Lite” payment society, RBI published Vision Document on the “Payments and Settlements Systems in India: Vision 2019-2021”, a 3-year Road-Map to augment the Digital payments solutions amongst the masses where the Digital payments system still has not been reached. RBI is also considering the implementation of Offline Digital Payments solution, ie mode of payment without using the internet or smartphone for future development. (Source: RBI)
- More than 566 million people use the internet today and are expected to reach 627 Million at the end of 2019. Digital adoption mostly propelled by Rural India which registered a growth of 35%. (Source: ET)
- The government is considering the mandatory setting up of the QR code-based payment system at all shops in India. (Source: ET)
- The number of people who uses Digital Payment systems at least once in a month grows to 100 Million. (Source: ET)
Benefits of Digital Payments
Digital payments are the future of India’s payment system. The cost of running an ATM is very high & risky. Banks may also stop setting up new ATMs in the future and many ATM locations may be phased out within the next few years. As for customers, you have to pay charges, if ATM uses limit exceed by 3 times in a month. Therefore, the best alternative is Digital Payments.
Here are some Advantages of Digital Payments System
- Fast: The payment processing is fast almost on a real-time basis.
- Less Time Consuming: Hassle-free and less time-consuming. You do not have to visit the branch or ATM for cash withdrawal and payment to the recipients.
- Cost-Effective: Transaction charges are almost nil in comparison to Cash Transaction.
- Less Risky & Safe: Manual Cash handling and carrying involve very high risk whereas Digital Payments system is totally risk-free because you only transact with the digitalized form of money.
- Availability: The benefits of Digital Payments Service is available for 24*7 and all the time in a year. Therefore, no headache of Bank Holiday or Strike or Cash Shortages.
- Convenience: All the transactions can be done from the comfort of your home. No need to queue up for ATM withdrawal.
- Accessibility: Anyone can access the services of the Digital payments system, you just need a Smartphone & internet connection. (You can use Digital Payments in Offline mode also).
- Offers & Discounts: Many merchants offer Discounts & cashback for the payments which are done in Digitalised form like Payment made by Debit/Credit Card or UPI Platform.
Different Methods of Digital Payments in India
Digital Payments is the Govt. of India’s initiative to make India a “Digitally Empowered” Cash-less economy under the campaign of “Digital India”. It not only helps to reduce the work burden on Banking Industries in India but also provides a safe, reliable, fast & Digital alternative of Cash-centric Indian Economy.
Here are the different methods or types of Digital Payments system in India
1. Banks’ Credit/Debit Card:
The most popular and common method of Digital Payments solutions in India. You can get a Debit card just after the opening of Account in Bank in India. The card may be Visa, Mastercard or RuPay card depending upon your choice or Bank. The other types of Debit or Credit card providers in India are Maestro, Diners Club, Visa Electron.
Most of the PSU or Private Banks initially offer Rupay Card to its customers. Rupay is a domestic Card mainly use for the transaction within India. Though you can use RuPay Debit Card in International eCommerce websites or can withdraw money in overseas countries. I have written a detailed article on How to use the RuPay card for International Payments. You can read the article here
Several Banks offers their own Discounts, Reward Program or Money Back to its customer for the payments made through their Debit/Credit Card. The transaction cost for the payments made with Debit/Credit is Nil to the customers. Though the merchant has to pay the transaction charges depending on the transaction value and card type. You can read here about the list of some best payment gateway plugins in India and their charges.
PSU Banks debit cards are not international transactions enabled initially, you have to make a request to the card providing banks to enable international transaction rights. As per RBI norms, all the transaction which will go through the Payment Gateway within India has to verify with OTP or PIN for an extra layer of security. But for the transaction made outside India, this is not mandatory. (As per the recent report, Visa is waiving the OTP based Two Factor Authentication (2FA) process in India, making it at par with the global practices.)
One of the big drawbacks of this process is an unauthorized recurring payment. If you do not wish to continue the services of any subscription site in the future and unknowingly provide your international transaction enabled Debit or Credit card details at the time of purchase, then your recurring amount will get deducted from your card without your authentication. Therefore, it is highly recommended to use PayPal when you want to make any online transaction in International subscription-based websites or not so highly trustable websites. In PayPal, you will get the option to deactivate the recurring payments option. I have already written a detailed article on How to create a PayPal Account for Indian Bloggers of Freelancers and How to add your RuPay Card to your PayPal Account.
- How to create a PayPal Account in India for Bloggers & Freelancers
- How to add RuPay Debit Card to Your PayPal Account
Now, you can also use a virtual debit or credit card for the Digital Payments system within or outside India. I have already written a few articles on How to generate Virtual Debit Card Numbers after opening the Digital Bank Account. You may read here
- How to create Virtual Debit Card for the International transaction
- Best Free Virtual Debit Card in India & Abroad
2. Bank’s Prepaid Card
Bank’s prepaid card is also known as Gift Card or Preloadable debit card for a single-use or reloadable for multiple uses. Any KYC complied account holder can create Bank’s prepaid card from the Bank’s NetBanking websites or purchase from Bank’s official websites. The prepaid card can be Visa or RuPay powered depending upon the Bank. The prepaid cards mainly used for Corporate Gift, Reward Card or any single-use card for gifting purposes. The Prepaid card can be used to withdraw money at ATM or performing an online transaction at any Payment Gateway up to a certain limit. Some popular Banks which offer prepaid card in India are
- Axis Bank Prepaid Card
- HDFC Bank Prepaid card
- SBI Prepaid Card
- ICICI Bank Prepaid card
- Yes Bank Prepaid card
- Kotak Bank Prepaid card
3. Unified Payments Interface (UPI)
UPI or Unified Payments Interface is one of the most innovative Digital Payments solutions launched by NPCI in India, maybe the best Payment solution in the World to date. As NPCI data there are 148 live UPI member banks issue UPI for their customers and more than 33 third-party UPI apps available in Play Store. UPI transaction has reached Rs.2,06,462.31 as of March 2020 by transaction value and already surpassed the debit card transaction for the FY 2018-19. (Source: NPCI). Here’s a year-wise growth of UPI transaction by volume. (As on March 2020)
You can send money in real-time to any VPA ID (virtual payment address) if you have a Bank Account and your mobile number already registered with your Bank Account. I have already written a detailed post on some best UPI Payments App in India with a complete analysis of the UPI Payment system in India. You can read the article here
Some of the best UPI payment Apps in India you can download to your smartphone are
- Google Pay– Currently Number One in terms of Transaction Value (Data up to March 2019). Google Pay’s Digital Payments transaction value is more than the total Digital Payment of Axis Bank.
- Paytm– Most downloaded UPI App in India both Android and iOS Platform.
- PhonePe– Very popular UPI App and currently ranked 2nd in the total volume of UPI transactions.
- BHIM– Official UPI App launched by NPCI.
4. Offline Mode
USSD is one of the offline processes of the Digital payments system in India. You can perform Different banking tasks by dialing *99# which works on the mode of Unstructured Supplementary Service Data (USSD). The services you can avail of by this mode are balance inquiry, mini statement, and Fund Transfer through MMID. Only you have to register your mobile number with the bank account number. Though the process seems innovative but failed to make any real impact in the process of Digital Payments in India.
Govt. of India under the project Make in India recently launched ( launched on 4 March 2019) National Common Mobility Card (NCMC) which is also worked on Offline Mode. NCMC (also known as One Nation One Card) is an interoperability transport card launched by the Ministry of Housing and Urban Affairs. You can use the NCMC card to pay for the travel expenses, toll duties, shopping, and even you can withdraw money. The card is Contactless RuPay Powered (Visa has also started supports for NCMC Card) and can be used as prepaid, debit or credit card on Offline mode using NFC Technology.
I have already written a detailed article on best NFC payments apps & cards available in India now, you can read the article here
5. Aadhaar Enabled Payment System(AEPS)
By this Digital payment mode, you can transfer money between two Aadhaar linked Bank Accounts or withdraw money if your Account linked with Aadhaar Card. All the transaction made by this process has to go through the biometric authentication. This mode of payment mainly uses by the Business Correspondence at CSP points for cash withdrawal and work as micro-ATM. The AePS fees for Cash withdrawal at BC Points are around Rs.15.
The merchant also can use this mode to receive payment by fingerprint authentication of customers. The device can be attached to mobile and all the banks have specific BHIM merchant Apps to use this device for merchant payment. The merchants do not have to pay any transaction charges if the amount is below Rs.2000.
As per the latest data from NPCI, AePS has crossed more than 205 million as of February 2020.
6. Mobile Wallet
The popularity of mobile wallets has increased many folds during recent times and it is one of the most used Digital Payment modes in India. The reason is anyone can create a Mobile wallet just by downloading and installing the App. You can keep some money in a digitalized form in the Mobile Wallet. Many Mobile wallet providers in India also run different types of rewards or cashback programs if the transaction made from the Mobile Wallet.
You can easily create a Mobile Wallet if you have a mobile number without providing any Valid KYC documents. Though as per RBI guidelines, all the Mobile Wallets must be KYC complied within August 2019 to continue the services of Mobile Wallet in India.
The popularity of mobile wallet has increased so much that you can find the link of popular Mobile Wallet at all the Payment Gateway in India. You can easily add funds to Mobile Wallet from Credit/Debit card or from Bank’s NetBanking service.
As per RBI norms, you can only transfer money between two different mobile wallets (interoperability) or from Mobile Wallet to Bank Account, if your wallet is KYC complied.
Paytm was the first company in India, started the concept of Mobile Wallet. Now you can find many mobile wallet Apps, from commercial Banks to Fintech Startup, in Google Play Store or iOS App Store. I have already published an article on the best mobile wallet apps in India. You can read the article here
7. Internet Banking
Internet Banking one of the first technology started at the initial stages of the Digital payment system in India. All the commercial banks and recently launched Payment Banks in India have their own internet banking portal. Some Banks have integrated so many things in their internet banking portal that you can complete your every banking tasks from the NetBanking portal. You can find an internet banking option at every Payment Gateway in India. Here’s the list of some Banks which has the best internet banking portal in India
- ICICI Bank
- State Bank of India
- HDFC Bank
- Kotak Mahindra Bank
- DBS Bank
- CITI Bank
- Axis Bank
- Yes Bank
8. Mobile Banking
Mobile Banking is the best and most Popular Digital Payment mode in India because it is most convenient, easy to use and integrated with all the features that we need our day to day banking. You can find all the Digital payment modes like IMPS, NEFT, RTGS, UPI, Bill Payments, etc at a single platform. Banks are also encouraging their customers to use mobile banking services because it not only helps to reduce the work pressure on Banks but also helps to create a Digital Payments ecosystem in India.
You can find a comparative analysis of Top Mobile Banking Apps here
9. Micro ATM
This is mostly used by the Business Correspondence at Customer Service Points(CSP). You can withdraw money or deposit cash to your Aadhaar Linked Bank Account by just authenticating your fingerprint to the device. You can even transfer funds between any Bank’s Account only you need the Aadhaar to linked both the Account.
10. PoS Machine
You might observe PoS Machine or Point sale Machine at various Shopping Malls, Petrol Pumps, Movie Ticket Booking or many Kirana shops. You can pay shopping bills by swiping your credit or debit card, only you need to put your Card PIN to authenticate the transaction. All the Banks now starts providing contactless debit or credit card to its customers. You can authenticate the transaction just by holding the Debit or Credit Card on the Contactless reader of PoS Machine. You don’t need to provide the Card PIN up to Rs.2000.00, it will auto-authenticate. The contactless payment works using the NFC payment technology (Near Field Communication Technology).
There are two types of PoS Machines available in India, Wired (requires Telephone connection) and wireless (requires SIM card or Wifi connection). Most of the acquiring Banks now offer mPOS type of PoS Machine. SBI is now the largest acquiring Bank (Banks which provides the PoS terminal to the merchant) in the country.
Popular Apps for Digital Payments System in India
Here’s we categorically classify some best and Popular Apps for Digital Payments System in India
- Google Pay: Uses UPI Payment Technology. No Wallet Option, one of the most innovative Digital payment App in India.
- Paytm: Largest Mobile Wallet service provider in India. Offers UPI, Mobile wallet and Payment Bank with Rupay card for online Payment.
- PhonePe: Very popular mobile wallet providers in India, Offers UPI & Mobile Wallet service along with many other essential features.
- Paynearby: Innovative digital payment App mainly provide digital payment solutions like Adhaar Banking, AEPS, SMS Payments, money transfer, etc to the retailers. You can download the App here.
- BHIM: Official UPI Payment Apps, offers by NPCI, all the Commercial Banks have integrated BHIM UPI API in their Mobile Banking Platform.
- Pockets by ICICI Bank: One of the most innovative Digital Bank cum Wallet service providers in India. Offers UPI, Zero Balance Bank Account, Visa Virtual Domestic Debit card as Digital Payments option.
- Kotak 811: Best Digital Bank in India, offers Visa Virtual Debit card with international Payment option, UPI, Mobile Banking, IMPS, NEFT, RTGS as Digital Fund transfer.
- Axis Bank ASAP: Similar services as Kotak 811. All types of Digital payments facilities with a Virtual Bank Account.
- Payzapp from HDFC Bank: Mobile wallet with Visa Domestic Virtual Debit Card. Offers online payment services like UPI, Debit card, mobile wallet, etc.
- National Common Mobility Card: RuPay Contactless Card (Visa also starts issuing NCMC) can be used for Public Transport across India, You can get NCMC from SBI and most of the commercial Banks in India.
Digital Payments is the Future of India’s economy, as per the Credit Suisse report, India’s Digital Payments is expected to reach $1 trillion by 2023. More than 100M people in India now use Digital Payments mode at least once in a month in India. Banks and Fintech startups are also introducing several innovative Digital payment modes every day. The days are not far away when India will also be regarded as a Digital Economy.
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