Digital payment is the method in which transaction can be done through electronic media. In March 2018, the value of the transaction in NEFT was about Rs.22540.8 billion. While Rs.1038 billion was through IMPS, Rs.419 billion through the Debit cards and PoS transactions of about Rs.443 billion through credit cards and PoS transactions of nearly Rs.101 billion through mobile wallets, Rs.242 billion through UPI. We have seen a lot of startup activities and developments in FinTech services from 2017 onwards. According to Morgan Stanley, UPI(Unified Payments Interface) based payment system reached 7% in 2018 which got tripled from 2.5% in the last 3 years.
Nature of Digital Payments
1) Flexibility: There are various forms of digital payment methods available in the market. The payment infrastructure must support all types of digital payment system.
2) Security: There is always a big chance of cyber-attacks. The service provider must ensure the security of payments and transfers is kept intact. Otherwise, there will be chances of malpractices like data theft, unauthorized money transfer, etc to take place.
3) Reliability: The government regulatory framework and FinTech collaboration are completely ensuring shield from cyber-attacks. So, people are adopting digital payments methods gradually.
4) Efficiency: Cost involved in cash transactions are higher. In digital payment methods, offers or discounts are given as well. Even the transaction cost shows zero or comes out very minimal. So efficiency is much high in the digital payments system.
5) Scalability: From small payments to large business payments, everything can be done through this method. A customer can use digital payment methods in PoS, e-commerce billing, recharging, ticketing, fund transfer, bill payment, etc. for the same purpose.
6) Consistency: A customer, merchant everyone infact must agree upon the terms and conditions of digital payments. This service is throughout consistent in nature meaning it gives the same result for every transaction conducted.
7) Convertibility: It can transfer money from one account to another account with ease. The other account may be a virtual account or actual account. It must be interchangeable with another form of electronic payments like digital cash, digital currency, etc.
8) Customer database: It can be used for a higher number of customers as well as for a lower number of customers. After a transaction, it creates a customer database in the system. Digital data can be verified and checked later if necessary in future endeavors. Even the company can target the customers existing in the database.
9) User-friendliness: The process of digital payments is extremely user-friendly. There are fewer steps for the full transaction process making it an easy process for payment by the customer.
10) Easy integration: It must be integrated with existing systems and applications. Even the security module should be integrated with the same payment system. So that people find it easy to use this methodology.
11) Tracking spends: Digital data is automatically generated after each payment. Even the customers will be able to track transaction records. Spending should be controlled in this way.
12) Convenience: For this payment method, people do not have to visit any store or institution. Customers will be able to pay for his/her convenient place. In fact, this service is available 24*7.
13) Low operational cost: For cash transaction employees are necessary. But in digital payments, everything is automatic. So such amount of employees are not necessary. So the operational cost is less in this payment method.
14) Feedback: From digital payment system, the service provider can take quick feedback also. It will help them for further improvement of the system.
15) Durability: If there is any kind of failure in the payment process then the status gets automatically updated. The recovery process gets started automatically too. So people can totally rely on this digital payment method.
Every process has some advantages and disadvantages. In the age of high competition and technology, people prefer digital payments over the traditional payment methods. India targets to reach the mark of 10% GDP by 2023. 3.2% GDP is forgone from tax revenue, so the Government of India is trying to recover that amount through digital payments. Every institution is offering digital payments facilities, so the opportunities in the digital payments sector are immense.