India is a massive cash dependent economy
with a 13% cash-to-GDP ratio to the global average of 2.5 to 8%. This invites
many illegal transactions and black money within the system.
The government hence, figured out that going
cashless can be a solution to reduce these money laundering transactions, and a
fair play in the economy of the country will persist.
In 2005, a tax named ‘Banking Cash
Transaction Tax’ was one of the steps taken towards the removal of black money
by the then finance minister of U P A government, which levied a tax of 0.1% on
withdrawals of cash above 10,000 rupees.
But this mainly focused on the banks, while
blurring the cash users like merchants or businessmen.
Why Digital Payments:
Billions of dollars in cash payments are made
daily in emerging and developing countries, including salaries, social
transfers, humanitarian relief and payments to suppliers and farmers. Shifting
these payments from cash to digital has the potential to improve the lives of
people on low income, particularly women.
It also means that governments, companies and
international organizations can make and receive payments in a cheaper, safer
and more transparent way, helping build economies that are inclusive.
We do not want to abolish physical cash, but
rather, we aim for choice in how to make and receive payments. We want all
digital payment options to be responsible and “better than cash”.
Impact of
Demonetisation on Digital Payments:
Since the attack of demonetization by the
government has been taken, digital and online transactions have had a steep
up-rise in its graph. The rate of digital cash users is increasing
exponentially day by day.
Mobile transaction applications like Pay TM says
that there has been a 200% increase in its mobile app downloads in recent times
and a 250% increase in their recent transactions.
Applications like MobiKwik, Oxigen and U Pay
also reports the growth of digitization in their statistics after the widespread
of demonetization. Demonetization is the biggest and the most effective step
taken so far by the Indian government towards digitization.
The dumping of 500 and 1000 notes has
triggered the wealth of black money holders massively. Though the economy
country-wide has dropped, the black money and big-fat illegal cash transactions
have also been minimized greatly.
New portals for online digital transactions
have been opened on a wide-scale, encouraging more customers or users of cash
to dump the old techniques and go cashless.
The government must propose more secure and
tight algorithms to stop the intervention of cyber-attacks on top security
databases for big companies, governments and systems, as well as on personal
accounts for the public.
Going digital will help in keeping track of
the monetary transactions taking place and will pose more security on
individual’s wealth. Digital payments will also be a step for an eco-friendly
environment as the usage of paper reduces.
A drawback factor to the making of a digital
India will be the high rates of illiteracy and poverty.
Challenges/ Issues to
Digital Payments:
1.
Fraud and Security:
The security breaches and risks for data
security is the biggest concern among the consumers and can be considered as a
key factor for the adoption of digital payments.
The industry is constantly trying to
introduce new ways for secure transactions and upgrading their current modes
accordingly, hackers are also evolving their techniques.
Making a safer route for transactions is
imperative and not a choice as, hacking and security breaches can cause
financial as well as a reputational loss for the company.
2.
Awareness and Adoption:
India is a cash dominant society, even though
there is a rapid increase in using digital payment modes, there is still a lack
of awareness among people concerning security, data privacy, etc. which is
leading to them believing that making payments via cards or cash is better than
paying mobile application.
Consumers still don’t consider mobile wallets
as a safe mode for payment and the mobile wallet industry needs to invest a
good amount of time and effort to overcome this.
Though there is a clear dominance of using
cash over other methods for transactions, many of the consumers prefer using
credit or debit cards for transactions as the next option.
There are certain limits for mobile payments,
which are more wider for using cards. So, competition with debit/ credit cards
can be another key point to the further adoption of mobile wallets.
3.
Merchant Support:
Adopting to the mobile
wallets is putting many merchants into the dilemma. Many merchants (from small
as well as big businesses) are still resisting to upgrade to EMV standards and
contactless payments.
This is resulting in
customers sticking to the traditional/old methods of payments (if their
merchants are not accepting digital wallets/digital payments why would they
adapt to them?).
4.
Compliance:
Mobile wallets need to be
compliant with all legal requirements of government standards. Becoming compliant
is indeed a difficult task, but it is of utmost necessity. The mobile wallet
industry should take needed efforts in the best interest of customers as well
as for themselves.
5.
Compatibility:
Mobile wallets need to be
compatible with all the mobile models and their operating systems. The customer
is the king and he is looking for a seamless and convenient way of digital
transaction, it is required that compatibility should exist across all os and
mobile devices.
Benefits
of Digital Payments:
In a country like India,
where disparities are sometimes poles apart, ensuring financial equality
becomes an issue of prime importance. One of the reasons why our government
started vocalizing Cashless Economy and Digital India was to improve access to
financial resources.
There are multiple benefits
that digital payments bring to the table:
1.
Ease and Convenience:
One of the most significant
advantages of digital payment is the seamless experience they provide to
customers. Reduced dependency on cash, fast transfer speed, and the ease of
transacting make online payments a preferred option.
Traditional payment methods
like cash and cheques add to factors like risk, steps, and physical presence.
With digital payment, we can send and receive funds from anywhere in the world
at the click of a button.
2.
Economic Progress:
Customers transact more
online when they see the ease, convenience, and security of online payments.
This means that more and more people feel comfortable buying online, investing
digitally, and transferring funds via electronic mediums.
The increase in money
movement and online business contributes to the progress of the economy. This
is why online ventures are being launched every day and even more are making
profits daily.
3.
Safety and Efficient
Tracking:
Handling and dealing in cash
is a cumbersome and tedious task. Along with the risk of losing money, there is
the hassle of carrying cash everywhere you go and keeping it safe. With digital
payments, one can keep their funds secured in online format effortlessly.
Nowadays, our mobile phone
alone is enough to make and receive payments – thanks to UPI, net banking, and
mobile wallets. Additionally, most digital payment channels provide regular
updates, notifications, and statements for a customer to track his funds.
4.
Provision of Discounts:
Going digital can benefit the users in terms
of discounts provided to them for various occasions as well as purchases. For
example, for encouraging people to use the digital method of making
transactions, the government announced a waiver of service tax on debit and
credit card transactions up to Rs 2,000.
Such incentives and measures by the
government help people be more digital-friendly, and thus, helps the government
keep tabs on tax evasion. Moreover, the customer avails the benefits of
discounts online every now & then and gets a fair price for the
product/service needed.
5.
Better way to observe spending:
With digital
payments being convenient not only in other aspects but also in terms of
keeping a record of the payments done so far, it is but easy to be accountable.
When the payments are made via digital channel, it is easier to file income tax
returns and also is easier to explain the spends in case of scrutiny.
6. Helps in Better Investments:
As making
transactions digitally helps individuals observe their spending,
psychologically speaking, it becomes obligatory to ward off some of the
expenditures.
This, in turn,
helps increase savings, which can lead to an increase in investments. Hence, with
online payments, there are better chances of people being able to save more for
investments. More investments lead to more earnings and thus, it proves to be
quite beneficial for the users.
7. Option to deactivate in case of theft or any
accident:
Payments have
evolved from the barter system to cash to card payments to digital payments.
According to Statistics, in India, the total transaction value of digital
payments in 2019 amounts to US$64,787 million.
Digital payments
have the upper hand over making cash transactions since a digital payment
platform can be blocked immediately in case of theft.
But it is not the
same with cash payments, since the cash once gone, has minimal to zero
possibility of coming back to you. Moreover, carrying bundles of cash with
oneself while traveling is never recommended and neither is easy.
Future of Digital
Payments:
Many companies are developing the
applications and methods more seamless for both customers as well as merchants.
Now there is no need for customers to give their
card information for digital payment (epos link), as for merchants, they can
accept bulk payments, split payments with just a click (WhatsApp link). And
everything is possible because of using means of digital payments.
Many Payment services provide as well as
financial institutions are opting for secure ways to make online payments
secure for both merchants and customers.
India is among the top nations with the
world’s fifth-biggest online customer base and majority of them are only using
mobile internet which indeed is a driving force for the success story of
digital payments.
The rise of new-age technologies such as
e-wallets, UPI, tap, and pay, has further allowed people to look beyond the
conventional mode of payments. The technological transformation which the
country is witnessing has both pros and cons which are necessary to be
addressed for a better future.
Written by – Sakshi Chauhan
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