Digital Payments In India: Current Challenges And Growth Prospects

Post the implementation of demonetisation in November 2016, the use of digital payment methods in India received a major boost. According to the National Payments Corporation of India (NPCI), the value of the BHIM Unified Payments Interface (UPI) transactions skyrocketed to INR 1 Tn while the volume of transactions reached 913 Mn, up from a meagre 7 Mn in April 2017.

One would imagine that this massive growth of digital payment methods would consequently lead to a decrease in the use of cash. However, in spite of all this, the cash in circulation as of June 22, 2018, was only 9.8% more than it was on June 23 in 2017. This indicates that even though there is a greater appetite for digital payments systems, the Indian economy continues to be heavily reliant on cash.

Need For Low Cost, Interoperable Infrastructure

This continued dependence on cash persists due to certain challenges deeply rooted in the digital payments ecosystem in India. These ingrained issues can be largely attributed to a lack of adequate infrastructure. In the current scenario, digital payment systems are heavily reliant on smartphones that are enabled with data connections, NFC, Bluetooth etc. Out of India’s 800 Mn mobile phone users, only 200 Mn use smartphones. Of these phones, only 6 Mn are NFC-enabled.

An even smaller percentage of users has access to QR code mechanisms. This translates to approximately 85% Indians who do not have access to the infrastructure required to adopt the current digital payment systems that are heavily reliant on smartphones. There is a dire need, therefore, for a more interoperable and universal method of digital payments in the country.

Additionally, the hardware and software required to adopt the current digital payment infrastructure are bulky and expensive. A lot of retailers are resisting adoption due to these high costs and continue using cash. In a developing country such as India, people would rather carry bulky bank notes than pay extra just for using digital payment methods. Demonetisation pushed Indians towards switching to cashless methods which come with veiled costs galore, but as soon as the pressure reduced, Indians were back to using cash.

Boosting Innovative Startups For A Digital Future

While the government and digital payment companies push for a cashless economy, the pitfall probably lies in the lack of a protocol pertaining to the implementation of digital payment methods. While technologies are abundant, their penetration is lagging and while innovative startups that can reduce the cost burden on users are present, adequate support for their growth is scarce.

The solutions available now are catering to individuals who are already well versed with cashless transactions through credit/debit cards and net banking.

Innovative startups that disrupt the existing digital payments landscape with payment technologies entailing low cost adoption models, will level the playing field and promote financial inclusion. There are some innovative solutions that are currently looking to resolve this technology-utility gap to make digital payments accessible.

Dynamic startups are leveraging advanced technologies which use other means of communication – like sound, for instance – to facilitate digital payments. Since all mobile phones are capable of producing sound, they can be used for digital payments without the need of the internet, cameras, or expensive equipment, which are required for mobile wallets or QR code systems.

Government efforts towards the elevation of these cutting-edge, novel technologies and their systematic penetration among the masses will inevitably lead to a boundlessly prolific cashless economy. It is important to develop an ecosystem that nurtures innovative startups and players with unique offerings to encourage Indians to embrace a cashless economy.