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Payment innovations: The rise of digital payments
Over the years, India has transformed from an economy that relied heavily on paper money to conduct its transactions to one that’s fast adopting digital payment methods. As a matter of fact, in the year 2020, digital payment in India witnessed a massive increase.
We even toppled other developing and developed countries like China and the U.S.A in terms of the number of real-time payment transactions. India made about 25.5 billion real-time payments in 2020, around 9.8 billion more than China, which took the second spot with around 15.7 billion payments. All of this, despite the fact that paper-based payments took up almost 61.4% share in the country.
What has led to such a meteoric rise in the number of digital payments? And what’s the future going to look like? These are some of the questions that we’re going to be answering in this chapter of Smart Money. But before we get into the thick of things, let’s quickly take a look at the different types of digital payments that we currently have.
The types of digital payments in India
At present, we have as many as 10 different types of cashless payment systems. These include
- Banking cards, which encompasses both credit cards and debit cards
- Unstructured Supplementary Service Data (USSD)
- Aadhaar Enabled Payment System (AEPS)
- Unified Payments Interface (UPI)
- Digital wallets and mobile wallets
- Bank prepaid cards
- Point of Sale (POS)
- Internet Banking
- Mobile Banking
- Micro ATMs
Of these, the Unified Payments Interface (UPI) has garnered the most popularity and is currently responsible for a significantly large number of digital payments in the country.
The rise of digital payment in India
Compared to the rest of the world, we were quite a bit late to the digital payments scene. And when we finally arrived, the adoption rate was very low. A majority of Indians were hesitant to shift from paper-based payments to digital payments citing a long list of reasons ranging from low security to technological illiteracy.
In FY 2010-11, only around 4.98 billion transactions worth Rs. 96 lakh crores were made and processed, which is a far cry compared to the current situation. According to the Reserve Bank of India, NEFT, UPI, IMPS, ECS, and NACH are the ones to have shown much improvement and adoption. In terms of volume, these types of digital payments have grown by a CAGR of 55% over the past 10 years.
What has led to the rise of digital payments?
On a closer look, we can identify the following as the reasons for the extraordinary increase in the number of digital payments.
Increased push towards a cashless economy
The efforts of the Indian government towards the promotion of digital payments have steadily increased over the years. Schemes like Digital India brought awareness and promoted cashless financial transactions, while initiatives like Demonetization acted as the catalyst.
The convenience that digital payments brought on along with it is undeniable. As time passed, our fears and concerns on transaction safety and security vanished and the need for increased convenience took center stage. Although the debate on transaction safety is still ongoing, we have all learnt to embrace digital payments despite our fears.
Introduction of UPI
The Unified Payments Interface (UPI) was an absolute game changer. Currently a large majority of the population uses UPI in one way or the other. Even Tier-2 and Tier-3 cities are embracing this payment method. Digital payments through UPI are very fast, convenient, and safe to a large extent.
If estimates are to be believed, digital payment in India is about to witness a massive explosion in terms of volume and value. Many experts suggest that we might see the value of digital transactions cross Rs. 7,000 lakh crores by FY25. One thing is for sure. Good times are ahead for our economy.
A quick recap
- In the year 2020, digital payment in India witnessed a massive increase.
- At present, we have as many as 10 different types of cashless payment systems.
- Some key reasons for the rise of digital payments in India include increased push towards a cashless economy, convenience, and the introduction of UPI.
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