October , 2019
Increase in the electronic payment methods and beyond
13:59 pm

Aritra Mitra

Four friends suddenly decided to go on a weekend trip. A number of arrangements were to be made – booking tickets, arranging transportation and reserving hotel. The time was limited. One of them suggested that the others pay him through Google Pay and he will make the arrangements online, which he did within 15 minutes. Welcome to the era of digital transactions!

Net banking, Google Pay, PhonePe, Paytm and other modes of transactions, which were alien to  people a few years back - have now become increasingly popular. According to a Reserve Bank of India (RBI) report, “During the financial year 2018-19, the retail electronic payment transactions increased by 59% to reach 23.3 billion from 14.6 billion in the previous year, resulting in an increase in the share of electronic transactions in the total volume of retail payments to 95.4% during the year from 92.6% in the previous year.” An ASSOCHAM-PwC study revealed that digital payments in India will reach $135.2 billion in 2023 from $64.8 billion in 2019.

It is interesting to the see the change in digital spending behaviour of Indians over the last couple of years. Online shopping spends now account for 35% of all MasterCard transactions. This implies that more Indians are comfortable using their debit, credit, and prepaid MasterCard cards for online shopping rather than transactions at a merchant location. This change in behaviour has been influenced by big online retailers like Flipkart and Amazon, mobility operators like Ola and Uber, and food aggregators like Swiggy and Zomato, who are incentivising digital payments.

According to data from the RBI, debit card transactions at point-of-sale terminals surged, growing at 105% in FY17. RBI sources informed that until August 2018, tier-II and tier-III cities were witnessing a rise in the online transactions though top metropolitans showed signs of saturation. In 2018, Amrish Rau, CEO, PayU, India, said, “Across cities like Udaipur, Aligarh and Hubli, merchants are open to adopting QR code for payments and they are platform-agnostic.”

With increased digital payments, the influx of cash can be checked by reducing the cost of production and distribution of cash. There is also a huge expense involved in manual accounting of cash at different levels, which can be reduced with a cashless economy.

Dr. Barendra Kumar Bhoi, a career central banker and economist who served the RBI for more than three decades and is currently a visiting faculty at Indira Gandhi Institute of Development Research, Mumbai (IGIDR), told BE, “Large cash transactions and corruption are highly correlated in India and abroad. As digital transactions are subject audit trail, it would be unsafe to put through illegal transactions in the digital space and get away with impunity.”

According to him, the twenty-first century is the digital century and the payment system is not the only beneficiary of the digital system. He said, “Most of the innovations like artificial intelligence, internet of things, block-chain technology, e-commerce and healthcare are immensely benefited by digital technology. India’s GST system is also based on a digital platform. ”

The policy challenge is to balance the expansion of the digital economy with the minimisation of risks associated with data and technology misuse. This needs to be implemented to ensure public confidence and trust. The efficiency and soundness of the payment and settlement systems also needs to be looked into.

According to a source, the increase in digital payments is the first step in the right direction but it still has a long way to go. The source informed BE, “With most of the banks investing a hefty amount in robotics and advanced analytics, it has the potential of creating one million new jobs. However, this requires very specific skill set.”

The government needs to educate people on the benefits of digitisation and provide all sections of the society with the necessary training and opportunities in order to smoothen the road to digitisation. The banking sector will also become more competent due to competition and will be able to serve the people better through advanced and innovative ways. However, the digital transformation needs to happen gradually  and not at the cost of job cuts and people losing their money.




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