2019-21

A
PROJECT REPORT ON
DIGITAL PAYMENT METHODS

(UNDER THE GUIDANCE OF: PROF. D SRINIVASCHARY)

SUBMITTED BY: -

NAME – CHIRAG

ENROL. NO. – 19BSPHH01C0302

 PREFACE
Economics, money, and the way we make payments have undergone several changes since the
time of the Stone Age. In a sense all these are key indicators of our progress as a species. The
primitive methods indicated our primitive way of living. Similarly, the current payment
methods powered by cutting-edge technology boast our technological achievements of today.
Digitization of payments was a huge jump towards the goal to achieve an easy, convenient,
fast, and secure payment method. Arguably, we have achieved all of it. Digital payment
methods saw massive developments in the span of four to five years, and we are about to see
even more changes in the coming future.

In such times, it is exciting to see what 2020 has in store for us. In this project report, we will
closely look at all those digital payment trends that will make it big in the year 2020. With the
rise of the internet, almost everything has become available online. Banks all over the world
have been effectively deploying information technology as an innovative resource to achieve
speed, efficiency, cost reduction, customer service and competitive advantage. The result of
this change is that Online Banking has become a way of life today. Further, digital payments
were encouraged to provide sufficient cash availability to the banks for providing credit to
people. Till date, a considerable part of society has started using Digital mode of Payments,
but still people feel scared of using Internet Banking, debit cards, e-cash etc. Initially the
Government was providing considerable incentives for digital payments but now a decline has
been seen in this push. The reach of mobile network, Internet and electricity is also expanding
digital payments to remote areas. So, it is without doubt said that future transaction system is
cashless transaction. The dynamic payments ecosystem is expanding and evolving, and
the digital payments channels are continuing to grow robustly. In the last few years, this
industry has seen many trends and forces that are making India the most exciting payments
hotspot in the world.
 INTRODUCTION

Digital payment is a type of cashless payment where the payment is made through digital
nodes. These digital nodes are used by both, the payer, and the payee. Also called electronic
payment, no hard cash or physical form of cash is used in digital payments. Digital payments
are entirely made online and they are convenient, instant, and time saving.

To encourage and promote digital payments in India, the government of India has been taking
several steps. One such step is digital payments. The digital India payments is a part of Digital
India campaign. The aim of digital payment is to make India a paperless, cashless, and digitally
empowered economy. When we talk about cash payments, we first must withdraw cash from
the bank account. Then, we can use the cash to pay at stores, shops, etc. Lastly, the shopkeeper
goes to the bank and deposits the cash paid by you. This entire process is time-consuming. On
the contrary, in digital payment, the money is transferred directly from the payer’s bank
account to the payee’s account instantly.

The digital payment system in India is convenient and offers the flexibility of making a
payment anytime and anywhere. This method has speeded up the transaction cycle. In addition,
post demonetization, people have slowly started taking the digital payment method. Today,
even small shop owners and small-time merchants are accepting digital payment. As part of
promoting cashless transactions and converting India into less-cash society, various modes of
digital payments are available.

These modes are:

Top 5 Types of Digital Payments in India

1. Banking Cards

Bank cards is among the most used type of cashless payment method. It comes with several
features, such as convenience, security, etc. The main benefit of a debit or credit card is that it
can be used for making other types of digital payments. For instance, you can save your card
information in the mobile Apps to make a cashless payment. A few of well-known card
payment systems include Visa, Master Card, and Rupay. You can also use these banking cards
for online purchase and online transaction, PoS machines, and in digital payments.

2. Unstructured Supplementary Service Data – USSD

USSD, Unstructured Supplementary Service Data, is another method of paying digital
currency. This method of the digital payment system in India can be used without downloading
any mobile App and without mobile data. Also, there is no need for the user to have a
smartphone to carry out the digital transactions through USSD. This method is backed by the
NPCI – National Payments Corporation of India. This service is also known as *99#. The main
aim for which this mode was introduced is to create an environment for the underserved
sections of the society and integrate them into banking. One important feature of USSD is that
it can be availed in Hindi as well. The USSD can be used for:

• Initiate funds transfers

• Get bank statements
• Make balance queries

3. Aadhaar Enabled Payment System (AEPS)

AEPS is a service usually used for banking transactions, such as cash withdrawal, balance
inquiry, cash deposit, funds transfers, etc. All the cashless transactions are carried out through
Aadhaar verification. No physical visit to a bank is required or even there is no need to provide
any banking cards. You can avail this service through your Aadhaar Card which is registered
with the bank. So, this service can be availed if your Aadhaar Number is registered with the
bank.
 4. Unified Payment Interface – UPI

The UPI full form is Unified Payment Interface. It is a payment transaction which any customer
with a bank account can use with the help of a UPI-based App. You can link more than one
bank account with the UPI mobile App on their smartphone and initiate fund transfer
seamlessly. The best benefit of UPI is that there is no use of bank account number of IFSC
code to initiate fund transfer through UPI. The only required thing is Virtual Payment Address
(VPA).

There are several UPI Apps both for Android and iOS platforms that you can use. To use the
UPI service, you must have a valid bank account and registered mobile number with the bank.
Another benefit of UPI is that there are no charges for UPI transactions. You can send and
receive money through UPI. Also, UPI id and password can be easily recovered if you misplace
them.
 5. Mobile Wallets

A mobile wallet is like a virtual wallet where all your banking details are saved in a mobile
App. This wallet saves you from the hassle of remembering CVV or 4-digit pins of the banking
cards. All your details are securely saved in the mobile wallet. Many banks provide their mobile
wallet Apps which can be easily downloaded. Also, there are some private mobile wallet Apps,
such as Paytm, Free charge, Mobikwik, etc. You can add or send money or purchase goods
through a mobile wallet App.

DIGITAL PAYMENTS AND THEIR BENEFITS

Digital Payments are, simply enough, payments made through digital channels. They convert
a traditional cash-operation to a cashless one. All transactions are completed online. Some of
the advantages of digital payments are:

• Convenience & accessibility: Customers no longer need to carry cash or visit an ATM. In
fact, they do not even need to be physically present to pay! Customers can pay anytime
from any part of the world.
• Lower risk: Digital transactions are much more secure than traditional transactions
because they are processed by secure gateways which are hard to tamper with.
• Easily traceable: Details of payments are stored in a merchant-specific database. Both
merchants and customers have easy access to payment information. This avoids ambiguity
and confusion while tracking payments.

DISADVANTAGES OF DIGITAL PAYMENTS

• Service fees. Payment gateways and third-party payment processors charge service fees.
• Inconvenient for offline sales. Online payment methods are inconvenient for offline sales.

• Vulnerability to cybercriminals.
• Reliance on telecommunication infrastructure.
• Technical problems.

DIGITAL PAYMENTS IN INDIA: CURRENT CHALLENGES AND GROWTH

PROSPECTS

The Indian economy continues to be heavily reliant on cash. Digital payment systems are
heavily reliant on smartphones that are enabled with data connections, NFC, Bluetooth etc. The
solutions available now are catering to individuals who are already well versed with cashless
transactions through credit/debit cards and net banking 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, despite 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. 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 start-ups 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 start-ups 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 start-ups are leveraging advanced technologies which use other means of
communication – like sound, for instance – to facilitate digital payments. Since all mobile
phones can produce 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 start-ups and players
with unique offerings to encourage Indians to embrace a cashless economy.

MAJOR CHALLENGES/ PROBLEMS OF DIGITAL PAYMENTS:

1. Lack of trust among people in digital payments.

2. Lack of knowledge and awareness among uneducated or less advanced people.

3. Less reliability due to scams and hacking cases.

4. Loss of internet connection sometimes.

5. Delay in cashback processing by E-commerce Companies and e- wallet Companies.

. 6. Sometimes the payments get blocked and no confirmation is sent to customer regarding status
of payment.

FUTURE OF DIGITAL PAYMENTS IN INDIA

It seems that it will take enough time in India to become completely cashless economy. It will
require complete support from people and more awareness and knowledge among people. The
problem of lack of education and digital literacy needs to be solved first to have a greater
number of digital transactions. Further, cashback offers are working well at present but it will
require a committed, secure and highly reliable payments network to boost digital transactions
in India to have transparency in the transactions, eradication of black money and to have long
run economic development by cashless economy. By doing this, we can surely have a great
future of digital payments in India. India’s biggest challenge for e-wallets and e-money is the
sheer size of the country’s population. While we do have the initiatives in place, when it comes
to driving numbers, there is a certain amount of difficulty.

To deal with these challenges digital payment interfaces need to offer incentives to both
consumer and merchant to promote adoption. The key question for both parties is why they
should pick digital over cash. For the consumer, mobile payments need to be quick and easy to
use, while also being secure. For the merchant, on the other hand, it needs to save time and cut
costs, have low cost, and give them a new stream of revenue. While recharges, bill payments
and taxi bookings remain strong e-payment opportunities, many digital payment services are
trying to expand to other sectors as well. For example, PayTM has tried to add their interface
to retailers, brands, small retail enterprises, coffee shops, hotels, and much more, even going
to the extent of branching into the education sector by allowing people to pay for coaching
classes through mobile wallet.

The initiatives of mobile wallet players will need to be backed by the RBI fully, and
government initiatives such as infrastructure, data plans, stable networks, better
communications and so on will be integral to the continued success of digital payments in India.
There is also a tremendous need for awareness about e-payments, which will play a key role in
getting more people on the e-payment spectrum. All in all, if we manage to hit the right track,
then mobile wallets will soon replace cash.
 CONCLUSION

Digital payments are future. In coming years, we will see payment methods transitioning from
physical cash to the digital payment methods. Before the transition concludes, many new trends
will appear and disappear. These trends will play a vital role in shaping our future payment
methods. Many of the mentioned trends will also play a major role in that process. But only
time will tell how it will all undergo. According to a recent report, the Indian digital payment
industry is expected to reach $1 trillion by 2023. The Indian start-up ecosystem is expected to
play a crucial role in enabling this industry as it can leverage the opportunities by addressing a
multitude of challenges.

While India has a robust start-up ecosystem capable of addressing these challenges, the
Government can help accelerate the process through better policies and framework. The
introduction of UPI by National Payments Corporation of India has already shown a
remarkable result. RBI’s Vision 2021 is a step in the right direction as it looks to create a robust
digital payment ecosystem by moving towards a cash-lite economy. These measures are in sync
with the Government’s Digital India initiative and it will also enable its financial inclusion
goals. In future the digital payments are going to be a must and so the change in the habits of
the people to accept the digital payment is also must. The cashless transition is not only safer
than the cash transaction but is less time consuming. It also helps in record of the all the
transaction done. India has more than 100 crore active mobile connections and more than 22
crore smart phone users as of March 2016. This number is going to increase further with a
faster internet speed. The reach of mobile network, Internet and electricity is also expanding
Digital payments to remote areas.