“A STUDY AND ANALYSIS ON THE USAGE OF DIGITAL PAYMENT.

A Project Submitted to

University of Mumbai for partial completion of degree of

Bachelor in Management Studies under

The Faculty of Commerce

BY

SHRUTI S. KARANGUTKAR

Class: TYBMS Roll No.: 20

Under the guidance of

MS. SADAF HASHMI

SATHAYE COLLEGE

DIXIT ROAD, VILE PARLE (EAST).

MUMBAI-400057.

MARCH 2021-2022

I
 Declaration by learner

I, the undersigned, Ms. Shruti S. Karangutkar hereby, declare that the work
embodied in this project work titled “A STUDY AND ANALYSIS ON THE
USAGE OF DIGITAL PAYMENT.”, forms my own contribution to the research
work and analysis carried out under the guidance of Ms. Sadaf Hashmi is a result
of my own research work and has not been previously submitted to any other.

University for any other Degree/Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, hereby further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Shruti S.
Karangutkar
(Name and Signature of the learner)

II
 Certificate

This is to certify that Ms. Shruti S. Karangutkar has worked and duly
completed her Project Work for the degree of Bachelor in Commerce
(Accounting & Finance) under the Faculty of Commerce in the subject
of Accounting & Finance, and his project is entitled, “A study and
analysis on the usage of digital payment.”, under my supervision.

I further certify that the entire work has been done by the learner under
my guidance and that no part of it has been submitted previously for
any Degree or Diploma of any University.

It is her own work and facts reported by her personal findings and
investigations.

___________________ ______________________
Ms. Manjiri Bhosle Principal – Dr. Madhav Rajwade
Course Coordinator Sathaye College

III
 COLLEGE SEAL

____________________
Ms. Sadaf Hashmi External Examiner
Project Guide

Date of submission:

IV
 Acknowledgments

To list who all have helped me is difficult because they are so numerous and the depth
is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to
do this project.

I would like to thank my Principal, Dr. Madhav Rajwade for providing the
necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator, Ms. Manjiri Bhosle for her moral
support and guidance.

I would also like to express my sincere gratitude towards my project guide, Ms.
Sadaf Hashmi whose guidance and care made the project successful.

I would like to thank my college library, for having provided various reference books
and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my parents and peers who
supported me throughout my project.

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 ABSTRACT

Driven by rapid advances and investments in digital payments offerings and

capabilities, the global payments landscape is undergoing a profound
transformation. The night of 8th November, 2016 brought along what was going to
be a revolution in the field of India’s payments landscape. As demonetization was
announced, the last 2 years have seen amazing shifts in the digitization of payments
in India. Demonetization provided a strong impetus for consumers to move to non-
cash payment methods and a new normal has been found. As a result of the
technological development, the proportions of electronic transactions, both in terms
of volume and value, have increased sharply. It is indeed heartening to note that
electronic payment in India has seen a huge growth and this promises well for the
corporate sector and the economy. This study thus focuses on the perception of
consumers towards the upcoming evolution of digital payments.

Keywords:

Digital payments, cashless transactions, consumer perceptions, electronic payment system,

demonetisation.

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 TABLE OF CONTENTS

SR.NO. PAGE
CONTENTS NO.

CHAPTER 1: INTRODUCTION

1.1 Evolution of Digital Payments in India 2

1.2 Modes of digital payments 3-4

1.3 Process of digitalisation of transactions 5-6

1.4 The process of going from cash based to cashless 7

1.5 India’s digitalisation story 8-11

1.6 Advantages of electronic payments 12

1.7 Trends in the digital payments landscape 13

1.8 Growth prospects in the Indian market 14-16

1.9 At the global level 17-19

1.10 Challenges to the industry 20

VII
 CHAPTER 2: RESEARCH METHODOLOGY

2.1 Introduction 21

2.2 Objectives 22

2.3 Hypotheses 23

2.4 Research Methodology 24

2.5 Importance of Study 25

2.6 Limitations of the study 26

CHAPTER 3: REVIEW OF LITERATURE

3.1 Introduction 27

3.2 Literature Review 28-30

CHAPTER 4: ANALYSIS AND INTERPRETATION

OF DATA

4.1 Descriptive analysis 31-42

4.2 Inferential analysis 43-44

VIII
 CHAPTER 5: FINDINGS AND CONCLUSIONS

5.1 Findings 45-56

5.2 Conclusions 57

5.3 Recommendations 58-63

CHAPTER 6: BIBLIOGRAPHY 64-65

Annexures 66-67

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CHAPTER 1: INTRODUCTION

OPERATIONAL DEFINITIONS

Digital payments: Digital payments are technically defined as any

payments made using digital instruments. In digital payment, the payer
and the payee, both use electronic modes to send and receive money.

Cashless economy: A cashless economy is a system where any type of

money transactions are done through digital means like debit cards,
electronic fund transfer, mobile payments, internet banking, mobile
wallets, and other newly evolved payment channels, this will leave very
little scope for flow of hard cash in economy.

Demonetisation: Demonetization is the act of stripping a currency unit

of its status as legal tender. It occurs whenever there is a change of
national currency: The current form or forms of money is pulled from
circulation and retired, often to be replaced with new notes or coins.
Sometimes, a country completely replaces the old currency with new
currency.

Digitalisation: Digitalization is the integration of digital technologies

into everyday life by the digitization of everything that can be digitized.
The literal meaning of digitalization gives an apparent idea of
development and technology dependent world.

POS: A point-of-sale (POS) transaction is what takes place between a

merchant and a customer when a product or service is purchased,
commonly using a point of sale system to complete the transaction. In its
most basic definition, a POS system is a combination of POS hardware

1
and POS software to create a POS machine for processing a transaction
and payment.

The electronic payment system evaluation can be traced back to the

1950s with the introduction of ERMA (Electronic record method of
Accounting) and MICR based on cheque- clearing system in the USA.
Over the last two decades, in India, post implementation of MICR based
clearing in1986, other payment system like card based payments system,
ECS,EFT, RTGS and NEFT have come up and they offer a different set
of capabilities for the wholesale and retail customers.

The Digital India programme is a flagship programme of the

Government of India with a vision to transform India into a digitally
empowered society and knowledge economy. Promotion of digital
payments has been accorded highest priority by the Government of India
to bring each and every segment of our country under the formal fold of
digital payment services. The Vision is to provide facility of seamless
digital payment to all citizens of India in a convenient, easy, affordable,
quick and secured manner.

1.1 EVOLUTION OF DIGITAL PAYMENTS IN INDIA:

India’s payment system - particularly, its digital payments system - has

been evolving robustly over the past many years, spurred by
developments in information and communication technology, and
fostered and in consonance with the path envisioned by the Reserve
Bank of India. As part of this vision, the National Payments Corporation

2
of India (NPCI) was established in 2008–has been spearheading the
development of the retail payments system. Important milestones
attained in this overall process of development of the payments system
include the introduction of MICR clearing in the early 1980s, Electronic
Clearing Service and Electronic

Funds Transfer in the 1990s, issuance of credit and debit cards by banks
in the 1990s, the National Financial Switch in 2003 that brought about
interconnectivity of ATMs across the country, the RTGS and NEFT in
2004, the Cheque Truncation System (CTS) in 2008, the second factor
authentication for the ‘card not present’ transaction in 2009and the new
RTGS with enhanced features in 2013. Furthermore, non-bank entities
have been introduced in the issuance of pre-paid instruments (PPI),
including mobile and digital wallets. These measures have been
complemented by significant initiatives by the NPCI including the
launching of grid-wise operations of CTS, interoperability on NACH,
IMPS, NFS, RuPay (a domestic card payment network), APBS and
AEPS (which are an important part of the financial inclusion process),
National Unified USSD Platform (NUUP), UPI and the BHIM
application. Many of these achievements, particularly given their pan-
India coverage, are indeed notable from across country perspective,
including the ‘T or

T+1’ clearing of cheques enabled by CTS and the clearing house

infrastructure, the NEFT, the IMPS, mobile banking/payments and the
security aspects of card payments. These developments capture the
evolution of the Digital Payments ecosystem in the country.

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1.2 MODES OF DIGITAL PAYMENTS:

1. Bank Cards: Bank cards are among the most used type of cashless

payment method. It comes with a number of 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, MasterCard, and Rupay. You can also these
banking cards for online purchase and online transaction, PoS
machines, and in digital payments.

2. 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 4digit 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,
Freecharge, Mobikwik, etc. You can add or send money or purchase
goods through a mobile wallet App.

3. United Payments Interface (UPI): 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 a number of UPI
Apps both for Android and iOS platforms that you can use. To use

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 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.

4. NEFT/RTGS: Real Time Gross Settlement is a funds transfer

mechanism where transfer of money takes place from one bank to

another on a 'real time' and on 'gross' basis. This is the fastest possible
money transfer system through the banking channel. Settlement in
'real time' means payment transaction is not subjected to any waiting
period. The transactions are settled as soon as they are processed.
'Gross settlement' means the transaction is settled on one to one basis
without bunching with any other transaction. Considering that money
transfer takes place in the books of the Reserve Bank of India, the
payment is taken as final and irrevocable. The National Electronic
Fund Transfer (NEFT) system is a nationwide system that facilitates
individuals, firms and corporates to electronically transfer funds from
any bank branch to any individual, firm or corporate having an
account with any other bank branch in the country. It is done via
electronic messages. Even though it is not on real time basis like
RTGS (Real Time Gross Settlement), hourly batches are run in order
to speed up the transactions.

5. IMPS: Immediate Payment Service (IMPS) is an initiative of

National Payments Corporation of India (NPCI). It is a service

through which money can be transferred immediately from one
account to the other account, within the same bank or accounts across

5
 other banks. Upon registration, both the individuals are issued an
MMID (Mobile Money Identifier) Code from their respective banks.
This is a 7 digit numeric code. To initiate the transaction, the sender
in his mobile banking application need to enter the registered mobile
number of the receiver, MMID of the receiver and amount to be
transferred. Upon successful transaction, the money gets credited in
the account of the receiver instantly. This facility is available 24X7
and can be used through mobile banking application. Some banks
have also started providing this service through internet banking
profile of their customers.

6. Bank payments: This is a system that does not involve any sort of

physical card. It is used by customers who have accounts enabled

with Internet banking. Instead of entering card details on the
purchaser's site, in this system the payment gateway allows one to
specify which bank they wish to pay from. Then the user is redirected
to the bank's website, where one can authenticate oneself and then
approve the payment. Typically there will also be some form of two-
factor authentication. Some services, like Trustly and Smartpay, let
merchants embed its iframe on their website so consumers can pay
without being redirected away from the original site. It is typically
seen as being safer than using credit cards, as it is much more difficult
for hackers to gain login credentials compared to credit card numbers.
For many eCommerce merchants, offering an option for customers to
pay with the cash in their bank account reduces cart abandonment as
it enables a way to complete a transaction without credit cards.

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1.3 THE PROCESS OF DIGITALISATION OF TRANSACTIONS:

A MODEL

The theoretical exposition presented in this section is almost universal,

accounting for the process of digitalisation as it has unfolded across
various countries. Within this account, digitalisation of payment systems
is conceived as one of the various interrelated outcomes of the structural
evolution of an economy. The structural parameters correlating with and
/or demarcating the pace and coverage of the digitalisation of
transactions have been identified and classified into four categories as
follows: Infrastructure; factors affecting the propensity of digital
payments adoption; institutional factors; and innovation and change.
These structural characteristics make the 5digital/non-cash payments
ecosystem self-sustaining in nature.

Infrastructure:

Access to high-speed internet and wide mobile network coverage are the
pillars of the digitalisation infrastructure. The ability to cater to these
infrastructural needs, in turn, relies on the level of electrification and
geographical accessibility made possible by well-developed transport
systems. A thriving network of financial institutions that reaches all
corners of the nation—especially a high penetration of banks— increases
the prospects of universal financial inclusion, providing an opportunity
for many to engage in cashless transactions.

Factors affecting the propensity of digital payments adoption:

The use of digital modes of transaction is positively correlated with the

levels of education and consumer income. These parameters determine

7
the ability rather than the willingness of a consumer to adopt digital
transactions. The financial wherewithal and credit worthiness of
merchants affect their ability to provide digital payment solutions and,
in turn, the expansion and coverage of acceptance infrastructure for
7cashless payments.

The size of the informal economy of a nation reflects the proclivity of

cash use. The network effects, emerging from a dominant informal 8sect
or, lock in persistent cash use as the inevitable status quo.

Institutional environment:

In the context of digital transactions, institutions are entrusted with the

responsibility of building and maintaining trust. There are dimensions to
the notion of “trust” required in a digital framework: trust that digital
money will always be legal tender, underwritten by laws of contract
enforcement and property rights; trust that follows from stringent
privacy and data protection laws; and trust that inculcates a sense of
security because the probability of fraud and theft has been minimised.

Stories of digitalisation from across the globe underscore the importance

of an enabling regulatory environment that makes the adoption of digital
payments by consumers and acceptance of such payments by merchants
convenient and economical. Various governments have been proactive
in adding to the pace of digitalisation by introducing initiatives such as
disbursing wages of their employees using digital channels and using the
electronic gateway to make other payments, for instance, subsidies.

In the current scenario, the benchmarks for the parameters that determine
ease of doing business are decided by the progress made in the digital

8
paradigm. Digital technology can transform procedures involved in
starting a business, including registration requirements, acquisition of
licenses and permits, obtaining electricity and other utility connections,
and payment of taxes. This elevates the transparency, and time- and cost-
effectiveness of business regulations to a new level. The digitalisation of
the business environment influences the uptake of digital methods in
business transactions.

Innovation and change:

Innovation is the bedrock of digitalisation. It makes available products

for cashless transactions. Whether or not change will follow innovation
depends on the affordability of products of such innovation. To move
closer to the goal of a cashless society, innovators must be sensitive to
the educational and income profiles of citizens that their innovation
caters to.

1.4 THE PROCESS OF EVOLUTION FROM BEING CASH-BASED TO

CASHLESS

There are four levels of cash use in the evolution of an economy’s

transition from being cash based to becoming nearly cashless:

Stage I. Inception:

Countries in which cash accounts for more than 90 percent of the volume
of consumer payments are in the first stage of the digitalisation process.
These economies are remarkably distant from the benchmark vis-à-vis
the structural parameters earlier described. Progress for these countries

9
entails taking stock of these deficiencies and developing a
comprehensive strategy to overcome them.

Countries such as Kenya, Russia, Columbia and Saudi Arabia are in the inception
stage.
India belongs to this category as well, with 96 percent of all transactions being
cash based.

Stage II. Transitioning:

Countries in this phase include those that have launched initiatives to

overcome their structural deficiencies and have begun seeing
improvements in this direction. These economies have managed to
reduce the share of cash transactions to about 70-90 percent of the
volume of consumer payments. Some examples are Brazil, China,
Mexico, Malaysia, Spain and Poland.

Stage III. Tipping point:

In this phase, countries that have matured into robust and well-developed
economies are in the process of reaping the benefits of investing, over a
long period, in the structural evolution of their economies. These
countries have successfully reduced the use of cash to around 50-70
percent of the volume of consumer transactions. Some of the countries
that are in this stage are the United States, Germany, Japan and Korea.

Stage IV. Nearly cashless:

Nations which have reached this stage have leveraged almost all
opportunities of going cashless. Less than 50 percent of the volume of
consumer transactions use cash. Any further increment in cashless
transactions would require disrupting the status quo through innovation.

10
Countries that are nearly cashless include Sweden, Canada, France and
Belgium.

1.5 INDIA’S DIGITALISATION STORY

This section examines data to discern how the digital payments

landscape of India has evolved over time. The data used are from April
2013 to October 2016 (pre-demonetisation) and are related to cashless
transactions via Real Time Gross Settlement (RTGS), National
Electronic

Funds Transfer (NEFT), IMPS, National Automated Clearing House (NACH),

Cheque
Truncation System (CTS), mobile wallets, prepaid instruments, and debit and
credit cards.
The first observation that needs to be made is about the growth in the
volume of cashless transactions between April 2013 and October 2016.
The total volume of such transactions stood at 175.01 million at 80th of
April 2013. Given that around 30 billion 81 transactions are estimated to
be conducted in a month in India, the percentage of cashless transactions
was a negligible 0.6 percent. As of October 2016, shortly before
demonetisation was announced, the total 82 number of cashless
transactions rose to 792.05 million, or a measly 2.6 percent of total
transactions – implying that India was at stage I in the cashless journey.

The next part of this analysis views the data on total cashless transactions
as a time-series process. The process is decomposed to isolate the long-
term trend of cashless transactions by eliminating seasonal components
and random influences. The trend for individual components is also
determined to assess their contribution to the movement of the aggregate

11
figure. Since the methodology used in this exercise does not estimate the
trend for the first six and the last six observations, the trend is calculated
from October 2013 to April 2016.

The data series on total cashless transactions exhibit an upward linear

trend, implying that cashless transactions have been increasing at 83 a
constant rate on a month-on-month basis. No systematic shift or break
has occurred to disrupt the trajectory of this linear growth path. The
Compound Monthly Growth Rate (CMGR) is calculated to find that
digital transactions, on average, have been growing at 3.5 percent per
month between 2013 and 2016.

Payment instruments that have large contributions to increments in

cashless transactions are NACH (30 percent), NEFT (15 percent), debit
card transactions at POS terminals (15 percent), and M-Wallets (12
percent).

NACH system has been developed to facilitate high volume, recurrent

transactions in a manner that is both more efficient and convenient for
the stakeholders. This system is being used by banks, government
agencies, business entities and financial institutions to make payments
such as salaries, interests, pensions, dividends and subsidies. The system
is also being used for payments for utilities such as water, telephone,
electricity, as well as for payments such as taxes, investments in mutual
funds, insurance premiums, and loan repayment 84installments.

NEFT, meanwhile, is a popular mode for making one-to-one fund

remittances. Given that these transfers are the routed through the banking
system, they can be traced easily in the event of some error or anomaly
during the transfer. This feature makes such transfers safe. Also, the

12
consumer is not required to have a bank account to initiate such transfers.
It is also an economical transfer option. For their part, Mwallets have
been increasingly used for mobile recharges and making utility bill
payments. Apart from these primary use-cases, m-wallets have
integrated with ecommerce websites and taxi aggregators to facilitate
easy and convenient payment experience. These wallets are also being
used to make online bookings for movie as well as railway and flight
tickets. A significant share of the success enjoyed by these wallets owes
to the cashbacks, discounts and deals being offered by them to lure
customers; to the extent that it is questioned whether this usage will 85
continue without such incentives being offered. The offering of Value
Added Services (VAS) mentioned earlier has also played a compelling
role in the uptake of mobile wallets in India.

The demonetisation shock

In a move that stunned the nation, Prime Minister Narendra Modi

demonetised the INR 500 and INR 1,000 notes that formed the bulk of
the cash circulating in the economy. This move, initially projected as an
offensive against black money and corruption, came to be viewed as the
government nudging cash-reliant Indians to go digital. In this sense,
demonetisation gave an unexpected fillip to the ‘Cashless India’
campaign. The strategy pursued under the aegis of this campaign was
three-pronged: (i) measures that incentivise cashless payments; (ii)
measures that subsidise cashless payments and (iii) measures aimed at
moral suasion and awareness creation. These three aspects will be
discussed in turn.

Measures that incentivise cashless payments include discounts and

cashback schemes. Some such discount schemes were as follows: 0.75

13
percent discount of the sale price on purchases of petrol and diesel; 0.5
percent discount on purchase of railway monthly or seasonal tickets; five
percent discount on payments of services such as catering,
accommodation, retiring rooms offered by the railways; and 10 percent
discount on the payment of toll at Toll Plazas on National Highways.

The following are some of the measures that were launched to subsidise
the costs associated with cashless transactions: Public sector
undertakings were instructed to bear the transaction fee or Merchant
Discount Rate (MDR) associated with digital means that would
otherwise be borne by consumers. In order to reduce the costs of POS
devices, such devices and all components needed to manufacture these
devices were exempted from central excise duty. The central
government, through National Bank of Agriculture and Rural
Development (NABARD) provided financial assistance to banks for
installing POS devices in rural areas. Digital transactions up to INR
2,000 were exempted from service tax. Banks were asked to waive off
any charges on transactions up to INR 1,000 through IMPS,
Unstructured Supplementary Service Data (USSD) – used for
GSMenabled mobile phones, and UPI. Upper limits on the MDR on card
transactions were also announced to encourage acceptance of cards at
merchant outlets.

The narrative built around the adoption of digital payment mechanisms

was anchored in nationalist sentiments and projected such adoption as
an “honest man’s duty” to fight corruption. Banks were requested to
initiate efforts to boost digital transactions and make them cheaper than
cash transactions. They were also requested to not levy charges on
merchants and consumers for debit card, USSD and UPI transactions.

14
The government also launched lottery schemes such as the Lucky
Grahak Yojana and the Digi-Dhan Yojana to encourage the uptake of
digital payments. The Digi-Dhan Mela, a first of its kind consumer fair,
was organised to create awareness about the merits of cashless
transactions and to educate the masses on how to use noncash
instruments such as plastic money and mobile payments to conduct daily
transactions.

The following are some of the measures that were launched to subsidise
the costs associated with cashless transactions: Public sector
undertakings were instructed to bear the transaction fee or Merchant
Discount Rate (MDR) associated with digital means that would
otherwise be borne by consumers. In order to reduce the costs of POS
devices, such devices and all components needed to manufacture these
devices were exempted from central excise duty. The central
government, through National Bank of Agriculture and Rural
Development (NABARD) provided financial assistance to banks for
installing POS devices in rural areas. Digital transactions up to INR
2,000 were exempted from service tax. Banks were asked to waive off
any charges on transactions up to INR 1,000 through IMPS,
Unstructured Supplementary Service Data (USSD) – used for
GSMenabled mobile phones, and UPI. Upper limits on the MDR on card
transactions were also announced to encourage acceptance of cards at
merchant outlets.

The narrative built around the adoption of digital payment mechanisms

was anchored in nationalist sentiments and projected such adoption as
an “honest man’s duty” to fight corruption. Banks were requested to
initiate efforts to boost digital transactions and make them cheaper than

15
cash transactions. They were also requested to not levy charges on
merchants and consumers for debit card, USSD and UPI transactions.
The government also launched lottery schemes such as the Lucky
Grahak Yojana and the Digi-Dhan Yojana to encourage the uptake of
digital payments. The Digi-Dhan Mela, a first of its kind consumer fair,
was organised to create awareness about the merits of cashless
transactions and to educate the masses on how to use noncash
instruments such as plastic money and mobile payments to conduct daily
transactions.

The data on total cashless transactions for the period from April 2013 to
December 2017 exhibits a decisive upward shift in December 2016, the
month immediately after demonetisation was announced. This upward
shift represents the disruption that occurred post-demonetisation in the
trajectory followed by cashless transactions pre-demonetisation. With
about 86 percent of cash in circulation no longer regarded as legal tender,
citizens were compelled to search for alternatives. However, the uptake of
digital means that occurred in these circumstances could well be a
temporary reaction to a temporary phenomenon. If the upward spike is
purely due to demonetisation, its reversal may have been expected after
March 2017, when all restrictions on cash withdrawals and transactions
were lifted. Figure 2 indicates a partial reversal, while the trajectory of
cashless transactions absorbed a part of the upward shift observed in
December 2016.

The following are the payment mechanisms that have absorbed the shift
in their behaviour. The major sources of the spike in cashless
transactions in December 2016 were NEFT (10 percent), NACH (11
percent), M-Wallets (17 percent), and debit card transactions at POS

16
terminals (40 percent). Figures 3and 4 reveal that the behaviour of
transactions made using NACH and NEFT immediately recovered from
the disruption in December 2016 to revert to the trajectory followed
before demonetisation. It is evident from figures 5 and 6 that trajectories
followed by transactions using debit card at POS terminals and MWallets
have retained the impact of the upward shift. These findings are
consistent with the fact that incentives and subsidies to boost digital
transactions under the ‘Cashless India’ campaign were mostly directed
at mobile wallets and debit card transactions at POS terminals.
Launched in April 2016, the UPI has become popular for its convenience
and speed of transactions. UPI transactions have registered an increase
in every month post-demonetisation. However, since September 2017,
the rate of increase has been phenomenal and UPI has been one of the
largest contributors to increases in cashless transactions.

Despite such disruptive measures, India continues to remain at stage I in

its journey to being cashless. The total number of cashless transactions
in December 2017 was 1.2 billion—i.e., four percent of total retail
transactions, registering a marginal increase from 2.6 percent in October
2016. Even post-demonetisation, 96 percent of the total volume of
transactions uses cash as the sole instrument of exchange.

1.6 ADVANTAGES OF ELECTRONIC PAYMENTS

Easy and convenient: Digital payments are easy and convenient. You
do not need to take loads of cash with you. All you need is your mobile
phone or Aadhar number or a card to pay. UPI apps and E-Wallets made
digital payments easier. Pay or send money from anywhere: With digital
17
payment modes, you can pay from anywhere anytime. Suppose your
close friend’s mother fell ill at night. He called you at midnight and asked
some money. Don’t worry, you can send money to your friend using
digital payment modes such as UPI apps, USSD or E-Wallets.

Discounts from taxes: Government has announced many discounts to

encourage digital payments. If you use digital modes to make a payment
up to Rs. 2000, you get full exemption from service tax. You also get
0.75% discounts on fuels and 10% discount on insurance premiums of
government insurers. Written record: You often forget to note down your
cash spendings. Or even if you note, it takes a lot of time. But you do not
need to note your spendings every time with digital payments. These are
automatically recorded in your passbook or inside your E-Wallet app.
This helps to maintain your record, track your spendings and budget
planning.

Reduced Transaction Costs: While there are no additional charges for

making a cash payment, trips to the store typically cost money, and
checks also need postage. On the other hand, there are usually no fees –
or very small ones – to swipe your card or pay online. In the long run, e-
payment could save both individuals and businesses hundreds to
thousands of dollars in transaction fees.

Less Risk: Digital payments have less risk if you use them wisely. If you
lose your mobile phone or debit/credit card or Aadhar card you don’t
have to worry a lot. No one can use your money without MPIN, PIN or
your fingerprint in the case of Aadhar. But it is advised that you should
get your card blocked if you lost it. Also call the helpline of your E-

18
wallet to suspend the wallet account to prevent anyone from using your
wallet money.

1.7 TRENDS IN THE DIGITAL PAYMENTS LANDSCAPE:

Today, consumers are experiencing an explosion of choice when it
comes to how they shop, pay, interact and conduct commerce. Every day,
new financial and commerce solutions are introduced with a promise to
simplify and improve customers’ lives, and change how fundamental
aspects of banking, retail commerce and commercial transactions take
place. Financial technology —”Fin Tech”— companies and disruptive
innovators are a key focal point, and are seen by some to threaten the
core elements of the banking and financial landscape. Against this
backdrop, banks and traditional financial services players face a host of
strategic decisions regarding where and how to participate in this shifting
environment in a way that is meaningful to customers, and sustainable
from a business and risk perspective.

As we step into 2022, here are some key trends to watch out for, in the digital
payments industry.

1. Wallets: Wallets have been the poster child for India’s post
demonetization phase. Their ubiquity, simplicity and low cost of
adoption have differentiated them from other forms of digital payments.

The RBI’s new PPI (prepaid payment instruments) guidelines bring

about the much-needed interoperability, allowing customers to transact
between wallets. This alone will result in new age pass-through wallets

19
that tokenize account credentials and provide a secure and seamless
payment experience.

2. POS: 2022 will witness big tech players such as Google, Paytm,
Reliance Jio and WhatsApp stepping in to expand their digital payment
acceptance network. As digital consumers shift between channels, the
lines between offline and online experiences and players will blur, driven
by intuitive UIs and seamless payments. Big tech propelled POS as the
new OS in 2019.

3. One-Click payments: With smartphone penetration expected to

soon reach 800 M subscribers in India and a majority of e-commerce
being done through smartphones, one-click payments are critical for
businesses to improve payment success rates.2022 will ring in this secure
one-click payment experience for a rapidly expanding set of mobile-first
consumers. Traditional ecommerce websites will also transition into
easier checkout experiences in a bid to boost customer stickiness and
average online spends per buyer.

4. Contact-less debit cards: This year will witness consumers

realizing the full potential of the humble debit card and its new avatar of
contactless cards. With 998M debit cards in circulation today and rapid
issuance of contactless cards (roughly 30M), the tap to pay experience is
set to replace cash in wallet.

1.8 GROWTH PROSPECTS FOR THE INDIAN MARKET:

The future of digital payments is very bright. India is experiencing a

remarkable growth in digital payments. In 2015-16, a total of Rs. 4018
billion transacted through mobile banking as compared to Rs. 60 billion

20
in 2012-13. The percentage of the digital payments through other modes
is also increasing in a significant speed. There are many factors which
are affecting the future of digital payments.

Data Source :
http://niti.gov.in/writereaddata/files/document_publication/DigitalPayme
ntBook.pdf

The ease of conducting financial transactions is probably the biggest

motivator to go digital. You will no longer need to carry wads of cash,
plastic cards, or even queue up for ATM withdrawals.

It’s also a safer and easier spending option when you are travelling. ―The
benefits are enormous if you leave out the low-income group, which will
face a huge challenge. Discounts: The recent waiver of service tax on card
transactions up to Rs 2,000 is one of the incentives provided by the
government to promote digital transactions. This has been followed by a
series of cuts and freebies.

21
It’s a good time to increase your savings if you take advantage of these.
For instance, 0.75% discount on digital purchase of fuel means that the
petrol price in Delhi at Rs 63.47 per litre can be brought down to Rs
62.99 with digital payment. Similarly, saving on rail tickets, highway
toll, or purchase of insurance can help cut your costs. Add to these the
cashback offers and discounts offered by mobile wallets like Paytm, as
well as the reward points and loyalty benefits on existing credit and store
cards, and it could help improve your cash flow marginally. Tracking
spends: If all transactions are on record, it will be very easy for people
to keep track of their spending. It will also help while filing income tax
returns and, in case of a scrutiny, people will find it easy to explain their
spending. The written record will help you keep tabs on your spending
and this will result in better budgeting. ―Various apps and tools will
help people analyse their spending patterns and throw up good insights
over a couple of years. Controlled spending could also result in higher
investing. If the same amount of cash does not flow back into circulation
and people continue to use mobile wallets and cards, it is also likely to
bring down the latte factor. This means that the Rs 10 you spent on candy
or chips, or that regular cup of coffee is likely to take a hit since you will
be short of loose change and smaller currency notes. There’s a lesser
chance of budgetary leaks and unaccounted for spends sneaking into
your budget at the end of the month. The government's demonetization
move, and the subsequent cash crunch, has led to a surge in digital
payments. According to the government data, the number of daily
transactions through ewallet services such as Oxigen, Paytm and
MobiKwik has shot up from 17 lakh — recorded on November 8 when
demonetisation was announced — to 63 lakh as on December 7 (a
growth of 271%). In terms of value, the surge has been 267%, from Rs
52 crore daily to Rs 191 crore now.
22
Digital revolution: Digital revolution has provided an easy way to go
for digital payments. India has more than 100 crore active mobile
connections and more than 22 crore smartphone 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. This will surely increase the number of digital
payments.

Government’s support: The government is supporting digital payments

a lot. It has reduced some taxes and announced incentives for digital
payments. It has launched Lucky Grahak Yojana for customers and Digi
Dhan Vyapar Yojana for shopkeepers. You can get cash prizes up to 1
crore if you pay digitally. Due to these incentives and waivers, more
people are showing interest in digital payments.

Go Digital, Get Discounts Service tax:

Service tax: Waiver of service tax of 15% on digital transactions up to 2,000.

Fuel: 0.75% discount on digital purchase of fuel through credit/debit cards, e-

wallets or mobile wallets.

Rail tickets: 0.5% discount on monthly and seasonal suburban railway

tickets from 1 January 2017. Online rail ticket buyers get up to `10 lakh free
accident insurance too.

Rail catering: 5% discount on digital payments for railway catering,

accommodation, retiring rooms, etc.

Highway toll: 10% discount on NH toll payment via RFID or fast-tags in 2016-
17. Insurance: 10% discount by government general insurers on premium paid
online via their portals.

23
8% discount on new LIC policies bought online via its site.

POS: Rs 100 a month is the maximum rent that PSU banks can charge for PoS
terminals.

• The total digital payment market in India will grow to US$1

trillion by FY23E led by the growth in mobile payments. Mobile
payments are expected to grow from US$10 billion in FY18E to
US$190 billion by FY23E. These estimates however include only
5 instruments which are: IMPS, Prepaid Instruments, UPI, ECS /
NACH and Online spends. The following developments are
expected to contribute to the growth of Digital Payments in the
country.

• The Digital Payments ecosystem in India is undergoing a

transformation with the entry of global tech giants that are acting
as aggregators for retail transactions. Within just four months of
launch, Google’s payments app is now already processing a large
number of digital transactions.

• With Paytm—which has 7 million merchants (>2x the banking

system)—now becoming a bank and post the launch of Google
Tez and PhonePe, which are also focusing on merchant payments,
a steep rise in digital payments could be expected.

• While the number of PoS terminals has doubled since

demonetization, the merchant acquisition infrastructure in India
remains weak, as banks have not been able to drive adoption. This
sector presents immense opportunities for digital players.

24
 1.9 AT THE GLOBAL LEVEL
As per the report of Capgemini6 on Trends in Payments 2018, the Top 5 trends
Tends in Digital Payments across the world are as follows:

 Alternate payment channels such as contactless and wearable gain

acceptance:

i. Alternate payment channels fulfil customer demands for convenience

and speed and could soon become main-stream.
ii. With the widespread use of smartphones, mobile banking and
payments applications have gone mainstream, and wearable provide
convenient access to such applications.
iii. Contactless payments enable consumers to make everyday purchases
quickly and safely especially for low-value transactions.
iv. Mobility, Internet of things (IOT), connected homes, entertainment,
and media are expected to augment the volumes of non-cash
transaction volumes significantly:
v. By 2021, more than 15 billion machine-to-machine (M2M) and
consumer electronic devices are likely to be connected.
vi. As merchants start providing Augmented Reality (AR) assisted
shopping experiences, they will likely look for an AR-integrated
payment gateway that delivers a superior customer experience.

 Banks and FinTech’s explore distributed ledger technology to

transform cross border payments:

i. Banks and FinTech’s are exploring block chain technology for cross-
border payments to provide faster, inexpensive, and efficient services.
ii. The current cross-border payments model lacks an international
clearinghouse and relies on correspondent banks, which causes
inefficiency, slow speed, and high cost. As a result, corporate
customers are demanding transformation.

iii. Distributed ledger technology (DLT) such as block chain eliminates

intermediaries by using algorithms to verify and authorize payment
transactions securely.

25
 iv. A distributed ledger-based cross-border payments model is expected
to result in improved efficiency, enhanced security, and lower costs

 Instant payments processing likely to become the ‘new normal’ for

corporate treasurers, industry at large:

i. With wider adoption, instant payments have the potential to

emerge as an alternative to checks and cash for retail and
corporate customers.
ii. Across the globe, there are major initiatives by central banks and
industry associations to implement instant payments
infrastructure with an aim to modernize the existing payments
processing systems and compete with the non- banks to maintain
the existing market share respectively.

iii. The approach for implementation of instant payments is varied

as in some countries such as the U.K.; the instant payments
system has been developed in parallel to their existing clearing
and settlement systems while in countries such as Sweden and
Spain instant payments infrastructure is developed by leveraging
the countries' existing standards.
iv. Banks are leveraging instant payments platform to connect with
third parties to deliver better digital customer experience and
provide innovative products and services to both retail and
corporate customers.


As global cyber-attacks rise, regulators focus on data-privacy law
compliance:

i. . As cyber-attacks and data breaches around the world are rising in

terms of both, frequency and intensity, regulators are focusing on
compliance with current cyber security and data privacy laws Cyber-
attacks can cause personal and commercial data to be lost or
26
 compromised causing financial institutions financial and reputational
loss:
ii. Based on estimates, cyber-attacks cost the global economy 1% of annual
GDP
iii. Regulators across the world are bringing in new cyber security regulations
and standards which could impose heavy fines, injunctions, audits, even
criminal liability on firms for a data breach
iv. The cyber insurance industry grew 35% in 2016 to $1.35 billion in

terms of direct written premium, which shows that corporates are

looking to protect themselves from liabilities related to cyber
security laws.
v. The UK announced a data protection bill that gives more control to consumer
on their data.
vi. However, lack of harmonization in cyber security laws in different

countries is posing 337. This section is based on inputs from Credit

Suisse a challenge for multinational companies operating across the
globe.

 Infrastructure rationalization is likely as payments intermediaries come

together or evolve:

i. Globally, payments infrastructure is being transformed to

become faster and more inclusive to new players that will
launch valuable offerings for retail and businesses.
ii. Payments infrastructure is expected to converge through
mergers and acquisitions to expand the reach of the payments
firms, increase their value proposition to meet changing
customer expectations, and create customized solutions:
iii. Vocal ink acquisition enables MasterCard to expand its
services in areas of payments initiation, fraud management,
and analytics.
iv. Payment schemes and intermediaries are also looking for
infrastructure rationalization to be able to provide services in
niche and high demand areas of data analytics, cloud, and
Digital Customer Experience (DCX)

27
1.10 CHALLENGES TO THE INDUSTRY

Every coin has two sides so as the digital payments. Despite many
advantages, digital payments have a few drawbacks also. Difficult for a
non-technical person: As most of the digital payment modes are based on
mobile phone, the internet and cards. These modes are somewhat difficult
for non-technical persons such as farmers, workers etc.

The risk of data theft: There is a big risk of data theft associated with
the digital payment. Hackers can hack the servers of the bank or the E-
Wallet you are using and easily get your personal information. They can
use this information to steal money from your account.

Overspending: You keep limited cash in your physical wallet. Hence,

you think twice before buying anything. But if you use digital payment
modes, you have all your money with you always. This can result in
overspending.

Intermediaries in the payment process: The payments sector operates

through several intermediaries which create the front-end payments
interface. There are instances where banks or other licensed entities enter
into arrangements with the mobile app developers for compliance
purposes. The app developers maintain the software and the IT systems
but the transaction is ultimately routed through the licensed entity (read
the bank/mobile wallet/the payment gateway). This increases the costs
of doing business through commissions and forces payment companies
to shell out more to facilitate access to their services by the consumer.

28
CHAPTER 2: RESEARCH METHODOLOGY

2.1 INTRODUCTION
Methodology is the systematic, theoretical analysis of methods applied
to a field of study. It comprises the theoretical analysis of the body of
methods and principles associated with a branch of knowledge.
Typically, it encompasses concepts such as paradigm, theoretical
models, phases and quantitative and qualitative techniques. A
methodology does not set out to provide solutions- it is therefore not the
same as method. Instead, it offers the theoretical underpinning for
understanding which method, set of methods or best practices which can
be applied to a specific case, to calculate a specific result.

Research methodology therefore, is a set of systematic techniques used

in research. This simply means a guide to research and how it is
conducted. It describes and analyses methods, throws more light on their
limitations and resources, clarify their pre-suppositions and
consequences, relating their potentialities to the twilight zones at the
frontiers of knowledge.

In this chapter, the methodology adopted while conducting the research

has been explained in detail. It highlights the scope of the study, while
at the same time establishing the boundaries of the research. This chapter
focuses on the objectives, hypotheses, importance and limitations of the
research topic: ‘A study on digitisation of payments with special
reference to individuals residing in the city of Mumbai.’

29
2.2 OBJECTIVES

• To study the impact of respondents’ age on preference for digital

payments.

• To examine the impact of customers’ income on the usage of digital

payments.
• To analyse the impact of digital payment applications on the spending
habits of consumers.
• To consider the problems faced by respondents while using electronic
payment mechanisms.
• To emphasize the contribution of digital payments towards India’s goal of
cashless economy

2.3 HYPOTHESES

H01: There is no apparent impact of digital payment applications on the

spending habits of the Indian working class.

H11: There is an apparent impact of digital payment applications on the

spending habits of the Indian working class.
H02: There is no significant impact of income level of respondents on the usage
of digital payments.

H12: There is an impact of income level of respondents on the usage of digital

payments.

H03: There is no significant impact of the age of respondents on the usage of

digital payments.

H13: There is a significant impact of the age of respondents on the usage of digital
payments.

30
2.4 RESEARCH METHODOLOGY

The study was conducting with respect to the citizens of Mumbai. In

order to reduce the respondents’ bias towards the study, the primary data
was collected through a questionnaire, circulated via social media. A
universe of 163 respondents was selected for analysing objectives and
testing the hypotheses. The method of data collection for primary
research was initially simple random sampling and eventually ‘Snowball
Sampling’. Tools for data analysis include mathematical graphs, charts
and tables.

2.5 IMPORTANCE OF THE STUDY

This study focuses on the growth of digital payments and consumers’ perception
towards this evolution.

GOVERNMENT: After the launch of Digital India initiative, the

government has been looking towards creating a cashless economy in
the country. The study provides primary data on consumer preferences
towards digital payments. Thus, by knowing the general public
perceptions, various policies and incentives can be planned to help the
penetration of digital payments. Also, this study provides the way
forward for the industry and economy as a whole. Feasible plans of
actions can be drawn after taking into consideration the requirements.

FINTECH STARTUPS: One of the biggest positives to come out of

India’s demonetisation exercise is the realisation that the future is going
to be digital and cashless. This study analyses the growth in preference
for digital payments by different classes of consumers. Thus, by
31
correlating variables such as age and income with the different aspects
of digital payments, the study provides an in-depth analysis of the
prevailing market conditions for upcoming start-ups.

DIGITAL PAYMENT COMPANIES: Online payment gateways have

traditionally provided to sellers selling their product & services remotely
over the internet through websites and mobile applications. Several e-
commerce companies hailed the demonetization decision as an impetus
to increase in digital payments. The demand for point of sales (POS)
increased; India has about 1.2 million POS terminals there is an increase
in card swipe machines. E-payment options like PayTM, E-wallets,
Instamojo Payment Gateway, PayUMoney, Mobikwik, Oxigen Wallet
app for the merchant payments service and also other innovative
payment systems (like closed wallets, Pre-paid instruments (PPI), eCom,
etc.) have increased. By studying the usage of various types of e-
payment mechanisms as well as preferred ways of spending digitally,
this study provides first hand data to the companies who are directly
involved in the industry.

ECOMMERCE VENDORS:

Digital transactions trumped cash on delivery as India’s preferred

payment option for online purchases during this year’s mega festive
sales, signalling a maturing of customers and significant progression for
the electronic marketplace and payments sectors. By analysing the
number of people in favour of digital payments, this study helps e-
commerce vendors to make the preferred payment options available on
their respective portals.

32
2.6 LIMITATIONS OF THE STUDY

SCOPE FOR FURTHER RESEARCH:

This research hopes to establish an understanding to the people of

knowing what cashless system of payment is. The data gathered in this
study will be used as a reference in conducting another research, and
other related studies. Other business ventures will also be using this
study in facilitating them to conduct their strategies and other valuable
solutions to make operations better for customers’ satisfaction. Further,
findings in this study will provide knowledge of the purpose, pros, and
cons of using the system. To contribute to the benefit of the society
seeing that this system of payment portrays a vital role in the world
today.

33
CHAPTER 3: REVIEW OF LITERATURE

3.1 INTRODUCTION

The present research work is conducted on the topic ‘Digitisation of payments

with special reference to individuals residing in the city of Mumbai’. The
literature review is a text content written by authors, eminent personalities,
scientists who consider significant points pertaining to current information and
facts including substantive findings, as well as theoretical and methodological
assistance to a specific subject. Review of related literatures helps to know about
the studies which have been already done in the related field.

It is nothing but a significant and self-explanatory summary related with research

themes, concerns and constraints for specific work clearly defined in research
topic. This is a systematic process of reading, analysing, evaluating and
summarizing intellectual materials about a particular topic or subject.

Review of literature are the secondary sources of data collection collected from
different national and international journals , magazines, annual reports of
government organizations, bulletins, departmental journals, corporate
publications and other reliable sources.

This chapter provides analysis of applicable writings available in different media

upon which this dissertation builds. research scholar studied various books,
articles, unpublished theses, working papers, journals and collected information
on the current topic at hand- ‘Digitisation of payments with special reference to
individuals residing in the city of Mumbai’.

34
3.2 LITERATURE REVIEW

It was observed that a whole lot of research has already gone into
‘Digitization of payments’ both at a local level and a global level. A brief
of some of the earlier research studies are given below.

 Arvind Kumar in his article “Demonetization and Cashless

Banking Transactions in India” observes that the cashless
transaction system is reaching its growth day by day as the market
becomes globalised and also helps in recording of the all the
transactions done. The study thus concludes that cashless
transactions are the way ahead.
 Ashish Das and Rakhi Agarwal, (2010) in their article
"Cashless Payment System in India-A Roadmap" establish that
cash as a method of instalment is a costly suggestion for the
Government. The nation needs to move far from money based
towards a cashless (electronic) instalment framework.
 Sunil Kumar (2018) in his research paper titled ‘Consumer
behaviour towards cashless transactions ‘studies the reasons for
consumer preference towards digital payments and assesses the
transaction patterns for which the system is used. He states that a
substantial number of organizations, even road merchants, are
presently tolerating electronic instalments, provoking the general
population to figure out how to execute the cashless path at a
speedier pace than any time in recent memory.
 Piyush Kumar in his study titled “An analysis of growth pattern
of cashless transaction system” analyses that the Cashless
Transaction System has a charismatic appeal as it has an influential

35
 effect. He investigates that cashless transaction system also has its
usability and affordability for the consumers.

A Study on Customer Perception towards Internet Banking: Identifying

Major
 Contributing Factors’ by Divya Singhal and V. Padhmanabhan
states that internet banking is becoming is increasingly becoming
popular because of convenience and flexibility. The present paper
explores the major factors responsible for internet banking based
on respondents’ perception on various internet applications. It also
provides a framework of the factors which are taken to assess the
internet banking perception.
 Neda Popvska-Kamnar (2014): A study conducted to know the
usage of electronic money and its impact on monitory policy of
the government. The main objective of this study is to know
whether the digital money affect the traditional payment system.
He used some simple statistical tools to analyse the data. The
findings of this study is that developing the ICT will improve the
usage of digital money or e-money in the economy. He had
concluded the topic by saying that, if the government have a better
managing techniques, then the world will be driven by e-money.

 Shamsher Singh (2017): This study is conducted to find the

customer perception. The main objective of this study is to know
the impact of demographic factor in adoption of digital payment
mode. He used ALPHA and ANOVA to analyse the data. He
concluded that the demographic factor expect education does not
affect the implementation of digital payment mode.

36
 Preeti Garg, Manvi Panchal (2017): The study conducted to
introduce the cashless economy to India. The main objective is to
bring awareness to the citizens about the cashless economy and to
study the benefits and challenges of the cashless economy. He
collected the data with 100 respondents and analysed the data by
using simple statistical tools. He concluded the topic by saying
many people agreed to adopt the cashless economy because it
helps to fight against illegal activities, corruption etc.

 Mr S. Karthik (2015): The study on consumer attitude towards

EFT. The main objective of this study is to know EFT system in
India and to analyse the cause and effect between the EFT and
consumer. He used chi-square test to analyse the data and he found
that the consumers are positive attitude towards the EFT.
 Cassoni Adriana, Ramana Camilo (2013): This study is
conducted to know the impact of digital money on local economic
variables. The main objective of this study is to know the impact
of digital money in the economy. He concluded the topic by saying
that now a days the people are busy in there official work and no
time for going to bank and transact. So, people prefer to use more
digital money rather than traditional payment system.

 Manivannan P (2013) in his research paper "Plastic money

means less payment of cash checking system" said that use of
plastic money is the measure of a luxury credit card, and the need.
The plastic money and the electronic payments and used by people
of higher income category. The extension of this facility is not only
meant for customers in urban areas or cities, but also is for
customers who live in rural areas. However, today, with the

37
 development of banking industry, fixed income group also begins
the use of plastic and electronic money payment systems and
especially credit cards.
 Price Water House Coopers, India‘s (2015) report explained
unbanked population was at 233 million. Even for people with
access to banking, the ability to use their debit or credit card is
limited because there are only about 1.46 million points of sale
which accept payments through cards. A study by Boston Consulting
Group and Google in July noted that wallet users have already
surpassed the number of mobile banking users and are three times
the number of credit card users.
 Torbet and Marshall (1995), ―One in the eye to plastic card
fraud. This study evaluates the potential use of behavioural and
physiological techniques in the battle against credit card fraud in
the retail environment. It discusses different techniques such as
automatic speaker, dynamic signature verification, fingerprint,
facial recognition, retinal and iris scanning, hand and finger
geometry. Author feels that while biometric technologies have the
potential to reduce plastic card fraud there are several problems
which must be addressed before they can be used in retail
environments, like the recognition performance, speed of use,
usability, customer acceptance, device cost are considered along
with industry standards for biometric devices.
 Handelsman and Munson (1989) commented that ―Switching
behaviours from credit card to cash payment among ethnically
diverse retail customers’ shows that the credit card sales
constitute an important revenue source for many retailers. Their
ever-increasing use and evaluation into other forms, such as debit

38
 and electron cards, demands that retailers gain a more complete
understanding of how they are used by diverse consumer
segments. Particularly needed is a better understating of the
propensity to switch over from credit card to cash payment and the
incentive required to initiate switching.

RESEARCH GAP
The literature review shows that a lot of study has been made in the field
of digital payments. However, on close observations, it can be seen that
the studies conducted in the past lack consideration of some key factors
relevant to the scope of the study.

For instance, the increasing use of digital modes for payments in India
is bringing in many changes in the retail sector.

Moreover, the payment mode selection decision by consumer after

demonetisation has brought along revolutionary changes in the
economic scenario. Thus, there exists scope for further research for
identifying the impact of demonetisation on digital payments.

39
CHAPTER 4: ANALYSIS AND INTERPRETATION OF DATA

4.1 DESCRIPTIVE ANALYSIS

In order to assess the impact of age on the usage of digital

payments, primary data has been collected from across all age
groups. Out of the total respondents, 48% belonged to the age
group of 18 to 30, 33% were between 31 to 45 years of age and
17% belonged to 46 to 60 age group. Thus, it can be seen that
the universe of research majorly comprised of the working
population of the society. The age group of 60 and above were
aware of digital payments but did not prefer to spend digitally.

40
Respondents selected using simple random sampling comprised of 68% females
and 32% males.

• Respondents from cross-sections of the society belonged to various

occupations.
41
• The highest number of respondents was from the service industry.
• 32.7% were students and 17.6% were professionals.

• Income ranges of respondents showed that the maximum of 34.5% persons

were earning from between Rs.2 lakhs to 5 lakhs.

• 24% respondents had nil income.

• 20% respondents earned up to Rs.2 lakhs.
• 12% and 9% belonged in the range of Rs.5 lakhs to Rs.10 lakhs and Rs.10
lakhs and above respectively.

42
Out of those surveyed, 92% people were aware of digital payment mechanisms.

CONCLUSION:

• It can be concluded from the survey that the most used digital payments
mechanisms are debit and credit cards.

43
• Out of 165 respondents, 156 said that they had used cards to make payments
NEFT/RTGS was the next most used electronic payment method.
• 49% which accounts to 81 respondents selected this mode as their used
payment mechanism.

• The upcoming disruptions in the e-payments industry, e-wallets were also

used by 41% respondents.

• Immediate Payments Service (IMPS) was also used by 31 out of those

surveyed.

44
 Respondents were asked about digital payment applications, 67% said
they used PayTM and Gpay.

 37% used Amazon Pay, 22% used PhonePe and 20% used Ola Money.
 The BHIM App launched by the Government of India to promote the
Digital India program also saw a response from 19% of universe of
research.

 Among the less popular ones are Citrus and MobiKwik with 5% and 9%
respectively.

45
 • The samples surveyed show that most people who spend digitally did so,
on a monthly basis.

• A majority of 46% respondents made monthly digital payments.

• Around 29% said that they paid electronically every week.
• 12% people said they made digital payments every day.
• 10% of the surveyed paid digitally twice a year.
• 1% also made yearly electronic payments.
• Out of 165 respondents, a meagre 6 respondents said that they avoid
electronic payments to the extent of almost never paying digitally.

The respondents were given a list of reasons as to why they preferred going
cashless. The gist of responses is as follows:

• Most people agreed that digital payments provided the ease and
convenience that traditional payment mechanisms did not.

46
• 93% respondents said they make digital payments due to this very reason.

• The recent splurge of cashback benefits was another reason cited for
making payments via electronic modes.

• 43% people said they preferred paying digital due to the benefits that they
received in forms of cashback.

• Credit cards were also a rage among the e-payments industry. Hence, the
option of credit period as an incentive was also provided to the
respondents.

• 16% of the surveyed agreed to going digital because of the credit period
allowance that these mechanisms provide.

• Cashless transactions always leave behind a trail which serves as an

evidence of the payment. Thus, citing safety as a reason, 32 respondents

47
 said that it was one of the factors why they preferred making digital
payments.

• Travel: Analysts and industry insiders have long speculated the disruption
mobile payment technology will have on the way travellers shop and
complete online bookings. This study depicts that travel was among the
expenses that consumers spend digitally. 87 respondents used digital
payments for travel expenses.

• Groceries: Adopting digital payments enables merchants to attract more

customers while increasing transparency in the maintenance of records.
Moreover, it allows them to settle transactions easily and quickly.

Many local grocery stores have started accepting digital payments in the
form of cards or e-wallets. 39% respondents also paid their grocery bills
electronically.

• Entertainment: Examples like BookMyShow as a way of making

electronic payments to the entertainment industry have seen a recent

48
 upswing. 54% of respondents paid electronically towards their
entertainments.

• Restaurant Bills: The survey also observes that around 59% of the 165
prefer paying digitally in restaurants. Recent examples explaining this
preference could be MobiKwik which has enabled cashless payments
across 8000 restaurants in India. Similarly, free charge which has
partnered with restaurants like Haldiram’s, McDonald’s, Barista, and
CCD amongst others is happy to associate with offline restaurant players.

• Bank payments: The digital payment system changed the shape of

banking transactions in India.
Ten years back if we made any financial transaction through banks; it took
at least 5 to 10 days for transfer the payments. Due to digital payment
system we can make payments within fraction of seconds. Arguably, due
to these benefits, 86 respondents said that they made.

49
 Bank payments digitally.

For many, there is still a lack of trust for digital payments. There are
those that don't yet feel safe using this as they don't trust the Internet and
the perceived security risks and fairly so. When asked about the
problems that the users of e-payment mechanisms had to face, the
following results were extracted:-

50
 Issues faced Number of respondents

Transaction Failure 103

Security Breach 2

Long Processing Time 47

Double Payments 30

Website/App Stopped responding 56

Others 11

4.2 INFERENTIAL ANALYSIS:

51
The chart shows the graph of income levels and awareness of digital
payments. It shows that there is no impact of income levels on digital
payments.

Thus, the hypothesis (H12) of this study gets rejected and null hypothesis (H02)
is accepted.

The line graph compares the usage of digital payments and respondents’ age.
It can be seen that there is a significant impact of age on usage of digital
payments.

Thus, the hypothesis (H13) is accepted and null hypothesis (H03) is rejected.

52
CHAPTER 5: FINDINGS AND CONCLUSIONS 5.1

FINDINGS

The graph shows that there is no impact of income levels on the awareness about
digital payments.
Even at Nil income, majority of the respondents were aware of electronic
payment mechanisms.

In the income group of 2lakh to 5 lakh, 100% of those surveyed were aware
of digital payment tools.

In the higher income group of Rs. 10 lakhs and above also, all respondents were
aware of digital payments.

Hence, the study analyses that income level has no impact on awareness about
digital payments.

53
54
The graph shows the age-wise awareness levels of digital payments. It
can be seen that all respondents belonging to the age group of 60 and
above are aware of digital payments. The technological wave has
penetrated even to the older sections of the society. Catchy
advertisements and perfectly placed promotional banners could be
reasons for such great degree of awareness among the masses.

Analysis of impact of age on digital spending

The trend lines above show a clearer picture of the actual usage of digital payment
mechanisms.
This chart indicates that the most active users of electronic payment
methods are the respondents of age group 18 to 30. The reasons for this
may be a stronger risk appetite and higher adaptability to the ever-
changing technology.

55
On the other hand, senior citizens are the most averse from paying
digitally. The study finds that even though the awareness about cashless
mechanisms among this age group is high, their frequency of using those
methods is very less. Senior citizens being fixed income earners mostly
via pensions do not have an appetite for risk. Also, the e-payments
industry is ever expanding and new innovations make their way in with
every passing moment. Thus, due to low adaptability, the older
generation prefers traditional cash-based approach.

CASHLESS STRUCTURE: WHERE INDIA STANDS

The Digital Divide in India

The Networked Readiness Index (NRI), an initiative of the World

Economic Forum, and the Information and Communication (ICT)
Development Index, published by the UN’s International
Telecommunication Union (ITU), attempt to quantify a nation’s progress
in the digital paradigm and its ability to translate this progress into social
and economic well-being. India’s performance in relation to these
indices reflects the breadth of the digital divide prevailing in the country.
In the 2016 NRI, India ranked 91st among 139 countries, while
occupying the 134th position among 171 countries assessed in
computing the ICT Development Index 2017. This poor performance is
primarily attributed to lack of coverage and penetration of basic digital
infrastructure, as well as educational and skill deficit.

Even after 70 years of independence, around 24 percent of the Indian

population continue to have no access to electricity; among those who
do, a significant proportion suffer frequent power outages. As of
December 2017, internet penetration in the country was about 35 percent

56
of the total population: 64.84 percent in urban India, and 20.26 20per
cent for rural. As far as mobile broadband is concerned, there are 5.5
21subscriptions for every 100 people. There is also a stark disparity in
connectivity across states, explained by differing levels of affluence.
Since affluence also determines access to superior quality of
connections, many users in India have to contend with low-speed
internet connectivity. Affluence also explains why only 18 percent of
Indians owned smartphones as of March 2016.

The income, wealth, educational and skill profile of India in numbers:

i. 58.4 percent of the nation's wealth owned by the richest 1 per cent.
ii. 80.7 percent of wealth owned by the richest 10 percent.

iii. . 96.2 percent of adults own wealth under 10,000 USD.

iv. 84 percent of the employed and 67 percent of households earn up

27t o INR 10,000 a month.

v. 77 percent households do not have a single regular wage/regular

28salaried person.
vi. 72.5 percent of the population belongs to the poor and vulnerable

category of expenditure class 31.7 percent of the workforce are

illiterate.

vii. 56 percent with education only up to primary level, six percent with

educational level up to higher secondary and 1.9 percent are post-

graduates or above75.8 percent with no skill training.

viii. 3.05 percent with formal training, while 12.46 percent with 33in
formal training.

57
The degree of financial inclusion in India

Financial inclusion not only catalyses economic prosperity, but also

enables participation in the process of economic growth and sharing in
the gains that follow from an efficient and seamless mobilisation and
allocation of economic resources. In its most rudimentary form, financial
inclusion means easy and affordable access to formal means of saving
and investment as well as credit facilities. Even in this form, financial
inclusion continues to elude huge swathes of the Indian population,
especially in the rural areas. There are three primary sources of financial
exclusion in India: Poor physical access (low penetration of bank
branches and ATMs); lack of financial access (high interest rates on
credit, low savings that make bank accounts unviable); and low rates of
financial literacy.

Various initiatives have been launched by the Reserve Bank of India

(RBI) and the government to mitigate financial exclusion. Unfortunately,
these measures have met with limited success. For example, the RBI has
been encouraging banks to offer what is known as ‘Basic Savings Bank
Deposit Account’ which requires simplified Know Your Customer
(KYC) norms, next to nil minimum balances, and nearly no charges.
These accounts have hardly been used for transactions. The fate of bank
accounts of the workforce under the Mahatma Gandhi National Rural
Employment Guarantee (MNREGA), for example, and those opened
under the Pradhan Mantri Jan Dhan Yojana scheme, has also been the
same. The wages deposited by government agencies into the bank
accounts of MNREGA workers are withdrawn immediately, leaving a
balance of nearly zero in these accounts. Similarly, as much as 80 percent

58
of the bank accounts opened under the Pradhan Mantri Jan 35Dhan
Yojana scheme have been dormant.

What are the ramifications of low financial inclusion for adoption of non-
cash payments? First, all electronic payment instruments presume the
existence and use of bank accounts with appreciable levels of balance
maintained in these accounts. After all, electronic transactions are
essentially transfers of funds from the payer’s bank account to the
payee’s account. Second, financial illiteracy acts as a handicap in
grasping the technicalities involved in using electronic payment
instruments and in appreciating the merits and gains that follow from
such use.

The Micro, Small and Medium Enterprises (MSME) in India find their
credit needs inadequately met. In 2013, a meagre 5.18 percent of both
registered and unregistered MSMEs borrowed from institutional
sources, while as little as 2.05 percent borrowed from non-institutional
entities, leaving a significant 92.77 percent to rely on self-finance.

Moreover, there is paucity of alternative channels of finance such as risk

or venture capital, making it inevitable to look to informal sources of
finance that usually charge exploitative rates of interest. Those who
borrow from banks also pay high rates of interest. First-generation
entrepreneurs in this sector also find it difficult to access equity capital
required for start-ups. Financial constraints compel these MSMEs to
transact predominantly using cash as most of their financing comes 36
from informal sources.

59
Lack of a widespread merchant acceptance network in India

In India, a bulk of all transactions involves purchases of essential

commodities such as food, groceries, and personal care and hygiene
products. The poorest 20 percent dedicate nearly 60 percent of their
income, while the top quintile, as much as 44 percent of monthly
37expenditu re, on food. The demand for necessities is catered to by the
retail industry. The cost structure of firms operating in the organised
retail sector compels them to cater to the richest class of consumers (top
20 percent) in order to ensure profits. Consequently, a large proportion
of the consumer market relies on the unorganised sector. Players in
organised retail provide digital alternatives of payment while those in
38the unorganised sector do not.

Unorganised retail, accounting for more than 90 percent of the retail

industry, includes traditional formats of retail such as local kirana shops,
convenience stores, paan-beedi shops, street vendors, hawkers, 39che
mists, footwear stores, apparel stores, among many others. This sector is
the second largest employer in India. It is one of the easier modes of self-
employment as it requires low investments in terms of 40capit al, land
and labour. In the face of unemployment, lack of skill and education, and
poverty, a large number of people are compelled to enter this sector.
Those operating in the unorganised retail are not profiteers; 41 rather
their businesses are survivalist or marginal activities. Going digital adds
significantly to their business costs and affects the viability of their
business. Costs incurred in establishing and operating digital payments
systems include buying devices such as smartphones, data charges,
rentals on Point of Sale (POS) devices, and Merchant Discount Rates.

60
Such costs render dealing with cash more economical and 42dissua de
retailers from going cashless.

Size of the informal economy in India

Ninety-two percent of the Indian workforce is employed in the informal

43 economy. In 201112, among those engaged in informal employment,
57 percent were self-employed, 33 percent were casual workers, while a
44 small percentage of 11 percent were regular wage/salaried employees.
Among the self-employed, about 95 percent were own-account workers
45 while the remaining five percent were employers.
The People Research on India’s Consumer Economy (PRICE) conducted
a cash survey in 2014 to identify reasons for and attitude of 46cas h usage
in India. The survey was administered to 1,005 respondents who
belonged to a diverse cross-section of the population, from both rural
and urban segments. This survey found that the primary source of cash
was employment and business. It also found that a meagre seven percent
of respondents owned a credit card, while 55 percent relied on both cash
and debit cards for transactions. However, debit cards were mostly used
for withdrawing cash. The remaining 38 percent relied on cash alone.
Therefore, about 92 percent of the respondents were dependent on cash-
based transactions. Among those who owned credit cards, 57 percent
were regular salaried individuals and about 33 percent were self-
employed. The category of credit card owners did not include a single
casual labourer. On the other hand, about 55 percent of those who relied
exclusively on cash were unpaid household women workers and casual
labourers.

61
Ease of doing business in India

India has made significant advances in improving ease of doing business;

these strides include leveraging digital technologies. For instance, online
systems have been introduced to ease procedures for starting a business
and obtaining construction permits. Electronic modes are now being used
for making payments to the Employees Provident Fund. Furthermore, the
use of electronic and mobile platforms has made trading across borders
more convenient. The government also plans to set up a single window
that can process online applications for permission to acquire land,
register property, among other requirements. These steps, however, are
only the beginning of a long journey towards completely digitalising the
business environment in 47India.

Data protection and privacy laws in India

As India seeks to realise its ambitions of going cashless, the need to

safeguard privacy and protect data becomes more of an imperative. This
requires a comprehensive and stringent regime of data protection and
privacy laws. Cybercrime, fraud and identity theft can erode trust, in turn
derailing any country’s journey to becoming cashless. Laws that
currently exist in India have limitations. For instance, these laws are
confined to regulating the processing of sensitive personal data while
poorly regulating issues related to personal data which may be
categorized as “non-sensitive”. The issue of obtaining approval of
individuals in matters relating to their personal information is currently
dealt with a high degree of ambiguity. Nor is there clarity on matters of
48extr a-territorial jurisdiction in relation to data protection and privacy.

62
In August 2017, the Supreme Court upheld the right to privacy as a
fundamental right and instructed the government to put in place a
stringent and broad-based regime of data protection laws. Accordingly,
the government has appointed a committee under the chairmanship of
former Supreme Court judge, Justice B N Srikrishna, which is currently
49in the process of drafting the new laws.

The ‘Digital India’ campaign

The launch of the ‘Digital India’ campaign in July 2015 reflects the
government’s commitment to the principles of efficiency and
transparency in governance. The following are some of the initiatives
introduced under this campaign. The National e-Governance Plan
aspires seamless electronic access to government services for all 50
citizens. Recognising the value of increased citizen participation in the
governance of the nation, the MyGov initiative provides a common
platform that brings people together to deliberate upon important 51is
sues and ideating solutions to problems. A common Biometric
Attendance System (BAS) has been introduced across several union
government offices in Delhi and in several state and civic governments
52t o maintain digital records of employee attendance. The e-hospital
application, meanwhile, digitises services in the domain of health 53
care—for instance, online appointments and online payment of fees. For
its part, the National Scholarship Portal seeks to completely transform
the process of disbursing scholarships with all of the stages 54 from
applying for scholarships to the final payment being digital. The Pradhan
Mantri Gramin Digital Saksharta Abhiyaan aims at improving 55th e
level of digital literacy in rural areas.

63
Innovation in the digital payments landscape in India

The report, ‘Flavours of Fast’, published by the US-based financial

services technology giant Fidelity National Information Services (FIS)
used the Faster Payments Innovation Index (FPII) to evaluate the digital
transactions systems across 25 countries. The parameters include 24x7
availability, the ability to accelerate adoption of digital payments, and
time-effectiveness of payments settlement. The index recognised India
as having the “most evolved” digital payments system among the 25
countries under evaluation. India was the only country that earned the
highest possible score while competing with countries such as the UK,
56 Sweden, Switzerland, Japan and China as well. The FPII ranks
nations across five levels. The minimal criterion that nations need to
satisfy to be considered for ranking is that of a fast payments system.
Nations that satisfy only this criterion are ranked as level one. For
instance, Taiwan was placed at level one. Nations that are assigned a
level higher than one are ranked in terms of features adding to the
quotient of customer value. The more the number of value added
features, the higher is the rank. Nations that provide interbank, account-
to-account services in less than a minute end-to-end and irrevocable
payment commitments are ranked at level two—for example, China,
Korea, Mexico, Brazil, Ghana, Nigeria and Iceland. Apart from having
level two features, payments systems of South Africa, Bahrain, Sweden
and Japan allow universal access and 24X7 availability, and have ISO
standard, and thus were assessed at level three. Features that are deemed
as maximising customer value provide remittance information with
payment, speedy settlement, push and pull payment facilities, allow
assigning aliases to bank accounts, and facilitate both individual and

64
batch payments. Spain, Kenya, Poland, Finland, UK, Singapore,
Denmark and Switzerland possess some of these features and, therefore,
are ranked at level four.

India’s Immediate/ Interbank Mobile Payment service (IMPS) is the

only payments system in the world which enjoys all of the above
mentioned features, placing the country at level five.

The Immediate/ Interbank Mobile Payment service (IMPS) and the

Unified Payments Interface (UPI) were launched by the National
Payments Council of India (NPCI). The IMPS allows transactions 24x7
and settles payments in real time. IMPS can be used via mobile phones,
internet banking, and ATMs. The UPI builds on the architecture of IMPS
and has additional features compared to IMPS. UPI allows immediate
transfer of funds from one bank account to another through smartphones
without requiring information such as card/bank account details, the net
banking password, and even the CVV number. Transactions using UPI
require a two factor authentication – virtual ID and an M-PIN – making
them safe. Another important feature of UPI is its interoperability: a
single virtual ID can be linked to several bank accounts.

Transactions using different payment systems are allowed on the UPI

platform. The UPI can both make as well as request payments.

Digi-Dhan Abhiyan opts for Paytm in Rural in India

Among the 2.98 lakh merchants enrolled, 82,746 merchants in rural areas
enabled under the scheme to use digital payment tools were on Paytm
wallet. Nearly one in three rural persons newly enrolled on electronic
payment systems under the Centre’s outreach programme for digital
transactions in the hinterland the Digi-Dhan Abhiyan has registered on

65
the Alibaba-backed mobile wallet Paytm. Compared with the 28.92 per
cent share of Paytm in the total rural citizens registered under the scheme
since its launch, the adoption of the government-backed Unified
Payment Interface (UPI) and Unstructured Supplementary Service Data
(USSD) schemes was cumulatively just over 20 per cent, the government
data showed. Under the Abhiyan, launched on December 9, village level
entrepreneurs of the Common Service Centres (CSCs) launched by the
government as a strategic cornerstone of its Digital India programme
organise workshops, where bankers and other stakeholders are invited.
These entrepreneurs explain various modes of electronic payments to
rural citizens. According to the information provided by the Ministry of
Electronics and Information Technology (MeitY), as on December 28, a
total of 1.05 crore citizens in rural areas of the country had been brought
on-board various digital payment tools during the period, of which the
biggest chunk 30.34 lakh were on Paytm. Among the 2.98 lakh
merchants enrolled, 82,746 merchants in rural areas enabled under the
scheme to use digital payment tools were on Paytm wallet. According
to the format, the village level entrepreneurs, while registering
merchants under the programme, have to conduct transaction
verification.

Under this verification process, as per the manual on the programme’s

website, the entrepreneur transfers Re 1 to the merchant, and the
merchant then transfers the Re 1 back to the entrepreneur. Interestingly,
while the manual has listed the bank account details for net-banking or
USSD transaction, and a phone number for wallet transactions, it shows
the QR code option only for

Paytm. After Paytm, among the rural consumers, the State Bank of
India’s wallet SBI Buddy was the second most enrolled tool at 19.58 lakh
66
beneficiaries. Even as wallets were the biggest draw among the target
audience over 60 per cent of the rural citizens who enrolled for digital
payments under the scheme preferred e-wallets, while the combined
adoption of UPI and USSD stood at 20 per cent followed by net banking
options at 10 per cent all the other non-bank wallets such as Freecharge,
MobiKwik, Oxigen, Airtel Money, Vodafone m-Pesa, cumulatively had
21.99 lakh users registered on their platform under this scheme, much
lower than the 30.34 lakh on Paytm.

The government’s own Aadhar Enabled Payment System (AEPS)

recorded just 3.71 lakh users. The trend in the merchants registered
through Digi-Dhan Abhiyan was also similar. More than 75 per cent
adopted mobile wallets, while UPI and USSD comprised 13 per cent
share of adoption. The points of sale (PoS) used for making debit and
credit card payments saw relatively lower adoption with only 74,581, or
0.71 per cent, users, and 1,071, or 0.36 per cent, merchants enrolling with
this option.

5.3 CONCLUSIONS
This paper makes the case that any form of progress and development in
a given system that aspires to reach its pinnacle cannot bypass core
structural deficiencies of that system. This holds true in the context of
digitalisation of transactions. There are no shortcuts to becoming
cashless. The rate at which cash is becoming irrelevant in this economy,
banks and other financial institutions will have to consider reconfiguring
their business processes and functioning with the smartphone being the
point of reference. This will allow digitalisation of transactions involved
in financial intermediation.

67
The findings reveal that while people are getting comfortable with
cashless payments, some kind of negative perceptions are holding back
many from adopting the new system. The negative perceptions are
security problems, poor network coverage, and lack of merchant
willingness, high transactional costs, lack of users’ knowledge on
technology, defunct POS machines, delayed reimbursement in case of
failed transactions, procedures and financial limits. Convenience in use
of cashless transactions and incentive system are the positive signs for
the progress of cashless payments in India. Finally the study concludes
that India may not become a cashless economy unless the perception of
the people will be rightly addressed by the government and the banking
institutions. They should pave the way for the safe and secure mean to
cashless transactions.

5.4 RECOMMENDATIONS
As per Ministry of Finance Report (December 2016) on Digital payment,
financial inclusion is one of the foremost challenge facing India. 53
percent of India population had access to formal financial services. In
this context, digital payment can act as accelerator to financial inclusion.
Increasing availability of mobile phone, availability of data network
infrastructure, rollout of 3G and 4G networks and large merchant eco
system are the critical enablers of digital payment in India. It is further
supported by the coordinated efforts of industry, regulator and
government. As per RBI’s report ‘Vision 2018’ four pronged strategy
focusing on regulation, robust infrastructure, effective supervisory
mechanism and customer centricity has been adopted to push adoption
of digital payment in India.

68
The percentage of cash for transactions has seen a rapid decline in the
past few years in India. In 2010, the percentage of cash in all payments
was 89% compared to 78% in 2015. This rapid decline is a result of an
increased adoption of non-cash instruments such as cards and digital
payments such as mobile wallets, electronic transfers, etc. Stored value
instruments like mobile wallets (Paytm, Mobikwik, Citrus, etc.) and
prepaid and gift cards have made payments though internet devices
convenient and easy. India represents one of the largest market
opportunities for digital payments.

THE WAY FORWARD

Measures in the short run

Cash has been the traditional instrument of transaction in India since
Independence and any move towards going cashless will entail a
paradigm shift. A host of measures have been launched in the short run
to deal with this barrier. For example, service providers operating in the
digital payments landscape have relied significantly on discounts,
cashbacks and other such offers to get around the proclivity of cash use.
This is particularly true of mobile wallets and UPI in India. Initiatives
under the ‘Cashless India’ campaign are also doing well in this direction.
Also, the campaign involves several measures that have subsidised the
cost of using digital payments instruments, making them affordable.
Although the above mentioned initiatives have yielded positive results,
there is doubt whether the momentum of use of digital payments will
remain once these cashbacks, discounts and subsidies are rolled back.

In this scenario, the option of intelligent and powerful advertising for

promoting cashless payments and awareness campaigns about the costs

69
and inconvenience of operating a cash-based payments system appear as
effective alternatives.

As previously mentioned, the adoption of mobile wallets has gained

significantly from the offering of VAS such as mobile recharges, utility
90 bill payments, ticket booking, obtaining loans, and purchasing gold.
Studies have also recorded the positive impact of VAS such as electronic
receipts, pre-ordering products, and access to deals. An example of VAS
which not only allows convenience and speed, but also allows managing
money is to digitise loyalty and gift cards, and discount coupons, and
manage them on a single platform so that consumers can choose their 91
preferred payment mix of credit points, coupons and money.

Long-term strategies
Short-run measures, however successful, can only bring small
increments to the process of digitalisation. This is India’s experience.
Becoming cashless represents a paradigmatic shift and requires certain
structural parameters in place. These structural parameters are the object
of long-term policy-making.
India is emerging as a large potential market for digital transactions. To
unlock this potential, India has to address its structural deficiencies. For
example, NACH is currently catering to the demand of a very small
formal sector in India. The formalisation of India’s informal economy
will make NACH ubiquitous. Financial inclusion, increased smartphone
ownership supported by rising incomes, and improved digital
infrastructure will boost usage of UPI, M-Wallets, and debit and credit
card transactions in India.

70
Digitalising India’s Industrialisation:

India’s story of industrialisation has been disappointing and explains the

impediments to job creation, rising incomes and urbanisation. As an attempt to
correct this situation, the ‘Make in

India’ campaign was launched to transform India into a global manufacturing

hub, while creating gainful employment opportunities in the country.

As of 2016-17, after three years since the launch of this campaign, the
contribution of the manufacturing sector to the country’s GDP has
remained at 16 percent, which has been the same for two and a half 92
decades. The fact that about one million enter the labour market every
month, the creation of only 6,41,000 jobs between 2014 and December
9320 16 leaves much to be desired.

Yet, it must be acknowledged that much has been done under the aegis
of the ‘Make in India’ campaign to create a favourable business
environment in the country. Increased investments in public
transportation systems, labour and power sector reforms, the GST reform
are some examples. The impact of these measures is reflected in India’s
improved score on the Logistics Performance Index 2016 and the 94Ease
of Doing Business Index 2018, both published by the World Bank. It is
expected that these improvements will translate into more jobs and more
industrial output in the near future.

This paper proposes the complete digitalisation of the business

environment and enterprise in the country. The idea is to create a digital
infrastructural framework that supports all business activities such as
borrowing credit, creating a digital market, digital promotion of

71
products, purchase raw materials online, and making factor payments
such as salaries and wages online.

This strategy can be expected to give such direction to India’s fourth

Industrial Revolution as to not only yield higher economic growth and
development, but also correct structural weakness viz. financial
exclusion, a predominant informal sector and unproductive, loss making
MSMEs, in a manner and at a pace that is going to be unprecedented.
This strategy can be bifurcated into the following measures:
The lack of formal credit sources for MSMEs can be attributed to the
disparity between what banks offer and what MSMEs need. Banks fail
to cater to this section because they are rigid about their requirement for
collateral. Also, banks perceive MSMEs as high risk, costly and poor-
quality credit assets. The long-drawn, complex process of applying for
loans and the time taken to process this application and finally approve
it as well as high interest rates discourage MSMEs to approach banks.

The contemporary fin-tech revolution, a global phenomenon, is

unequivocally being seen as having the potential to create financial
solutions that can cater to the needs of the unbanked and underserved
population and thereby bring the country closer to the reality of universal
financial inclusion. Fin-tech companies can do well in filling the void
that has long existed in the MSME credit landscape by providing digital
loans. The process of determining credit worthiness adopted by these
companies diverges significantly from its conventional counterpart. This
process uses information extracted from analysing the activity on social
networking and ecommerce sites, call records and transaction records,
regularity of paying utility bills, among others, to estimate the size of
income and professional network, and the willingness to pay of the

72
potential borrower. Administering of questionnaires to collect
psychometric data that allows reliable prediction of repayment behaviour
is another innovation introduced in appraising credit worthiness. This
process is also flexible in that the inability to provide formal account
statements or some other document required conventionally does not
always entail rejection. Alternate sources of information are perused to
compensate for unavailability of such documents. Nevertheless, the risk
assessments are sound and well-calculated ruling out threats to survival
in the market. These companies have also used technology to introduce
an easy and time-effective credit disbursal process. These firms are also
willing to offer collateral free loans.

Yet, prospective lenders to MSMEs face challenges inherent to the

characteristics of the sector. One such characteristic is the heterogeneity
of operational and business frameworks adopted by players in this sector.
Financial products that work well in the case of retail stores might fail in
the case of small restaurants. Lending to SMEs will more likely involve
disbursing small-ticket loans making viability and profitability difficult
propositions.

Introducing regulatory sandboxes in the fin-tech domain in India can

create the space in which players can innovate to derive solutions to the
above mentioned challenges without compromising on consumer
protection and risk mitigation. This initiative will also help generate
insights into effective regulation that does not obstruct innovation and is
justifiably necessary. It must be mentioned in this context, that the recent
regulations announced by the RBI on peer-to-peer (P2P) lending impose
barriers to innovation, thereby eroding the ability of fin-tech 101firms to
improve financial inclusion.

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In the initial phase of starting a business, the inability to produce certain
documents must not vitiate the chances of a talented entrepreneur being
financed. However, the financial regulators must insist that, once
established, the process for accessing credit must necessitate the need to
maintain digital books of account, digital records of various transactions,
purchases and sales, and payments made towards operating costs and
logistics.

It is incumbent on the government to leverage this fin-tech revolution

and help these companies achieve broader coverage of the rural and
remote areas of the nation. It must strengthen the network of basic as
well as digital infrastructure in the country.

O2O now is an offline store aggregator which seeks to provide mutually

beneficial solutions for consumers and kirana stores by leveraging
internet connectivity and digital innovation. Driven by the objective of
building a digital ecosystem for small-scale retailers, the O2O platform
engages in digital promotions and advertising for its clients and helps
them reach a wider base of customers, which would not be possible
offline, resulting in greater sales and more profits. Consumers can
compare offers and deals across local stores in their immediate
geography and choose that which best suits their needs. They can also
shop online a voiding the inconvenience of visiting the physical store.
The government needs to support such ventures in order to replicate this
model across the nation. It must use this platform for encouraging the
adoption of digital modes of transactions.

The government must also draw its attention to the gains that can follow
from providing financial and logistical assistance to businesses required

74
to operate on existing e-commerce websites and launching an e-
commerce website for entrepreneurs in cases where none exists. This
recommendation is motivated by the findings of the 2017 report titled
'Impact of internet and digitisation on SMBs in India', published by
KPMG and Google – MSMEs that operate online increase their revenue
and profit twice as fast as those operating offline. Online players serve a
wider base of customers located beyond their city than offline players.
Online businesses generate many more jobs than their offline
counterparts.

The fee structure adopted by the proposed e-commerce website must be

progressive in nature. Businesses incurring losses and finding it difficult
to break even can be financially relieved by waiving their dues. Once
businesses enter the phase of making profits, they must begin paying for
services enjoyed on the ecommerce platform. All of the business units
that register on this site must be required to completely digitise their
business operations.

Addressing skill deficit and illiteracy in India:

Lack of skills and a mismatch between skills acquired and those required
are responsible for unemployment and informal employment in India.
According to the Report on the Fifth Employment-Unemployment
Survey (2015-16), 58.3 percent of unemployed graduates and 62.4
percent of unemployed postgraduates attributed their unemployment to
the lack of jobs matching their education and skill. The 'Skill India'
campaign was launched to address this challenge. The flagship skill
development programme has been motivated by the twin goals of
providing employment and meeting the demand of the industry. The
rationale underlying this programme emphasises on mapping the skill

75
requirements of the industry and assessing the mismatch between skills
demanded and those supplied in order to prepare the roadmap for
implementation. This roadmap is to guide decision making on several
pertinent issues, for example, who will train, how to train the trainer,
issues relating to assessment and certification, and affiliation of training
institutions.

Since huge physical targets translate into larger financial disbursements,

focus has been skewed in the direction of meeting targets in quantitative
terms accompanied by a serious compromise on quality. As a result, the
skill development programme is churning out a large number of trained
youth who do not have the competence required to be employed. Hence,
the rate of placement of those trained under this programme has been as
low as 8.5 percent. Rather than resolve the problem it was meant to, the
skill development campaign has only 106 worsened it.

Introducing financial and digital literacy into the curriculum of primary

school education can bolster the pace of digitalisation in the long run.
Such initiatives as well as the 'Skill India' campaign bring individuals
closer to digital payments. However, the country must think of bringing
digital payments to the doorstep of the citizens. One way of doing this is
to make digital payments instruments available in regional languages as
well. In fact, India must aspire to make the UPI, the most popular and
interoperable payment option, available in all regional languages.

76
BIBLIOGRAPHY:

Research thesis:

Cashless India: Getting incentives right.

Cristobal, Mary Anne A. Malayang, Jefferson C. Sampan, Marie Tonie Q.

Solina, Micah

Erika A.-‘A Research study on the Effects of Cashless Transactions on people’s

spending behaviour ‘

Dr. Venkateswararao Podile, P. Rajesh -‘Public Perception on Cashless

Transactions in India’

-Asian Journal of Research in Banking and Finance, 2017.

Research journals:
https://www.academia.edu/37440525/Awareness_and_Preference_towards_Dig
ital_Payment_Mechanisms A_Study_of_Customer_Perceptions
https://dsim.in/blog/2017/04/14/case-study-digital-paymentslandscape-in-india-
2017-trends-future/
https://shodhgangotri.inflibnet.ac.in/bitstream/123456789/5766/1/synopsis%20s

unil.Pdf

https://www.academia.edu/33394371/A_STUDY_ON_IMPORTANCE_OF_C
ASHLESS_TRA NSACTIONS_IN_INDIA

Government publications:
http://vikaspedia.in/e-governance/digital-payment/trends-issues-and-

opportunities-indigitalpayments http://meity.gov.in/digidhan

77
http://niti.gov.in/writereaddata/files/document_publication/DigitalPaymentBoo
k.pdf

Corporate publications:
PAYMENTS_IN_INDIA_GOING_E-WAY_-_AN_ANALYSIS.pdf
https://www.ey.com/Publication/vwLUAssets/ey-the-payments-
revolution/$FILE/ey-the-
Paymentsrevolution.Pdf
https://www.capgemini.com/wp-
content/uploads/2017/12/paymentstrends_2018.Pdf
https://www.livemint.com/Technology/ACHEI1t6mB34c4xM5DiTsN/The-top-
five-trends-inIndiasdigital- payment-landscape.html
http://www.dcsplus.net/blog/why-mobile-payments-are-finally-the-next-big-

thingin-travel

78
Annexures

Questionnaire:
1. Age

a) 18 to 30
b) 31 to 45
c) 46 to 60
d) 60 and above

2. Gender

a) Male
b) Female

3. Occupation

a) Student
b) Service
c) Professional
d) Business Owner
e) Retired

4. Annual Income

a) Less than 2 Lakhs

b) 2 Lakhs to 5 lakhs
c) 5 lakhs to 10 lakhs
d) 10 lakhs and above

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5. Are you aware of digital payment mechanisms?

a) Yes
b) No
c) Maybe

6. Which payment options have you used?

a) Credit/ Debit cards

b) NEFT/RTGS
c) E-wallets
d) IMPS

7. Which digital payment apps have you used?

a) PayTM
b) BHIM/ UPI
c) Citrus
d) Mobikwik
e) OlaMoney
f) Amazon Pay
g) Others

8. How often do you make payments digitally?

a) Daily
b) Weekly
c) Once a month
d) Once in six months
e) Never

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9. Why do you prefer to pay digitally?

a) Ease/ Convenience

b) Cash Back Benefits

c) Credit period

d) Others

10. For what type of expenses do you prefer digital payments?

a) Travel
b) Groceries
c) Entertainment
d) Restaurants
e) Online Shopping
f) Bank Payments
g) Others

______________x_________________

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