A STUDY ON PERCEPTION OF CONSUMER

TOWARDS DIGITAL PAYMENT

Chapter 1: Introduction

Meaning:

Digital payments are technically defined as any payments made

using digital instruments. In digital payment, the payer and the
payee, both use electronics modes to send and receive money.
No hard cash is used. The complete transaction is carried out
online. There are several advantages to the adoption of digital
payment across multiple sectors. For example factors such as the
time efficiency, ability of banking at any time, capability to keep
track of the payments being made as well as ease of expense
control.

India is moving forward on the way of the most significant

digital revolution and digital payment system will be an
important landmark in the regime of cashless economy in the
coming years. Digital payment system is an electronic medium
that allows consumers to make electronic commerce transaction
for their purchase and also financial transactions. The
development of the digital payment in India is anticipated to be
driven by digital payment service providers; effective banking
regulatory mechanism and experience of consumers and these
are also growth enhancing factors for digital payment in India.

Digital payment system has remarkable momentum particularly

after the demonetization in India. The government of India is
taking various steps for efficient utilization of digital payment
platform to wipe out corruption and black money from the
Indian economic system. Presently, around 60 per cent of the
transaction in India are taken place though digital payment
platforms. Though digital payment is generally accepted by
public, there is little criticism about processing of digital
payment system. To popularized and speed up of adoption of
digital payment, there are many number of digital payment
system are launched in India.

Though the Indian smartphone market registered a modest 4

percent decline during Covid Pandemic, it crossed 100 million
units by the second half of 2020 for the first time. (India
Smartphone Market Share: By Quarter - Counterpoint Research,
n.d.) A concomitant growth in Internet usage was vividly visible
in the Indian economy. By 2020 India had nearly 700 million
Internet users and it is predicted to be around 975 million by
2025. ( Total Internet Users in India | Statista, n.d.)The
exponential growth of the smartphone market and Internet usage
in India paved the way for a digital revolution in payment
modes. In the hindsight, it can be argued that the demonetization
drive on 8th November 2016 was the major catalyst in
digitalizing India. The digital Wallet companies made the best
use of opportunities presented to them and India witnessed a
dramatic growth in digital payments.

The digitalization drive in the Indian economy caused a

tremendous leap in cashless transactions. With the onset of
Covid Pandemic and subsequent lockdown, online shopping was
resorted by a massive population further boosting online
payments. The lockdown commenced on 25th March 2020,
which was of the largest magnitude in the world and it extended
till 3rd May 2020 restricting economic transactions of 1.3 billion
people. A survey conducted in April 2020 among nearly 9000
respondents revealed that over 33 percent of respondents
increased their digital payments during this period and 9 percent
made exclusively online payments. The present study intends to
look at the consumer perception of digital payment methods in
times of Covid Pandemic on the basis of their demographic
characteristics like gender, age, education, profession, and
income.
A cashless payment or digital payment describes an economic
state whereby financial transaction are not conducted with
money in the form of physical banknotes or coins, but rather
through the transfer of digital information (usually an electronic
representation of money) between the transaction parties.
Cashless societies have existed from the time when human
society came into existence, based on barter and other methods
of exchange, and cashless transactions have also become
possible in modern times using digital currencies such as
bitcoin. However in this project discusses and focuses on the
term “Digital payment or cashless payment” in the sense of a
move towards ,and implication of, a society where cash is
replaced by its digital equivalent –in other words, legal
tender(money) exists, is recorded, and is exchanged only in
electronic digital form. Such a concept has been discussed
widely, particularly because the world is experiencing a rapid
and increasing use of digital methods of recording, managing
and exchanging money in commerce, investment and daily life
in many parts of the world, and transactions which would
historically have been undertaken with cash are often now
undertaken electronically. Some countries now set limits on
transaction values for which non-electronic payment may be
legally used.

Economy has always moved through period of transformation

from time immemorial. The age of mercantilism which
witnessed trade through exchange of gold and bullion
transformed into barter system. Barter system is a process in
which exchange is done in commodities. Later with the arrival
of industrialization, size of economy expanded which resulted
into invention of money. Money is any identifiable object of
value that is generally accepted as medium of exchange and at
the same time it must act as a measure and store of value.

Money in broader sense consists of coins and currency notes.

India is majorly cash driven economy where cash is still the
king in Indian society. But the scenario is rapidly changing in
India. India is embracing cashless economy gradually by
moving towards cashless society. This is what manifested in
demonetization that was announced on November 8/2016
wherein 86% of existing currency from circulation was
withdrawn in order to curb the menace of cash driven economy.
But this move was not an easy one. People suffered to a great
extent in that phase but at the same time they supported this
step. The road of less cash society leads to cashless economy
which itself passes through the heart of robust digital economy.
All this is in sync with the global trend. Sweden is the most
cashless economy of the world. According to payment habits in
Sweden cash now accounts for just 13% of payments stores,
even Canada has on average two credit cards per person.
Vietnam announced a bold initiative to become 90% cashless
retail economy by 2020.

Cashless economy is an economy where maximum transactions

are done without using the physical cash or the means of hard
cash. It is the economy transactions are done with facilities like
debit card, credit cards and online transactions by means of fund
transfer and using e-wallets. The introduction of cashless
economy with the help of information technology these days is
fully supported by the national government in India. This
initiative has not only helped the fast transactions but at the
same time it has saved lot of time and money in the country. If
we see the global trend in the market it is clear that all over the
world people have started taking interest in cashless transaction.
Academicians, politicians, administrator and above all the
economists all over the world has strongly advocated about
going cashless from the cash rich economy. Every elite finds
lots of benefits from this type of transactions rather carrying
cash and move in market. Moving toward the cashless economy
can end up in number of benefits. It has been found in a study
that cashless economies can lead to better spending avenues
than the cash transactions.

It has been noted that with the increase of cashless transactions

there is decline in the withdrawal from the automated telling
machines. It hasn’t only reduced the burden on banks but also at
the same time helped in the reduction of cost of maintenance of
such machines. The world payments report tell the figures that
are really amazing. It says that the global non cash transactions
have grown to 8.9% and reached 387.3 billion in the global
market. The highest growth is recorded in Asian market that
registers the growth of 3.5% in the year 2014. It has been found
that card payments remained the top priority among the people.
It has increased considerably to 11.4% highest among the other
ways of non-cash transaction. Still India is full of population
that does not have a basic facility of bank account. Accounting
to the report presented by the bank of India it is said that 41% of
the people in India still do not have bank accounts with them out
of these 41% people, 40% of the people are unbanked in urban
areas and 61% of them are unbanked in the rural people. It is
therefore the prerogative of the banks. Particularly government
to open bank accounts in the country. With the scheme of Jan
Dhan account scheme launched by Modi there is considerable
increase in bank accounts with 175 million new bank accounts
in India. Still we have to work on many people who are without
bank accounts. In India, not only account penetration is
comparatively low, at 53 per cent, but so is the use of accounts
for payments –mere 15 per cent of adults reported using an
account to make or receive payments.

Cashless transactions are going to make the things different with

increase in income of the state. It is also going to stop maximum
amount of black marketing in the market. There is and should be
increase in the receipts of VAT in the government treasury.

The aim of the study is to study the impact of cashless economy

on the various aspects of Indian economy, its growth and
development in the different aspects of the country’s economy.
This project also studies the challenges in front of the
government to establish cashless economy in the country.

 Cashless economy is the term that is used to describe the

situation wherein the flow of cash doesn’t exist within the
economy and that all the transaction are undertaken
through electronic channels.
 This can include cash transfer through credit and debit
cards, direct debit, and electronic clearing and payment
systems such as Immediate Payment Services (IMPS),
National electronic Funds Transfer (NEFT) and Real Time
Gross Settlement (RTGS) in India.

The measures taken by the Indian government:

To make India a cashless economy, during the Union Budget

2019-20, the finance Minister had stated that 2% tax deducted at
source will be levied on cash withdrawals that exceed Rs. 1crore
in a year from the bank account to discourage the practice of
making business payment through cash transactions. The
government had also said that the businesses with an annual
turnover of over Rs 50 crore can offer low-cost digital modes of
payments and no charges or merchant discount rate will be
imposed them or their customers. This is a noteworthy move by
the government of India to incentivize people to adapt to the
emerging cashless economy. Transforming the cash dependent
India into a cashless economy is proving to a great challenge for
the Indian government given the size of the informal sector
within the Indian economy. It is estimated that nearly 90% of all
transactions in the Indian economy is dependent on cash. This is
due to the large informal sector that employs 90% of workforce.
India cannot become cashless unless this mammoth sector
adapts to the digital payments. Incentivizing the people alone is
not sufficient. The government needs to develop the supporting
infrastructures and technologies for India to become a cashless
economy while also providing awareness to its people.

 Demonetization:

Demonetization drive has not curbed the black money.

However, it had nudged India towards being a cashless
economy. It has become a radical reform to transform India into
a cashless economy. Paytm had witnessed 5 million daily usage
post demonetization as opposed to their average transaction of
three million. It also saw a 700% increase in the overall traffic
and a 1000% increase in the amount of money added to its
account in the first two days of post demonetization. Ola money
too saw a 1500% its ewallet
  Apart from demonetization, the government has
undertaken various other measures to reduce people’s
dependence on cash in recent years.
 Some of them are as follows

 Pradhan Mantri Jan Dhan Yojana:

One of the biggest financial inclusion initiatives in the word was

launched in 2014. It is a national mission on financial inclusion
which has an integrated approach to bring about comprehensive
financial inclusion and provide banking services to all
households within the country. This scheme ensures access to a
range of financial services like availability of basic savings,
bank accounts, access to need based credit, insurance and
pension. It has played a significant role in the opening of bank
accounts for poor.
  Direct Benefit Transfer (DBT):

It is a scheme that was launched by the government of India to

transfer the benefits and subsidies of various social welfare
schemes like LPG subsidy, old age pension, scholarship,
MGREGA, etc. directly to the bank account of the beneficiaries.
This allowed for the penetration of digital banking into rural
India.
  Unified Payment Interface (UPI):

It is a system that powers multiple bank accounts into a single

mobile application (of any participating banks), merging several
banking features, seamless fund routing, and merchant payments
into one hood. This makes digital transactions a simplified
process. Transaction via UPI had increased the monthly
transaction from nil to 754 million in less than 3 years.
  Financial Literacy Centers:

The RBI and Finance Ministry have established the Financial

Literacy Centers (FLCs), a keystone of the PMJDY. This
initiative has provided financial education programs to spread
awareness of banking products and benefits.

 The RBI has also provided licenses to open new age small
financial banks and payments banks which are expected to
 give a push to financial inclusion and bring in innovative
banking solution.
 Other promotions like e-banking, debit and credit cards,
card swipe or pos machines and digital wallets have made
the transaction to cashless economy easier.

 Factors determine the transition to digital

payment:

Several factors determine the transition to the digital payment.

They are as follows:

 Awareness and skills related to banking and e-transactions.

 Technological development to support the cashless
economy.
 Government interventions to promote the transition.

Indications in India of transition to the cashless economy are as

follows:

 Mobile wallets have significant market transaction in India

in recent times.
 Banks and related service providers have invested highly
to improve security and ease of cash transactions
  As previously mentioned, the Government of India is
undertaking various measures to incentivize the population
to shift to the cashless economy while also discouraging
the cash payments.
 In India, as per the 2011 census, more households had
mobile phones than toilets. 58% of households had mobile
phones while 47% had toilets within the houses in 2011. 5
years later, the gap between the two has widened as the
march of telecom connectivity has outpaced the march of
water connectivity in the country. According to fresh data
from a nationality representative household survey, the
proportion of households with toilets has increased while
the proportion of those with mobile phones has grown
even more sharply. This shows the increased potential of
the Indian economy to transform into a cashless economy
if government intervenes.
 India’s current economic situation has created a crucial
turning point. If this situation is handled correctly, there is
a high probability of India becoming a cashless economy.
 Reason for transform into cashless transaction:

India should shift to cashless transactions. The reasons for this

statement are:

 Cash is expensive:
A significant amount of time and money is needed to print the
currency. RBI has spent Rs 32.1 billion on printing the currency.
The effort is also needed to steer the money through the system
and to the consumers. Also, there is the cost for setting up of
and maintaining of the ATMs. Furthermore, the paper currencies
have shelf-life after which it needs to be replaced. It is estimated
that the direct cost of running a cash based economy is about
0.25% of India’s GDP.

 Cash is the driver of the shadow economy:

Cash is difficult to trace. Its transaction provides secrecy

enabling the people to carry out illegal activities like tax
evasion, black money, etc. In 2007, currency in circulation was
almost on par with the bank deposits. However, in the last three
years, the currency with Indians was more than the bank
deposits by 50%. According to the government data, the amount
of black money (unaccounted money) in India is 15-16 lakh
crores. The unaccounted money is used to finance the shadow
economy that is running parallel to the government as it finances
illegal activities terrorist activities, purchasing votes, smuggling,
betting, trafficking etc.

 Enables financial inclusion and increased tax

revenues:
A cashless economy mandates all citizens to have bank
accounts. This will ensure a higher financial inclusion rate. It
will also guarantee transparency in the transaction of money
within the economy minimizing the possibility of tax evasion
exponentially. Even the beneficiaries of various government
schemes can easily be identified and taken care of by the
government.

 Challenges that might face while transferring to

the cashless economy:

 Lack of adequate infrastructure and technology

within the Indian society:

India, a country with a vast area, currently has only 2.3 lakhs
ATMs and 14 lakhs point of sale (POS). This is too much low
when compared to other countries like the UK, France,
Australia, and Brazil as they have three or four times that of
India. Moreover, the ATMs are concentrated in urban areas and
they are scarce in suburban and rural areas.

 Limited usage of credit/debit cards:

India has a user base of 750 million cards. Ideally, its usage on
POS should be at least 375 million transactions per month, on
the assumption that the customers, on average use the card at
least once in two months on the POS terminal. But according to
the RBI data, the volume of POS and e-commerce transactions
together for all banks is about 130 million against the 765
million on the ATM channel as of 2016.

 The penetration of mobile internet is very low in

rural India:

Making India a cashless economy is highly difficult in the

current scenario as rural India has poor internet connectivity
also, the awareness and knowledge related to digital transactions
are limited in rural areas.

 Indian economy is cash dependent:

India is much dependent on cash, so much. So, that the MNCs

like Amazon had to include “cash on delivery” to penetrate the
Indian market. The rate of cash to GDP is highest in India
d(12.42%).o G In other large economies, the average cash to
GDP ratio is 5%. In fact, the year 2015 saw 78% of all
consumer payments in cash in India. On the other hand, during
the same period, It was 20% and 25% in the US and the UK.
India is also the 4th largest user of cash in the world. This shows
India is not fast enough to adapt to the current era, the one that
is dominated by technological innovations and developments.
Rural India’s adaption to new technologies is slow. This is a
major concern for India’s aspiration to become a cashless
economy.