THE IMPACT 

OF CONTACTLESS PAYMENT ON CASH

USAGE

Name : Omkar Shamkant Nangare

PRN : 120C10006
Roll No : SYMCA2006
Guide : Prof Anjana Arakerimath
Department Name: MCA

Institution Name : Pimpri Chinchwad College Of Engineering

 ABSTRACT

“Faceless, Paperless, Cashless”. ‘Digital India’ is a flagship program of the

Government of India that envisions India as a digitally empowered knowledge
economy. 
As India emerges a global competitor in innovative population-scale payment
systems, various digital payment methods have been introduced nation-wide,
including Micro ATMs, Banking Cards, Internet Banking, UPI (Unified Payment
Interface), Mobile Banking, and Mobile Wallets. 
However, the Indian economy identifies an unapparent barrier between the growth
of Digital India and complete acceptance towards Digital Payment System. 
India’s present usage of cash as a payment mode can be measured in the terms of
India’s cash to GDP (Gross Domestic Product) ratio of 11.4 percent, as of 2019,
which is considerably higher than several other developing and developed
countries.
This also includes costs of cash, such as costs of printing, maintaining cash supply
to ATMs, incurred interest and costs due to counterfeit currency, which round up
to 10 to 30 percent of India’s GDP.
This research studies prior literature and consumer behaviour via ground-level
surveys and interviews. As an outcome, a more reliable, secure, and contemporary
working model for a Digital Payment Wallet service using contactless payment
methods.

Keywords: acceptance, cash, cashless, economy, digital, payment, privacy,

security, mobile wallet, shared wallet , UPI
 INTRODUCTION OF SEMINAR TOPIC

India is the seventh largest economy of the world with GDP of USD $ 2.3
trillion, for an economy of this size India is predominantly cash driven
economy. Total currency in circulation in India was Rs 29,630 billion as
of May 28, 2021, which constitutes about 12.04% of GDP compared to
Brazil (3.93%), Mexico (5.32%) and China (8.8%). High dependence on
cash brings its own set of problems of production, storage and cash
management cost of currency notes, use of fake currency and most
importantly lack of trail of transactions which leads to tax evasion. These
problems are bound to be amplified as the economy grows. Reserve Bank
of India (RBI) has taken systematic steps to promote digital payments in
India and created National Payment Corporation of India (NPCI) as an
umbrella organization to develop low-cost retail digital payment systems.
With a foresight to make Indian economy less-cash based and eventually
cashless, Indian government has been taking several encouraging
measures to augment the concept of digital payments, for example,
Digidhan Abhiyaan, Aadhar-enabled Payment System (AEPS), PM Jan-
Dhan Yojana, BHIM (Bharat Interface for Money), PayGov India, and
many more
However, considerable gaps still persist in the Indian Payment System.
Out of 121 crores Indian population, only 44 crore people had a bank
account (% age 15+ i.e. 53.1% people) as of 2014 . In 2017, India’s
population rose to 133 crores and the number of citizens having a bank
account (% age 15+ i.e. 79.9% of people) increased to 106 crores.
However, having a bank account does not ensure Digital India. In 2014,
only 22% of citizens of age 15 years and above had a debit card which
slowly increased to 33% in 2017 . Furthermore, the percentage of people
who used a mobile phone or internet to access a financial institution bank
account was only 5% as in 2017 . And, only 2% of the Indian population,
that is, approximately 3 crore citizens of India have a mobile bank
account . Moreover, only 28.7% of all payments made in year the 2017
were made using digital payment modes .
Digital transactions reduce transaction time, save human energy, and
reduce wastage of resources. Thus, Digital transactions boost the
economic growth of individuals, organizations and the country at a large.
Realizing the importance of digitalization of the economy, India has been
taking a number of initiatives especially since 2015. The initiatives
include introduction and execution of “Digital India” campaign,
Immediate Payment Services (IMPS), Unified Payment Interface (UPI),
Aadhaar Enabled Payment Services (AEPS), Bharat Interface for Money
(BHIM) application, National Automated Clearing House (NACH),
Cheque Truncation System (CTS) and waiving of transactions fee for
National Electronic Funds Transfer (NEFT) and Real-Time Gross
Settlement (RTGS) by RBI from 1st July 2019 onwards. As a result, the
Indian payment system gradually changes from a cash-based economy to
a cashless economy. The growth of digital transactions in the Indian
economy is a remarkable one after 2015.
Unified Payment Interface
Unified Payment Interface : Unified Payments Interface (UPI) is an
instant real-time payment system developed by National Payments
Corporation of India (NPCI) facilitating inter-bank peer-to-peer (P2P)
and person-to-merchant (P2M) transactions.  The interface is regulated
by the Reserve Bank of India (RBI) and works by instantly transferring
funds between two bank accounts on a mobile platform.
Unified Payments Interface (UPI) is a system that powers multiple bank
accounts into a single mobile application (of any participating bank),
merging several banking features, seamless fund routing & merchant
payments into one hood. It also caters to the “Peer to Peer” collect
request which can be scheduled and paid as per requirement and
convenience.
 MOTIVATION

Due to Demonetization and Covid-19 , there was massive increase in

Contactless payments , so it made me think how does this work and hence
I chose this topic as it has become crucial part of our lives.
Specifically, UPI have helped a lot of small, roadside poor people who
sell some goods to earn a living, so I decided to study UPI .
The research design used for this study is a descriptive study and the type
of study is analytical in nature. Secondary data is used for the research
work. The secondary data has been collected from Reserve Bank of India,
Ministry of Finance, NITI Aayog, National Payments Corporation of
India (NPCI), Capgemini World Payments Report and Bank for
International Settlement (BIS)

PURPOSE

 To do a comparative study of both the ways of payment (Contact-

oriented and Contact-less)
 To identify and analyze the position of India’s digital payment
market in the global payments market
 To measure and analyze the growth trend of the Indian digital
payments market. 
 To compare the growth of digital payments in India with other
selected countries .
 SCOPE

With the introduction of new payment modes other than cash,

transactions have become much easier and time saver.
The period 2016-17 has been the pivotal period for payments landscape
in India, the country witnessed profound changes in payments ecosystem
with radical policy decisions, introduction of new age payment systems
and rapid changes in user behavior. Demonetization was introduced
during this period whereby 86% of the currency notes were rendered
worthless overnight.
The year preceding demonetization saw the emergence of mobile based
digital wallets which witnessed rapid adoption by a large smartphone
using population.
During the same period with the clear mandate from Reserve Bank of
India to drive next generation digital payments, National Payments
Corporation of India (NPCI) set out to create a new payment system
called Unified Payment Interface (UPI). Unified Payment Interface (UPI)
was formally inaugurated by then RBI Governor on 11 April 2016 and
launched for public use on 25 August 2016.
 LITERATURE REVIEW
Electronic payment is defined  as payment by means of electronic
exchange of details of credit cards, direct credit , UPI or some other
electronic means other than paying with money and cheque. Electronic
payment is an exchange of money that happens online between the
merchant and the purchaser .  Online payment is a payment made by the
use of electronic signals connected to debit or credit accounts.  
India had enacted “The Payment and Settlement Act” in the year 2007
which has defined Digital Payments. “electronic funds transfer means any
transfer of funds which is initiated by a person by way of instruction,
authorization or order to a bank to debit or credit an account maintained
with that bank through electronic means and includes point of sale
transfers; automated teller machine transactions, direct deposits or
withdrawal of funds, transfers initiated by telephone, internet and, card
payment” (Payment and Settlement Act, 2017) . 
Ministry of Finance, Government of India reported the Medium-Term
recommendations to strengthen Digital Payment Ecosystem, devised to
reduce the cash to GDP ratio from about 12% to 6% . Through complete
financial inclusion, Digital India promises access to formal financial
services and benefits from e-commerce, uniformly to all.
The study also aims to curb tax leakages, funding of criminal activities
and costs of cash. The prime recommendation was to adopt digital
payments among all government transactions. On parallel lines, Boston
Consulting Group and Google suggested that any case where cash
appears cheaper than digital transactions must be corrected through
government regulation. The committee believes that customers prefer
payment modes that are most prevalent and merchants prefer payment
modes that drive customers to them. Therefore, adoption of digital
payments by customers and merchants are equally important. VISA’s
report ‘Accelerating the Growth of Digital Payments in India: A Five-
Year Outlook’ states that a cash-intensive supply chain constraints
merchants to maintain a certain cash balance and such a high intensity of
cash use ultimately results in preference for cash payments.
IMPROVEMENTS IN UPI OVER EXISTING PAYMENT SYSTEMS

1. Pull Based Mobile transactions: Current digital payment systems

including cards and online payments are push based transactions
i.e., transactions are initiated by the customer. There is no
mechanism for the merchant to initiate a payment request (pull)
which the customer can approve and pay. UPI enables both real
time push and pull transactions using a cell phone.
2. Interoperable User Interfaces: UPI allows payments across
interfaces i.e.; payment can be requested on one interface and
transaction can authorized on a different interface. For e.g.,
Merchant can request a payment from a website which user can
authenticate and pay using a cell phone. 
3. Abstraction of Bank Details: There is no need to share any sensitive
bank details like account number etc. to make a transaction. Users
can create their unique virtual payment address which serves as
their  unique identity to make or receive payments. This makes for
secure payments since user is not required to share any sensitive
data on third party interfaces.
4. Safety with One Click-2 Factor Authentication: UPI enables
transactions with single click—in which the customer just needs to
enter MPIN on the cell phone to make a transaction. This is unlike
the existing payment systems where you must enter card details,
usernames, passwords, OTPs etc. on third party devices or websites
to make a transaction. In UPI, the user’s personal cell phone acts as
a single device to authorize and authenticate the payment.
5. Mobile first approach: UPI is designed to embrace the smartphone
using population in India to enable low cost and universal digital
payments. With UPI there is no need to create the consumer side
hardware infrastructure (cards etc.) to enable digital payments. In
India, almost every adult has a bank account and a cell phone. UPI
uses this ubiquitous relationship to enable universal digital
payments in India
UPI PAYMENT INTERFACE OF PSP UPI APP
UPI Architecture
 UPI works on a common layer, or a unified interface developed and
hosted by NPCI.
 Some of the key APIs to enable UPI transactions are:
 Payment API: This is the primary APIs used for routing the
transaction and is used to initiate Pay Request (Push Payment) and
Collect Request (Pull Payment). The API contains remitter and
beneficiary details.
 Authorization & Address Translation APIs are used to obtain
appropriate authorization details and translate the specific Virtual
Payment Address to the common global addresses (Bank Account
Number and IFSC Code, Aadhaar number). This allows users to
simply provide such virtual (tokenized) address to others
(individuals, entities, etc.) without having to reveal actual account
details.
 Keys List APIs: These APIs enable secure capture and
communication of credentials to authenticate transactions by
various entities in the UPI ecosystem. These APIs are used to
request for and cache the account providers and other entities list of
public keys. Trusted and certified NPCI libraries and utilities are
used for credential capture and PKI public key   encryption at
capture time.
UPI PRODUCT STATISTICS
 Age group distribution of digital users surveyed 

As observed from the age distribution donut majority of digital users are
citizens belonging to the age group of 18 to 35 years. Citizens of age 35
years or above utilize digital payment services the least due to little
technical expertise. Notice, that despite 3 out of 4 digital payment apps
(from Table 1) specify the age limit of at least 18 years to use digital
payment services, approximately 14.91% of digital users are children
belonging to age 18 years or less (minors). It was also observed that
among users of age less than 18 years, approximately 83% use either
their guardian's bank account or a joint account with guardian for
accessing digital gateways. In several cases it was found that minors may
also use the mobile number and authentication details of the guardian to
avail digital payment services. 
 Issues in Digital Ecosystem

From Fig. , we observe that fraud and security is a rather infrequent

issue, whereas, the issue of inconvenient and slow procedure is frequent.
On the other hand, the issue of incomplete transaction on one or both
ends generally occurs 1-5 times a month due to server-side connection
loss or user-side connection issues.
For all these issues, frequency increases gradually with the increase in
the magnitude of the transaction amount.
We infer that a larger transaction takes larger processing time, and this
may result in the transaction to time-out or be more susceptible to
fraudulent attacks.
Also, lack of customer support is a regular issue and a significant
improvement in resolution techniques is needed.
 Percentage of Users of different digital payment apps

From survey and analysis, we observe (Fig. 5) that the most prominently
used mobile payment apps are Paytm (85.9%), Google Pay (68.1%),
BHIM UPI (42.3%) and PhonePe (41.7%); while other apps being
serviced include Freecharge, Paypal, Mobikwik, etc. The age limits in
regard with the terms and conditions of the four most-prevalent digital
payment apps are shown in below Table . 
 Digital Payment Y-O-Y Growth Analysis

As per the newly constituted Digital Payments Index (RBI-DPI), the

index rose to 270.59 at the end of March 2021, up from 207.84 a year
ago. During 2020-21, the number of card payment transactions carried
out through credit cards and debit cards decreased by 19.0 per cent and
20.6 per cent, respectively. This resulted in a decrease in value of credit
card transactions by 13.7 per cent and debit card transactions by 5.9 per
cent during the same period. Digital payments have recorded a growth of
30.19 per cent during the year ended March 2021, reflecting adoption and
deepening of cashless transactions in the country.
The nationwide lockdown due to COVID-19 pandemic resulted in decline
in payments during its initial phase. However, the value and volume of
payments subsequently picked up with the gradual relaxations in
lockdown 
 STATE OF DIGITAL PAYMENTS IN EMERGING AND
DEVELOPED ECONOMICS: A CROSS COUNTRY ANALYSIS

The global digital payments market has been growing steadily over a
period of years. 
Global payments revenue reached $1.9 trillion in the year 2017 as per
McKinsey and Company Global Payment Report, 2018. The global
payments market has grown 11% in the year 2017 on an average.
According to NITI Aayog Report on Digital Payments, Indian Digital
Payments market has grown at 44.6% during 2017-18 when compared to
the year 2016-17 which is a remarkable growth despite having many
constraints like lack of awareness about digital payments, non-
availability of extensive internet connectivity, and lower acceptance of
technology in  rural India (NITI Aayog,2018).

The Indian digital payments market grows registering a compound

average annual growth rate (CAGR) of over 58.9 percent in terms of
volume and a CAGR of 28.4 percent in terms of value, India didn’t find a
place in top ten digital payments market in terms of volume as per the
report of Capgemini on Trends in Payments 2018.
At the global level, the top ten digital payments market in terms of the
volume include  USA , Euro Zone, China, Brazil, UK , South Korea,
Russia, Japan, Canada, and Australia. 
Further, it is depicted in the report of Capgemini, Sweden is the number
one country in the world in terms of growth in several non-cash
transactions per inhabitant, followed by the USA based on the year 2016
data.
The following table reveals the number of non-cash transactions  per
inhabitant in the selected countries on the basis of the year  2017 data.

Table clearly divulges that India’s number of cashless transactions per

inhabitant (Number of digital transactions per capita per annum) has to
travel a long way to reach the stage of the digital economy.
The lower score for the number of cashless transactions per inhabitant in
India (10.7) is a distressing factor in the journey of achieving the digital
economy in the country.
 Conclusion

UPI has enabled mobile phone to be used as a primary payment device

for making and accepting payments.  UPI leverages high tele density in
India to enable every bank account holder to make digital transactions
using a mobile phone. 
India, which has a poor merchant payment acceptance infrastructure UPI,
enables even the smallest merchant to start accepting digital payments
without the need for any POS machine. 
With its standard set of APIs, UPI has allowed different banks to
communicate with each other and has enabled interoperability between
disparate bank payment systems. 
In UPI there are no intermediaries like in card networks, which allows
for low transaction costs and instant settlement.  
UPI allows payment to be completed in seconds. It works on a safe,
secure and robust platform with ample security features to make it more
secure than any extant payment systems. Use of biometric authentication
in UPI will not only make payments more secure but will also take a huge
leap towards integrating next generation technology with current
payments system
 Bibliography

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