MAHARASHTRA NATIONAL LAW UNIVERSITY, MUMBAI

ECONOMICS PROJECT – SEMESTER I

PROJECT TOPIC:

INDIA’S DIGITAL PAYMENT GATEWAYS

Submitted to: Prof. Rohit Jadhav

Submitted on: 15/09/2022

Name: Gnanith K Hunsur

Enrolment Number: 2022 035(Section A)
Course: B.A.LL.B.(HONS.)
Table of Contents
ABSTRACT ............................................................................................................................................ 3
Research Problems .................................................................................................................................. 3
Aims and Objectives ............................................................................................................................... 4
Research Methodology ........................................................................................................................... 4
Review of Literature ............................................................................................................................... 5
Introduction ............................................................................................................................................. 7
Digital Payments ................................................................................................................................. 7
Digital Payments in India.................................................................................................................... 9
Modes of Digital Payments ................................................................................................................... 11
Research Problems ................................................................................................................................ 18
Infrastructural problems ................................................................................................................... 19
Socio-economic problems................................................................................................................. 21
Technological problems .................................................................................................................... 23
Impact of Demonetisation .................................................................................................................... 25
Impact of Covid-19 ................................................................................................................................ 27
Solutions ............................................................................................................................................... 28
The Future of Digital Payments in India ................................................................................................ 30
Cryptocurrency ................................................................................................................................. 30
RBI’s Digital Currency ........................................................................................................................ 30
Conclusion ............................................................................................................................................. 31
Bibliography .......................................................................................................................................... 32
ABSTRACT

There has been a noticeable trend in the 21st century – the countries that have the most digitised
economies also tend to be the most prosperous, stable and innovative. The reason that countries
like the United States, Germany and China are more successful than Nigeria, Bangladesh or
Iran is because they have leveraged their resources to create a “Digital Economy” with
Information Technology at the centre. It has been proven time and time again that there is a
strong link between the digitalisation of an economy and an increase in GDP and Per Capita
Incomes. A digital economy is an indicator of a postmodern economy, and thus every country
in the world is trying to replicate this model, including India.

Research Problems

Often Digital Payments are perceived as a threat in India understandably by the financial
illiteracy of the demography and the apprehensions of its usage. This research seeks to bridge
that gap and analyse critically the various spheres of the problem and its co-relation in the
Indian context.

It aims to evaluate the various factors and the stake of the Government to help encourage use
of Digital Payments in India. It also aims to find the effect of Socio-Economic progress in the
Indian demography to the use of digital payments. The impact of westernisation on the world
has been notable, the paper aims to study how westernisation impacts the use of Digital
payments and suggest policy reforms for the progress and efficient use of digital payments.
Aims and Objectives

The research paper seeks to attain the following objectives:

1) To analyse the development of Digital Payments in India.

2) To analyse the present situation of Digital Payments in India.
3) To study the various types of digital payments available, their advantages and their
drawbacks.
4) To understand the co-relation between the socio-economic factors and the use of Digital
modes of Payment.
5) To analyse the efficacy of various government schemes catalysing Digital payments.
6) To study the problems prevalent in the Digital payment gateways and recommend ways
to address them.
7) To understand the hindrances in the use of digital payments.

Research Methodology

The project is based on both qualitative and quantitative methods of research. The project relies
on the Secondary Method of Research. Secondary data is information which has already been
collected, compiled and published by other researchers. Data is collected from secondary
sources such as research papers on the same or similar topics, government figures and other
websites, and then further analysed to provide greater depth and content.
Numerous studies have examined various facets of the interaction between Indian consumers
and the digital payments system. Due to the unstable nature of this paper's title, there is a gap
in understanding peoples' expectations for the future, taking into account the global crisis that
is having an equal impact on all nations' economies.
Review of Literature

The essay "Opportunities and Challenges of E-Payment System in India" by Sujith T. S. and
Julie C. D. was published in 2017. This inquiry sought to pinpoint the problems and difficulties
associated with electronic payment systems and provide some solutions to enhance the e-
payment system.

Additionally, the e-payment method offers extra opportunities. The analysis revealed that the
digital revolution has made it simple method for making digital payments. The analysis also
revealed that electricity, the Internet, and cell networks are only introducing digital payments
to rural locations as well There will be more digital payments as a result.

The study "The Study of Electronic Payment Systems" by Mamta, Prof. Hariom Tyagi, and Dr.
Abhishek Shukla was published in 2016. This inquiry attempted to pinpoint the problems and
difficulties with electronic payment systems and provide some solutions to raise the calibre of
e-payment systems. Electronic payment system deployments are successful when security and
protection concerns are managed in a way that appeals to both buyers and sellers and increases
market trust in the system.

Study on Introduction of Cashless Economy in India 2016: Benefits and Challenges by Preeti
Garg and Manvi Panchal. This essay analysed how different people view India's introduction
of a cashless economy. The inquiry was conducted in the Delhi region, with the help of an
organised poll, and the data was analysed using the basic rate technique. Responses from
respondents indicate that a cashless economy will aid in reducing money-related burglaries,
checking for black cash and fake currency, combating illegal intimidation, and advancing the
country's financial development.

Digital extortion, a high incidence of ignorance, people's personalities, a lack of clarity and
efficacy in the digital payment system are significant obstacles that might derail the execution
of the strategy.

According to Sanghita Roy and Dr. Indrajit Sinha (2014), although India's e-payment system
has shown great growth, much work needs to be done to boost utilisation. Still, cash is used in
90% of transactions. Technology Acceptance Model was employed for the investigation. They
observed that the four variables that help to strengthen the electronic payment system are
innovation, incentive, customer convenience, and legal framework.
E-payment systems are crucial tools used by both individuals and businesses as a safe and
practical method of sending money online, as well as a doorway to technical development in
the field of the global economy (Slozko & Pello, 2015).

In their study paper titled "A Study on Factors Influencing Consumer Adoption of Internet
Banking in India," Rakesh H M and Ramya T J (2014) made an effort to investigate the
variables that affect internet banking adoption. The finding is

The perceived dependability and usability of internet banking are factors. As well as perceived
utility, skilled internet banking services in the process should underline the advantages that its
adoption offers, and raising awareness can also be enhanced to draw users' attention to online
banking services.

In his research paper titled "End-user Acceptance of Technology Interface In Transaction

Based Environment," Kartikeya Bolar (2014) claimed that in order for technology creators and
investors to strategically improve technology interfaces and compete on various quality
dimensions, they need knowledge about how customers rate their technology interfaces based
on features and various quality dimensions.

In his study, Nitsure (2014) noted that emerging nations like India were having trouble adopting
E-banking programmes since information technology was not widely used. The article
emphasised issues including administration, rules, and regulations as well as security concerns.
Given that the poor are not allowed access to the internet and thus the financial system, there
is a significant possibility of a digital split developing in India.
Introduction

Digital Payments

When products or services are purchased via various electronic channels, this is referred to as
a digital payment. In other words, both the payer and the payee, who may be either a person or
a company, exchange money via electronic means. 1There is no use of cash or cheques in this
type of payment method. This can be done by utilizing a digital device, such as a mobile phone,
computer, POS (Point of Sale), or wireless mobile data or SWIFT (Society for the Worldwide
Interbank Financial Telecommunication). It also covers payments made using credit, debit, and
prepaid cards as well as bank transfers, mobile money, and payment cards.
Since the Stone Age, money, economics, and the way we pay for things have undergone
innumerable changes and continued progress. Thanks to continuing innovation that has led to
cutting-edge technologies, modern payment methods have advanced. The more sophisticated
payment systems, which provide us access to the fastest, safest, and most practical ways to
manage money, make our lives easier. The truth is that there will likely be even more changes
in the near future.

We have access to the safest, quickest, most practical, and efficient ways to manage money
thanks to digital payment methods. Other noteworthy advantages include maintaining security
and transparency through improving accountability and traceability, facilitating transactions,
making transaction tracking simpler, etc.

Money, economics, and the way we make payments have undergone numerous modifications
and continuous evolution since the Stone Age. Modern payment methods have advanced thanks
to ongoing innovation that has produced cutting-edge technologies. Our lives are made easier
by the more advanced payment methods, which provide us access to the safest, quickest, most
convenient, and effective ways to handle money. However, the reality is that in the near future,
there will be even more changes.

1
Allied Business Publishing 2022,Vol 26 Issue 5 A Study on Consumer’s Perception towards Digital Payments
in Rural and Urban areas.
Digital payments may appear to be simple at first glance, but there are actually a number of
intermediaries in the ecosystem that work together flawlessly to make transactions effective.
The merchant (payee), the customer (payer), the bank, and the payment network are the parties
engaged in the end-to-end processing of a digital payment transaction. In this sense, the term
"merchant" refers to neighbourhood Kirana shops, malls, and retail establishments as well as
e-commerce platforms and service providers that allow customers to transact or settle accounts
utilising digital payments.

The issuer bank is the one that deducts money from the payer. The acquirer bank, often known
as the payee's bank, is on the other side and credits the receipt's amount. Therefore, in order to
transact digitally, both parties need to have a bank account and an online banking method.2

2
Forbes (May 18, 2022, 8:33pm), What is a Digital Payment and how does it work?,
https://www.forbes.com/advisor/in/banking/what-is-a-digital-payment-and-how-does-it-work/
Digital Payments in India

India is leading the planet in digital payments. In 2020, the nation recorded more than 25.5
billion real-time payment transactions, the most in the world and 60% more than China. During
the fiscal year 2021–2022, the amount of digital payments in India increased by 33% year over
year (YoY). By 2026, over 65% of all payments will be made digitally, up from 40% currently.
The development of digital payment products in India over the past few years has been largely
driven by fintech companies. India is making strides toward creating a cashless economy, as
evidenced by its continuous shift towards digital payments. Some of the factors that have
assisted the change include the prevalence of the internet and mobile devices, inexpensive
internet data, the epidemic of offline to online commerce, a strong digital infrastructure,
simplicity of use and convenience, and a variety of digital payment options.

The government has long made the promotion of digital payments one of its stated policy
objectives. India's flagship initiative, "Digital India", aspires to transform the nation into a
knowledge-based society and economy. "Faceless, paperless, and cashless" is one of Digital
India's stated goals. The Union Budget (2021) allocated 15 billion INR for initiatives to
promote digital payments.3

By utilising electronic banking at its branches, Industrial Credit and Investment Corporation of
India (ICICI) launched online banking services in India in 1996. Banks including Citi,
IndusInd, and HDFC offered online banking services later in 1999.During the fiscal year 2021–
2022, the amount of digital payments in India increased by 33% year over year (YoY). In
comparison to the 5,554 crore transactions seen in FY 2020–21, a total of 7,422 crore digital
payment transactions were registered during this time.4

For an online firm to maintain growth in the online market, membership in this cashless
environment is crucial. And one of the main ways to give your customers a flawless digital
payment experience is by including a variety of digital payment options.

3
NewsOnAIR, October 16 2022, Government’s Flagship Programme- Digital India completes 6 years,
https://newsonair.com/2021/07/01/governments-flagship-programme-digital-india-completes-six-years-pm-
modi-to-virtually-interact-with-beneficiaries-2/
4
PYMNTS, April 14 2022, India’s Innovation is Payments Tech, https://www.pymnts.com/opinion/2022/indias-
innovation-in-payments-tech-how-far-it-has-come-and-what-can-we-expect
The Reserve Bank of India announced its plans to introduce the Central Bank Digital Currency
through a "graded approach" in its annual report, which was published on Friday, May 27. It
stated that the goals of its monetary policy, financial stability, and effective functioning of
currency and payment networks had to be aligned with the design of the central digital coin.
The RBI made its announcement months after claiming to be ready to launch the CBDC's
testing and pilot project operations.5

"From close to 1.5 million digital payment acceptance locations in 2016-17, the number of
merchants accepting digital payments modes has increased to over 10 million, in a short span
of two to three years," as per a KPMG report titled, "Fintech in India-Powering mobile
payments".6

5
RBI Annual report, May 27 2022
6
KPMG Report, Fintech in India-Powering mobile payments
Modes of Digital Payments
10 Types of Digital Payment methods in India:-

1) Banking Cards- Debit/Credit / Prepaid Cards.

2) USSD (Unstructured Supplementary Service Data).

3) AEPS (Aadhar Enabled Payment System).

4) UPI Mobile (Unified Payments Interface).

5) Mobile Wallets.

6) Bank Pre-paid Cards.

7) POS Terminals.

8) Internet Banking.

9) Mobile Banking.

10) Micro ATMs7

1) Cards : Numerous cards are offered by the banking industry to reduce the time needed
for financial transactions. Compared to other payment options, it gives customers more
security, convenience, and control. There are numerous card varieties, including Visa,
Mastercard, and Rupay, all of which offer the user more protection while using them.
People can make purchases with payment cards in-person, over the phone, online,
through mail-order catalogues, and at retail establishments. They facilitate easy
transactions by saving both customers and retailers' time and money.8

7
http://cashlessindia.gov.in/digital_payment_methods.html, Ministry of Electronic and Information
Technology(MeitY), GOI
8
International Journal of Scientific Research in Engineering and Management (IJSREM), August 2019
https://www.researchgate.net/publication/349076488_Digital_Payments_Methods_in_India_A_study_of_Proble
ms_and_Prospects
 Indians typically use debit/credit cards, prepaid cards, or banking cards in place of cash
payments. The first credit card in the country was released by Andhra Bank in 1981.

Cards are favoured for a number of reasons, including mobility, convenience, safety,
and security, without being limited to these. The only digital payment method that is
frequently used for both online and offline transactions is this one. Numerous tools for
managing card transactions are now available, including Cred, Square, and others.

Source(RBI, 2019)

2) USSD (Unstructured Supplementary Service Data) : The USSD (Unstructured

Supplementary Service Data) channel is used by the cutting-edge payment service
*99#. Users of this service can conduct mobile banking without using the internet.
There is a *99# service accessible to send money from one person to another without
the use of the internet or a smartphone. The *99# service has been introduced to bring
banking services to all of the nation's average citizens. On a mobile phone, users can
conduct transactions utilising a common number shared by all telecom service
providers and an interactive menu. The customer can use this to check their balance,
send money, get a short statement, etc.10

3) AEPS (Aadhar Enabled Payment System) : People can conduct transactions

using the Aadhaar Enabled Payment System (AEPS) without needing a bank account
number. With this service, people can access features like cash withdrawal and deposit,

9
RBI, 2019
10
International Journal of Scientific Research in Engineering and Management (IJSREM), August 2019
https://www.researchgate.net/publication/349076488_Digital_Payments_Methods_in_India_A_study_of_Proble
ms_and_Prospects
 balance transfers, aadhaar to aadhaar fund transfers, and mini statements with biometric
authentication. Aadhar authentication is used in AEPS, a bank-led paradigm that
enables online interoperable financial transactions at PoS (Point of Sale or Micro ATM)
through the Business Correspondent or Bank Mitra of any bank.

4) UPI Mobile (Unified Payments Interface) : To make it easier to transfer money

between any two people, a payment system known as UPI brings together many bank
accounts into a single application. Compared to NEFT, RTGS, and IMPS, UPI is
substantially more defined and standardised across banks. You may start a bank transfer
using UPI from anywhere with only a few mouse clicks.

The benefit of using UPI is that you may make payments without entering your card or
bank details directly from your bank account. With more than 2 billion transactions
registered in October of 2020, this method has become into one of the most popular
digital payment methods.

The RBI is in charge of overseeing digital payments. UPI was established on April 11th,
2016, and is present in nations including India, Bhutan, Nepal, Malaysia, Singapore,
and the United Arab Emirates. According to February Data 2022, 304 Banks are now
active in the UPI Portal.11

 User can Send money.

 User can Request money, for this it is mandatory that the users mobile number
be linked with the bank account using.

11
Journal of Management Research and analysis, August 2022, https://www.jmra.in/html-article/17247
  For quick transactions users can Scan and Pay.
 Customers can view their transaction history on the BHIM App as an additional
feature.
 For customers, there is a report option in the BHIM App that they can use to file
any complaints.
 The BHIM App's next choice is the Bank account option, therefore by using this
option, the user has access to the bank account associated with their BHIM App
by simply clicking "Change Account" in the BHIM app, a client can also change
their bank account.
 It is simple to transfer money with the BHIM App because it enables users to
send money to many payment addresses.

12

5) Mobile Wallets : An electronic device or online service that allows an individual to

make electronic transactions is called a digital wallet. An individual‟s bank account can
also be linked to the digital wallet. One in five customers in Asia are now using a digital
wallet. Some of the popular digital wallets are PayTM, Freecharge, LIME, Jio Money,
Airtel Money, State Bank Buddy, Citrus, Mobikwik, PayUMoney etc.

As the name implies, mobile wallets are a type of wallet that allows you to carry cash
but in a digital format. To enable secure digital transactions, clients frequently link their

12
NPCI
 bank accounts or credit cards to the wallet. Adding money to a mobile wallet and using
that balance to transfer funds is another way to use wallets.
Many banks today have introduced their own wallets. Furthermore, eminent private
businesses have built a presence in the mobile wallet market.

6) Bank Pre-paid Cards : A bank prepaid card is a preloaded debit card that has been
provided by the bank and is either single-use or reloadable for several uses. It varies
from a regular debit card in that the latter is always linked to your bank account and
can only be used once. This may or may not apply to prepaid bank cards.

By visiting the bank's website, any customer with a KYC-compliant account can create
a prepaid card. These cards are most frequently used as corporate presents, gift cards,
or reward cards. A bank prepaid card is a preloaded debit card that has been provided
by the bank and is either single-use or reloadable for several uses.

7) POS Terminals : Sales are conducted at points of sale, or PoS. It enables PoS holders
to obtain payment from customers via a swap and eliminates the need to visit a bank to
conduct transactions for buying and selling. Retailers define a PoS as the location where
a customer completes a transaction, like a checkout counter, on a micro level. But it
also needs a merchant's bank account and a GPS system. At the most common type of
PoS machine, customers can make transactions using debit and credit cards by simply
swiping their cards and entering their PINs.
 8) Internet Banking : Millions of people in the nation have found life to be easier in
recent years thanks to online banking or internet banking. With online banking, a
customer can make payments more quickly and easily with just one click using the
internet, in addition to opening numerous accounts such savings accounts, FDs, and
DMAT accounts. Customers of a certain bank can conduct transactions and other
financial activities online through banking, also referred to as e-banking or online
banking. You require a strong internet connection to use Internet Banking, which is the
process of sending or receiving payments online and accessing a bank's website.13
9) Mobile Banking : Mobile banking is the practise of doing financial transactions via
a mobile device (cell phone, tablet, etc.). The complexity of this activity might range
from a client sending money abroad or paying bills to something as simple as a bank
sending fraud or usage activities to a customer's cell phone. One advantage of mobile
banking is the convenience of banking whenever and wherever you want.

10) Micro ATMs : Micro ATMs are used by Business Correspondents (BC) to offer
consumers essential banking services. These Correspondents, who may even be local
business owners, will serve as a "micro ATM" for rapid transactions. You will be able
to transfer money using your bank account that is connected to your Aadhaar by using
a mechanism that only requires your fingerprint for authentication.

Micro ATMs were created with the intention of being a tool utilised by the million
Business Correspondents to provide basic banking services. Business Correspondents

13
European Journal of Molecular & Clinical Medicine, Volume 7, Issue 8, 2020
can conduct rapid transactions thanks to the mini ATM. It facilitates instant withdrawals
and transfer transactions.
Research Problems

1. Infrastructural problems

 Internet Connectivity
 Unavailability of Electricity
 Unavailability of Electronic devices

2. Socio-economic problems

 Cost of electronic Devices and Internet

 Digital financial awareness
 Digital financial literacy
 Susceptibility to fraud
 Stigma attached with online payments

3.Technological problems

 Technological illiteracy
 Insecure payment gateways
 Inefficient user interface

4. Ethical problems

 Data privacy
 Possibility of fraud
 Confidentiality
 Integrity
 Authentication
 Authorization
 Non-repudiation
Infrastructural problems
Internet Connectivity : Rural India uses OTT platforms more frequently. However, urban
areas of India are where online gambling, digital payments, and e-commerce are most
prevalent. There are currently 692 million people using the internet in the nation. 351 million
of them live in rural areas, and 341 million live in cities. According to IAMAI, there will
probably be 900 million internet users in India by 2025. According to a research released by
the Internet and Mobile Association of India, 346 million Indians engage in online activities
such as e-commerce and digital payments (IAMAI). The analysis showed that this figure is
more than the estimated 331 million US residents that participate in digital transactions.14 In
spite of having a population of 1.4 trillion only 692 million people have access to the internet,
which is less than half of the population so schemes should be targeted at providing access to
the entire population.

Unavailability of Electricity : The Indian government has made laudable efforts over the
past ten years to make energy accessible to the people of the nation. The quality and
dependability of the power supply as well as consumer satisfaction with electrical services are
independently evaluated in this study using the nationally representative India Residential
Energy Consumption Survey (IRES). It also examines how distribution firms (discoms)
manage the household metering, billing, and payment collection (MBC) process.

The India Residential Energy Consumption Survey (IRES) is the nation's first-ever survey on
the availability, use, and efficiency of energy in Indian homes. It includes roughly 15,000
families spread among 152 districts, 1210 villages, and 21 states, as well as 614 wards.

Most homeowners use discom payment counters and collection agencies to make cash
payments for their bills. Only 17% of customers that are charged pay their payments digitally
(27 per cent in urban India and 12 per cent in rural India). Despite the fact that 70% of Indian
homes have smartphones, this is the case.

Unavailability of Electronic devices : According to a poll by the NCERT, at least 27%

of students do not have access to cellphones or computers to participate in online classes, and

14
IAMAI report
28% of students and parents think that intermittent or a lack of energy is one of the key issues
impeding teaching and learning.

A study with over 34,000 participants, including students, parents, teachers, and school
principals from Kendriya Vidyalayas, Navodyaya Vidyalas, and CBSE affiliated schools,
found that teachers' lack of familiarity with online teaching methodologies and their lack of
knowledge of how to use devices effectively for educational purposes hampered students'
ability to learn.15

Approximately 27 per cent of the students mentioned the non-availability of smartphones and
laptops. The maximum number of stakeholders have opted for mobile phones as a medium for
teaching-learning during the COVID-19 period," the survey by the National Council of
Educational Research and Training (NCERT) said.
"About 36 per cent of the students used the textbooks and other books available with them.
Laptops were the second most favoured option amongst teachers and principals. Television and
radio were the least utilized devices for the teaching-learning in the pandemic situation. The
absence of enriched interaction between the teacher and the students was one of the reasons as
identified by the stakeholders," it added.
Even the adoption of digital technologies has been uneven and exclusive in India. Only 24%
of Indian households have access to the internet, according to the 2017–18 National Sample
Survey report on education. Only slightly more than 15% of rural homes in India, where 66%
of the population resides in villages, have access to internet services. 42% of urban households
fall into this category.
Only 8% of households with people between the ages of five and 24 actually have a computer
and an internet connection. It is also important to keep in mind that, according to the National
Sample Survey definition, the presence of a device or internet access in a household does not
necessarily suggest that the household owns the connection and the associated gadgets.16

15
India Today October 18 2022, https://www.indiatvnews.com/education/news-ncert-survey-online-education-
students-do-not-have-access-laptop-smartphones-electricity-online-classes-643500
16
National Sample Survey 17-18
Socio-economic problems
Cost of electronic Devices and Internet : According to the Telecom Regulatory Authority
of India’s analytical report on Wireless Data Services in India, “The average cost to a
subscriber for wireless data in the year 2014 was Rs 269 per GB and in the year 2015, it was
Rs 226 per GB.”17 The price per gigabyte of data was Rs 9.53 in July-September 2021,
according to the latest “Indian Telecom Services Performance Indicator Report” published in
January 2022.

The cost of data has significantly decreased in the nation during the past eight years by 96.4%.
When 4G (LTE) technology was introduced in India, the average subscriber cost for wireless
data consumption dropped dramatically to Rs 75.57 per GB in 2016. The 4G network was first
made available in India in 2012 in the form of dongles and modems, but mobile networks only
had access to it in 2016. The typical subscriber cost for wireless data usage in 2015 was Rs 226
per GB. Since that time, the average price has dropped dramatically, reaching Rs 75.57 per GB
in 2016 before falling even further to Rs 19.35 per GB in 2017 and Rs 11.78 in 2018.

17
TRAI Report on wireless data
Digital financial awareness : A significant portion of the population now has access to
basic digital literacy skills thanks to government initiatives like the Digital India programme.
To bring the entire population within the umbrella of digital financial inclusion, it is now
necessary to apply this learned literacy to economic activities. They would be able to participate
in the bigger digital economy as a result. Imagine a second-generation cloth merchant in a large
city selling his items to clients all over the nation. With this working knowledge of the internet,
he can now safely accept digital payments and electronically market his goods.

India has made significant progress in terms of digital literacy, but the nation still has to
improve its financial inclusion online. The country's overall participation in digital finance will
pave the road for economic growth that keeps pace with global figures. The secret to securing
the egalitarian percolation of digitalization's benefits in a youthful society is digital financial
inclusion. It is the most successful move in the direction of inclusive development. Financial
inclusion will eventually allow for the freedom to dream and live as one pleases. It will give
millions of Indians around the nation some optimism.
Technological problems

Technological Illiteracy : 3 million panchayat members are spread among 2,50,000

panchayats and 6,50,000 villages in India. In India, more than 90% of the population is virtually
digitally illiterate, with a poverty rate of about 40%, an illiteracy rate of more than 25%–30%,
etc. Even before the difficulties posed by the COVID-19 outbreak, digital exclusion was a
problem in India. The question of equitable access is the main difficulty with online courses
and remote learning in this nation. Accessibility in this context also refers to having access to
electronic devices like computers and cellphones, together with an adequate penetration of the
internet and technology services.

Insecure payment gateways : A payment gateway can streamline and expedite payments
in an increasingly cashless society where most payment services are carried out online or
through credit cards. This benefits both customers and businesses. Payment gateways are a type
of merchant service that handle credit card processing for both traditional brick-and-mortar
establishments and e-commerce websites. They might be viewed as the electronic equivalent
of a cash register.

Inefficient user interface : The effectiveness of UI design can be the difference between a
very effective programme and one that falls flat or, worse still, leaves a profoundly negative
impression on the user.
Ethical problems

Data privacy : The proper storage, access, retention, immutability, and security of sensitive
data are all aspects of data protection that are referred to as data privacy, sometimes known as
information privacy.

Possibility of fraud : The growth of digital payments coincides with an increase in fraud.
Every month, approximately 80,000 frauds totaling Rs 200 crore are carried out through UPI,
accounting for 50% of all financial frauds. These frauds use a variety of tactics, such as
seducing customers into paying with an unauthorised QR code or giving them the confidence
to install malware and force them to use an unauthorised app.

Confidentiality- With increasing digital payments and the potential of fraud it is imperative
to maintain anonymity and confidentiality of users

Integrity- There is a possibility of users being scammed or defrauded by various organisations

that especially target the illiterate. So, a sense of morality and integrity within the user base
must be prevalent to ensure only the right transaction occur.
Authentication- In order to ensure the money is deducted from the right user with their
consent and credited to the right person an additional authentication factor is required.
Authorization- A user with the pin and password of the digital payment can make a payment
to anyone without their consent. It is necessary to ensure only authorised users are allowed to
make and receive payments.
Non-repudiation- Non-repudiation is the assurance that someone cannot deny the validity of
something. Non-repudiation is a legal concept that is widely used in information security and
refers to a service, which provides proof of the origin of data and the integrity of the data.
Impact of Demonetisation
Unquestionably, demonetization facilitated the spread of electronic payments. Massive cash
transactions occurred as a result of the country's demonetization on November 8, 2016, which
was a turning point in the economy of the nation.
Since demonetization, everyone's way of life has changed due to digital payments, and one of
the main advantages of demonetization is the country's cashless economy. It is asserted that
every disruption presents opportunities, and the news of demonetization was one such
disruption.
India's demonetization presented a tremendous opportunity for the development of digital
payments, and digital wallet companies grasped the opportunity to grow their market share.
Demonetization has given Indian consumers a distinct opportunity to adopt digital payments
as a cash substitute.18
The demonetization caused digital payments to increase by an amount never before seen.
Digital wallet businesses have increased by 271% by February of current year. The National
Payments Corporation of India (NPCI), which developed the Bharat Interface for Money
(BHIM) app, as well as government and private sector businesses like Paytm, Freecharge, and
Mobikwik, have been aggressively promoting a number of digital payment applications,
including the Aadhaar Payment and UPI apps. App-based digital transfers have changed
behaviour and aided in the acceptance of digital payments.19
Another study found that after demonetization, there was a considerable surge in digital
payment methods and transactions. One day after demonetization, they noticed the impact of
using different mobile wallets like Paytm, Razorpay, Mobikwik, Freecharge, etc. Sales of
several grocery startups increased by 40–50%. Furthermore, one study revealed that the
demonetization process helped the nation go cashless while also enhancing openness in the
financial sector of the economy, which had a significant positive impact on the economy's
liquidity status. Additionally, it was noted that the value of digital payment transactions made
through online banking and mobile digital wallets significantly increased. For instance, the
number of Paytm wallet users increased from 125 million three months before demonetization
to 185 million three months later. Additionally, it kept expanding, reaching 280 million
members by November 2017. According to PWC India, after demonetization, both the volume
and value of transactions made via the digital payment mechanisms NEFT and RTGS increased

18
Singh, Shamsher, Rana, 2017
19
Manocha et al., 2019
significantly. Transactions made through NEFT grew in value from 8,808 billion to 14,182
billion Indian rupees. Additionally, the value of RTGS rose from 78,179 billion to 1,02,348
billion Indian Rupees. According to reports, the number of transactions via e-wallets rose from
17 lakhs per day to 63 lakhs per day.20

20
(Dr. Swati Kulkarni, Dr. Aparna J Varma, 2021
Impact of Covid-19
The COVID-19 outbreak had a negative impact on the majority of global industries, including
retail, fashion, hospitality, airlines, and many others. On the other hand, the global pandemic
has increased the use of digital payments in a few industries, including online shopping for
groceries and medications, subscribing to OTT (over-the-top) channels for the newest movies
or web series, and less frequent use of cash in circulation. Many business owners have selected
a digital payment method that enables them to accept and complete a variety of transactions
through numerous applications in order to implement cashless sales.21
The idea of digital payment began to take hold in India in 2016 with the introduction of the
Digital India mission, which encouraged both Indian businesspeople and citizens to adopt
digital technology in order to strengthen the nation's economy through transactions that were
paperless, faceless, and cashless. Every second person has started making payments for their
necessities through digital means, avoiding cash payments, in order to protect themselves from
any kind of contact with another person, whether a person from a city, town, or even a village,
in the year 2020 when the country faced huge negative impact due to coronavirus.
The idea of digital payment services has given the general public limitless advantages in having
simple, frequent payments and also serves as a need since the occurrence of COVID-19. the
initial

The biggest benefit of conducting business through digital services is that it helps society
maintain social distance and protects people's lives from any form of virus or illness contact.
People are encouraged to utilise these digital payment service applications and make their
payments by offering them cash back or shopping vouchers in exchange for their business.
The Covid-19 event has improved the use of digital currency as well as comprehension and
knowledge about digital payments and its services that towns and village people did not carry
before this in comparison to what is experienced today. Small businessmen and shops are now
able to pay for their product without having to exchange cash for their necessities; they simply
utilise digital payments to make their purchases.
Before the pandemic, it was simple for shop owners or street vendors to purchase their
merchandise using real-time cash payments, and only the wholesaler would then provide their
goods. However, these people who utilise hand carts, hawkers, or small store owners can now
buy the stock they need by paying their linked wholesalers digitally.

21
International Journal of Creative Research thoughts, Volume 9 Issue 5, May 2021
Solutions
Increased awareness:
Since demonetization in November 2016, especially, consumer acceptance of digital payment
methods has soared. Consumers in the Millennial and Gen Z generations are accustomed to
and frequently utilise digital payments. Merchants will lose out on a sizable portion of business
if they do not accept digital payments.

Government policies :

The current government has introduced various rules that are beneficial to businesses accepting
digital payments as a result of its focus on creating a cashless economy in India.

Example: In her first budget speech, India's Finance Minister Nirmala Sitharaman had
suggested that businesses with an annual revenue of more than 50 crore should provide
customers with low-cost digital payment options like BHIM UPI, Aadhaar Pay, UPI-QR Code,
debit cards, NEFT, and RTGS and that neither customers nor businesses should be charged or
subject to the Merchant Discount Rate (MDR). This idea is now a part of the law as of
November 1 as a result of the Finance Bill's passage.

Quick onboarding and ease of use :

The days when India's adoption of digital payment systems was hampered by sophisticated
technology are long gone. For instance, Pine Labs creates products that are simple to use and
aid merchants in expanding their businesses by utilising the greatest available technology.
Additionally, we have a specialised staff for client onboarding that assists merchants in easily
integrating digital payment options.

Smartphone proliferation and internet expansion :

According to predictions, India's smartphone user base would grow from 468 million in 2017
to 859 million by 2022. Add to that the fact that, according to Mary Meeker's 2019 Internet
Trends Report, India (12%) has overtaken the United States (8%) to become the second-largest
internet user base in the world. These data indicate that the direction of digital payments is only
going to go up from here.

Regulatory support :
Payment and Settlement Systems in India: Vision 2019–2021, a vision paper released by RBI
in May 2019, is a start in the right path. The document lists 36 precise Action Points for
transforming India's economy into a cashless one, and the banking regulator's actions are
urgently needed to develop the nation's digital payments infrastructure.

Improved technology :

The financial sector in India will only get stronger with the entrance of cutting-edge
technologies. By incorporating quick, safe, dependable, and scalable technology ourselves, we
have been able to show enhanced ROI for our merchant customers.
The Future of Digital Payments in India

Cryptocurrency
As an alternative to conventional currency, a digital form known as a cryptocurrency was
created using encryption techniques. Cryptocurrencies can function as a virtual accounting
system and a medium of commerce by utilising encryption technology. To utilise
cryptocurrencies, you must have a cryptocurrency wallet. These wallets can be downloaded as
software on your computer, smartphone, or cloud storage. The wallets store your encryption
keys, which serve as a means of identity verification and connection to your cryptocurrency.

Since cryptocurrencies are often not issued by any centralised body, they may be immune to
government intervention or manipulation. Blockchain technology is the only reason why
cryptocurrencies like bitcoin and others are enticing and practical. Blockchain technology is
used by cryptocurrencies like bitcoin. A chain of interconnected blocks or an electronic ledger
are both referred to as "blockchains." A block is a group of transactions that each user on the
network has independently confirmed. There are several different types of cryptocurrencies,
such as ethereum, doge coin, and tether coin.

RBI’s Digital Currency

A digital payment system based on electronic vouchers called e-RUPI will be introduced by
the Indian government. For digital payments, it is a cashless and contactless technique. The
users' mobile devices receive the Quick Response (QR) code or SMS string-based e-voucher.
At the service provider, the consumers can use the voucher without a card, a digital wallet, or
online banking access. It establishes a digital connection in the absence of any physical link
between the service providers and beneficiaries. The system also makes sure that the service
provider is only paid after the transaction is finished. The pre-paid nature of the system ensures
prompt payment to the service provider without the need for a middleman.
Conclusion

After a thorough analysis of the Digital India campaign, it is clear that India is on the right
path. There are severe problems that will continue to plague the Indian economy, and
digitalisation may not be the answer to all the problems, and it may create problems of its own.
But there is no doubt that a digitalised Indian society would be much more desirable for the
vast majority of India’s population. Individual in the country are already reaping the benefits
of digitization, but they will need to take this convenience with a grain a salt and be cautious
that its disruptive powers can affect their lives and work in other fundamental ways.

They will need to be educate themselves about how digitally driven automation will change
their work and what skills they will require in the future. Businesses should keep going digital
as their first priority. Indian companies will need to invest in building digital capabilities,
especially hiring people with the skills needed to start and accelerate a digital transformation.

That is an uphill task as many of India’s most talented workers prefer to emigrate. Companies
could work with institutes and universities to recruit and develop skilled workers. There is lot
of room of improvement and by targeting policies and strategies, India can achieve greater
Digital engagement and overcome the hindrances in its way.

The research paper has tried to analyse critically the various impediments and hindrances in
the growth of Digital Payments in India, suggested the possible solutions and policy changes
targeted at the same by analysing data collected from various secondary sources.
Bibliography

 Allied Business Publishing 2022,Vol 26 Issue 5 A Study on Consumer’s Perception

towards Digital Payments in Rural and Urban areas
 https://www.forbes.com/advisor/in/banking/what-is-a-digital-payment-and-how-does-
it-work/

 https://newsonair.com/2021/07/01/governments-flagship-programme-digital-india-
completes-six-years-pm-modi-to-virtually-interact-with-beneficiaries-2/
 https://www.pymnts.com/opinion/2022/indias-innovation-in-payments-tech-how-far-
it-has-come-and-what-can-we-expect
 RBI Annual report, May 27 2022
 KPMG Report, Fintech in India-Powering mobile payments
 International Journal of Creative Research thoughts, Volume 9 Issue 5, May 2021
 https://www.personalfn.com/dwl/banking/digital-payments-in-india-methods-and-
benefits
 https://khatabook.com/blog/types-of-digital-payment-methods/
 https://byjus.com/commerce/types-of-digital-payments/
 https://www.bankbazaar.com/ifsc/digital-payment.html
 https://business.paytm.com/blog/types-of-digital-payment-methods/
 https://blog.cfte.education/6-types-of-digital-payment-methods/
 , https://www.jmra.in/html-article/17247

 https://www.indiatvnews.com/education/news-ncert-survey-online-education-
students-do-not-have-access-laptop-smartphones-electricity-online-classes-643500