Chapter-1

Introduction

People of India have always been comfortable with the usage of traditional methods for
payment i.e. through cash, cheques etc. But the 21 st century can be considered as an era
of digital revolution in which there has been a great penetration of the technology in
each and every part of our lives and payments are not an exception to it. Digital
payment systems have been set up throughout the world, with some countries having
fully developed systems and others constantly improving themselves (Kim et al. 2010).

There has been a dramatic change in the past few years in the payment industry
because of the tremendous usage of mobile phones and internet in India. Country is
watching an intentional move to a cashless economy concentrating on least utilization
of paper money and more trust on electronic transactions. India is basically utilizing a
blend of both digital payment system and traditional payment system i.e. cash, cheques,
cards, digital wallets, etc.

Money plays out various roles in the economic activity; it is known as a unit of account,
a medium for exchange, a store of value or a means of delayed payment. Throughout
the hundreds of years, it has grown to reduce the transaction costs involved in
mediating the exchange.

People have used different payment options in the past for the purchase of a number of
items. At the beginning barter was used for the trade. But the problems in the barter
system such as the issue of divisibility resulted in the beginning of various forms of
money (Achor & Robert, 2013).

1.1 Definition of Digital payment system

The Payment and Settlement Act, 2007 has defined Digital Payments as any transfer of
money or funds which is made by any individual through instruction, approval or order

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to a bank for debiting or crediting an account kept with that bank with using electronic
ways and includes Debit and credit card payments; Automated Teller Machine (ATM)
transactions, Point Of Sale (POS) transfers or micro ATMs, direct deposits or withdrawal
of money, Mobile Payments, Net Banking etc.

Shree DV et al. 2015, defined Digital Payment System as an electronic device which lets
an individual in making electronic commerce transactions and purchasing products
online. It also aids digital wallets which are linked to the person’s bank account and can
be used to store payment data thereby eliminating the requirement of re-entering the
information again and again whenever the m-payment needs to be made.

It is basically an electronic consumer transaction which is made at the point of sale

either through net banking or mobile payments for goods or services, or through using
smartphones or the card payments (Singh & Rana, 2017).

Electronic payment is the process of payments without the usage of paper instruments
(Junadi & Sfenrianto, 2015). It is the Technical and legal infrastructure with the help of
which value is transferred between two sides of the transaction (Mohagheghnia et al.
2014). It represents any type of non-cash payment in which there is no involvement of
paper cheques (Hord, 2005). It is basically the process by which transfer of an electronic
value of payment takes place from a payer to payee. It facilitates consumers in remotely
accessing and managing their bank accounts as well as transactions which are executed
through an electronic network (Lim et al., 2006; Sumanjeet, 2009). It is such a crucial
aspect of electronic commerce. Hence it can be considered as its backbone. (Bezhovski,
2016).

It can be said that in digital payments system, consumers pay using instruments other
than cash such as Debit/Credit cards, Digital wallets, Net banking, and Mobile payment
Applications etc.

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1.2 Growth of Digital payments

India is experiencing a rapid growth in digital payments and because of the internet
growth and mobile penetration, the coming years will experience a massive rush in the
adoption of digital payments. The announcement of demonetization of high currency
notes on 08 November 2016 for curbing the black money out of the economy and for
fighting against corruption had also significantly impacted the adoption of digital
payments as an alternative to cash in India. Other incentives also proved to be efficient
in this run such as development of BHIM (Bharat Interface for Money) app, one touch
payments, and facilitation by non-banking financial institution or a persuasion by
government either by means of providing inducements or tax breaks (Singh & Rana,
2017, Chattopadhyay et al., 2018). Digital payments in India are projected to be
determined by four trends which are also expected to impact how the digital payment is
likely to look in the future. Four drivers include India going digital, constructive
regulatory framework, increase of next generation service providers and lastly the
improved customer experience (Sumathy & KP, 2017).

From November 2016, India has experienced various events such as demonetization,
low cost Internet by a number of telecom service providers, discounts and cash backs by
various digital payment service providers and related government regulations (Pal et al.
2018).

Over the past five years, India has demonstrated a sheer movement in digital payments.
RBI report titled ‘Assessment of the progress of digitization from cash to electronic’ has
stated that “Within the digital payments, retail electronic payments involving credit
transfers such as NEFT, IMPS and UPI and direct debits such as ECS, NACH have
demonstrated a rapid growth at a Compound Annual Growth Rate (CAGR) of 65% in
terms of volume and 42% in terms of value. Whereas the stored value cash issued in the

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form of wallets and prepaid cards demonstrated an increased adoption with a CAGR of
96% in terms of volume and 78% in terms of value.”

Source: RBI data

Figure 1.1: Digital Payment trends in India

1.3 Why Digital Payments?

There are various reasons for which people are using digital payments rather than cash.
Few are explained below:

Convenient and Flexible: Because of digital modes, now people do not require to carry
cash with them every time they go out of their house to purchase anything or wait in
long queues outside the ATMs for getting cash. Moreover they do to have to be
physically present which means by using digital payments one can pay from anywhere at
any point of time. They need not worry about the cash outs at bank holidays.

Cost Saving: Digital payment modes are proven to be cost savers not only for banks but
also for customers.

Lower Risk: Digital payment modes are more secured and have lower risk as compared
to transactional payment modes because these are processed with secured payment

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gateways which are difficult to tamper with. Also in the cases of theft, a digital payment
instrument can be blocked immediately.

Easily Traceable: Transactions’ information and details are stored in the database. Users
can easily access that payment information which avoids any type of confusion. Also
because of this, consumers can observe their spending and try not to spend more than
the required.

Discounts and Cash Backs: Going digital can help the customers to avail cash backs and
various discounts on the buying of their products and services. However these are
capped to an amount beyond a certain limit.

1.4 Different Modes of Digital Payments

There are several methods of digital payments that are emerging.

Digital Payments
Modes

Net Banking
Debit and Credit
(RTGS/NEFT/IMP S) UPI Apps AEPS *99# or USSD Digital Wallets
Cards

Figure 1.2: Various modes of digital payments

A brief description of methods is given below:

1.4.1 Debit & Credit Cards:

They are the plastic cards used to make payments. They are quite popular among all the
income segments in country like India.

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  Debit Card: It is a plastic card that is used for withdrawal of money or to
make payments online. It is issued by banks and is linked to an individual’s
bank account. Since this card is associated with the checking account
(saving/current), it is also popularly known as ‘checking card’. There is no
monthly bill that needs to be paid by the cardholder as he is using his own
money and not borrowing from the bank. Through a debit card, money can
be drawn from ATMs by using the pin. One can also buy goods and services
offline, for this the vendor must have a machine (Point Of Sale or POS) where
the amount is entered and the card is swiped and the cardholder needs to
punch the ATM pin for authorizing the transaction. In the same way, this
card can also be utilized for making online payments directly. One has to
enter the card number and CVV and the transaction is authorized by the OTP
which is sent to the registered mobile number.

Pros and Cons of Debit card:

Pros:
 Approval of Debit cards is easier and faster.
 It is cheaper as only a nominal fee needs to be paid; moreover no interest is paid
as the cardholder is using his own money.
 There is no debt involved, the probability of entering in a debt trap is nil.
Cons:
 One cannot pay more than the amount that he actually has.
 There is very little protection when it comes to debit card frauds.
 It does not lead to building of credit history.

 Credit Card: Credit card is also a plastic card or payment card and looks
similar to debit card and is issued by banks and other financial institutions for

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 making payments of goods and services. This card lets the cardholder borrow
funds. He needs to pay the money back with the interest on that amount as
per the terms and conditions of the banks. Credit card is issued on the basis
of line of credit. Card holder can spend more than what he actually has. This
card can be utilized for domestic as well as international payments.

Pros and Cons of Credit card:

Pros:
 The cardholder does not need to think before spending. He can spend more
than what he actually has.
 It helps in building the credit score.
 Credit cards usually give various rewards.
Cons:

 Approval of a credit card is tougher.

 The credit card is costlier as the cardholder needs to pay multiple charges
including joining fee, annual fee and others.
 Cardholders are always tempted to spend more. This can lead to greater
debts.
Table 1.1 Comparison between Debit Card and Credit Card
Basis Debit Card Credit Card
Issuing Body Issued by banks to the Issued by Banks and
account holders Financial institutions on
the basis of line of credit
Source of funds The saving account or Fund is borrowed from
current account of the the lending institution
individual that individual needs to
pay each month

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 Spending limit One can spend the amount One can spend more than
available in his bank what he actually has
account
Interest No interest is charged as Cardholder requires
no borrowing is being done paying the interest on the
amount of funds
borrowed.
Credit score It does not have any effect Payments have an effect
on one’s credit score on the credit score
Fee and charges The cardholder just The cardholder needs to
requires to pay nominal pay multiple charges
annual fee and PIN including joining fee,
regeneration charges annual fee and others

1.4.2 Net Banking (NEFT/RTGS/IMPS):

They are among the most popular, commonly used and fastest money transfer internet
banking services in India by which one person can transfer money between two banks.

 NEFT (National Electronic Fund Transfer)

It is a payment system that enables a person to transfer funds from one bank to
another. This service is maintained by RBI (Reserve Bank of India). There is no
maximum and minimum limit on the amount of money which can be transferred
through NEFT in a single day. However, only ` 50,000 can be transferred per
transaction. Moreover the transfers of funds do not happen on a real time basis
and funds transfer settlement takes place in 23 half-hourly batches. This service
is unavailable on Sundays and on bank holidays and if any transfer is initiated
after the specified hour, the same will be processed on the next working day. It is
a very commonly used service in India as it is a time saving and safe method.

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  RTGS (Real Time Gross Settlement)
It is a payment system in which transfer of funds takes place between two banks
on a real time basis. In India, this service of internet banking is among the fastest
services for transferring money. After receiving fund transfer message, receipts
must be credited within 30 minutes by the receiver bank. This service is also
maintained by RBI. There is no upper limit on the amount which can be
transferred through RTGS, although a minimum of ` 2 Lakhs needs to be
transferred per transaction. This service is more popular among business owners
who need to transfer large amounts of money instantly. It is predominantly
meant for large transactions having larger values which require immediate
clearing. It is more preferable in comparison to NEFT as the transfer of funds
happen on a real time basis. This service is also unavailable on Sundays and on
bank holidays.
 IMPS (Immediate Payment Service)
It is also a real-time payment service which allows an instant 24*7 transfer of
funds electronically. This service is offered by NPCI (National Payment
Corporation of India). This service has the best features of both NEFT and RTGS,
using IMPS one can transfer even smaller amounts, instantly. There is no
minimum limit on the amount of money which anyone can transfer through
NEFT but the maximum limit is ` 2 lakhs. This service is available on 365 days,
even on Sundays or bank holidays.

Table 1.2: Comparison among NEFT, RTGS and IMPS

Basis NEFT RTGS IMPS
Governing body RBI RBI NPCI
Minimum Transfer ` 1 ` 2 Lakh `1
limit

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Maximum No limit No limit ` 2 Lakh
Transfer limit
Settlement type Half hourly batches Real time Real time
Availability Unavailable on Unavailable on Available 365 days,
Sundays and bank Sundays and bank 24*7
holidays holidays

Procedure for NEFT/ RTGS/ IMPS using Mobile Banking:

1. Register the mobile number with the respective banks for mobile banking.
2. Download the official mobile banking application of that bank.
3. Register by entering all the required details such as mobile number.
4. Create MPin for authorizing the transactions
5. Once registration is completed, select the type of operation that need to be
made. Enter amount, beneficiary details and the amount will be transferred.

1.4.3 UPI Apps:

Unified Payment Interface is a versatile framework which powers various bank accounts
into a single mobile application integrating various banking features, seamless fund
routing & merchant payments into a single head. It enables the user to perform various
monetary exchanges on the cell phone. It is a real time payment system developed by
National Payment Corporation of India (NPCI) currently being handled by the Reserve
Bank of India (RBI) and IBA (Indian Bank Association), which means users can send or
receive the money round the clock 24*7 and 365 days. It allows the users to send or
receive money utilizing the Virtual Payment Address (VPA) and users do not need to
enter the bank details such as Card number, IFSC Code, etc. A maximum of ` 1 Lakh can
be sent through UPI.

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As of now there is no charge on this service, this thing makes it quite popular and
advantageous from others. Also from a security viewpoint, this system is very safe
because it is based on two-factor authentication, which implies single click payments are
not worthy. Few Examples of UPI Apps include SBI Pay, PhonePe, BHIM UPI, Axis Bank
UPI App, ICICI Pockets, Paytm, Google Pay, Mobikwik and so forth.

Procedure for sending money through UPI:

For receiving and making payments through UPI, one just needs a bank account and a
smartphone. The following steps are needed to be taken for making payments through
UPI:

1. Download the UPI App of your choice. Link the App with the bank account.
2. A unique Id is generated after the registration is made. This Id is linked to the
individual’s bank account. Also for each bank, a different Id is generated, so that
the user can select the preferential bank from which he needs to pay.
3. After registration, login with the same credentials. Enter the Unique Id of the
person or entity to whom the payment needs to be made and choose send. The
transaction is authenticated once the Pin or Password is entered.
Pros and Cons of UPI:

Pros:

 It is a cheaper way of transferring funds, as there are no charges involved in the

process.
 The payments are made on a real time basis. Money can be sent or received
anytime 24*7 and 365 days even on Sundays or bank holidays.
 There is no need to enter bank details such as card number, account number or
IFCS code every time while making payments. Payments can easily be made just
by VPA.

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  Using a single App, more than one bank account can be managed.
Cons:

 It is prerequisite to have a smartphone as well as internet connection, for UPI

App to work.
 Only a maximum of Rs.1 Lakh can be transferred. So it is not meant for large
transactions.
1.4.4 AEPS (Aadhar Enabled Payment Service):

AEPS (Aadhar Enabled Payment Service) is a system developed by NPCI which allows
people to carry online interoperable financial transactions on a Micro-ATM by providing
just their Aadhar number and verifying the same through their fingerprint. For speeding
up the financial inclusion in the county, this system is developed by NCPI and it has
become one of the best cashless installment strategies especially for sectors who are
not much educated.

People can avail this service at Micro ATMs which are managed by Business
Correspondents. A business correspondent is basically an intermediary who is appointed
by the bank for providing the services where bank branches are not available. The
prerequisite for availing AEPS by anyone is that his Aadhar card should be linked to his
bank account. This enables him to use Aadhar as his identity for accessing his respective
Aadhar enabled bank account and performing basic intrabank or interbank transactions.
Although RBI has not set any limit on the amount of transaction through AEPS, but
various banks have set their own maximum limit on the amount of money transacted
per day.

Services offered:

 Balance enquiry
 Cash deposit

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  Cash withdrawals
 Mini Statement
 Aadhar to Aadhar Fund Transfer
 Best Finger Detection
Procedure for using AEPS:

1. Visit the nearest Micro ATM or bank Correspondents with Aadhar card Number.
2. Provide 12-digit Aadhar number and bank name.
3. Select the type of transaction that needs to be made. Also enter the amount of
the transaction.
4. Transaction is authenticated by scanning fingerprints through biometric.
5. Collect the receipt.
Pros and Cons of AEPS:

Pros:

 This payment system encourages financial inclusion in the country and serves
the under banked sections of society.
 One need not carry his Bank passbook, Debit/Credit card, etc. He just needs to
remember his Aadhar card number and authentication of transaction is done
through biometric.
 It is easy to use and cheap as well because there are no service charges on AEPS.
Cons:

 Aadhar is not a fool-proof method of authentication. Also identification failures

are so common. Constructing a payment system over Aadhar will merely
handover a number of these vulnerabilities.
 An individual cannot directly transfer the funds directly to someone because the
payment system requires a POS, a working internet connection and a biometric
authentication device.

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1.4.5 USSD or *99#

It is a mobile banking service based digital payment mode of NPCI which was initially
launched in November 2012. It was launched to boost the financial inclusion in the
country by making the banking service available to every common man across the entire
nation. It brings together diverse ecosystem partners such as Banks & TSPs (Telecom
Service Providers). This system does not necessitate any smartphone or any active
internet connection and a customer can access the financial services just by dialing *99#
from his mobile number registered with the bank.

Earlier this service had a limited reach as only two service providers were providing this
service but now this service is provided by all GSM service providers. Transactions can
be made round the clock 24*7 and 365 days. The RBI has set a maximum limit of ` 5,000
to be transacted by a person in a day. And it has also set a maximum charge of ` 2.5 per
operation.

Services offered:

 Financial service i.e. transferring of funds

 Non-financial services i.e. Generating M Pin, changing M Pin, Balance enquiry
and generating Mini statement.
Pros and Cons of USSD or *99#:

Pros:

 This payment system encourages financial inclusion in the country and takes the
banking services to every sector of the nation.
 The service is easy to use and works even on a simple phone having no internet
connection. Also the customer doesn’t need to install any application to use this
service.
 Transactions can be made round the clock 24*7 and 365 days.

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Cons:

 There is a fund transfer limit of ` 5,000 per day. So a customer cannot transfer
beyond this limit.
1.4.6 Digital wallets:

Digital wallets or E-wallets or Mobile wallets are basically the digital version of physical
wallets with more functionalities. The user can simply load cash in the wallet through
debit/credit card or net banking and use it for making payments or transferring funds.

Digital wallets require smartphones as well as an active internet connection for use. This
payment system is very useful and popular among frequent online shoppers. It is a safe,
convenient, and popular tool for e shopping. Personal as well as financial information
such as credit cards, passwords and Pins can be stored for facilitating the order process.
Also these wallets give additional cash back offers.

Procedure for using Digital wallets:

 Download the required app. Register using the mail id or phone number.
 Add money to the wallets through debit card, credit card or net banking. Once
money is added, it can be utilized for making payments and transfers.
 For making the payment, select the type of transaction, amount and beneficiary.
And payment is authorized by entering the OTP sent to the registered mobile
number.
Pros and Cons of Digital wallets:

Pros:

 It is convenient and easy to use. Also it can be used for online shopping as well as
offline shopping.

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  Transactions can be made round the clock 24*7 and 365 days on the real time
basis.
 It offers rewards and cash backs.
Cons:

 These digital payment apps are good only if the user wants to send money from
a wallet to another. But if he wants to send money to a bank account, e-wallets
are not feasible.
 They do not ask for Pins or passwords, so anyone can make use of money in the
digital wallets.
 For making the payment, enter the amount and the beneficiary. The transaction
is authenticated by entering the OTP sent to the registered mobile number.
Examples are Paytm, MobiKwik, Bhim app, PayPal, Jio Money, Airtel Money, State Bank
Buddy, freecharge and so forth.

1.5 Need of the study

As discussed, earlier digital payments were growing slowly but last few years have
witnessed that there has been a policy shift/drift towards Digital payments. Awareness
has also increased. But it is observed that people are still skeptical in using digital
payment methods. There is a need to find the reasons for the same.

Given the importance of digital payments in India, there is a need to promote and
motivate consumers to adopt digital payments. People are still reluctant to fully accept
and use digital payments.

The literature still lacks an in-depth study to investigate the factors which impact digital
payment systems in India.

This research tries to explore the various factors that impact the adoption of digital
payment system by consumers.

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1.6 Research Problem

India has seen a tremendous rise in the application of mobile phones and internet in the
last decade. Considerable growth in mobile penetration, internet and government
initiatives are acting as catalysts in the exponential growth in acceptance and usage of
digital payment systems. The effect of demonetization on the growth of digital payment
systems is clearly visible in RTGS and mobile transactions. Also the growth could be
recognized by cards or e wallets but UPI proved to be the most fruitful and impactful
(Kumar, 2018).

Undoubtedly digital payment systems will have a strong contribution in the

improvement of countries’ competitiveness in several ways (Kamulegeya, 2010).
Innovations in the payment industry have also contributed to greater financial inclusion
where digital payment service providers are aiding in facilitating payment transactions
into formal financial transactions even in the absence of banking accounts. The World
Bank has also stated that digital payments are very vital for economic development. In
its report titled ‘The Opportunities of Digitizing Payments’, it stated that rapidly
developing digital platforms can help in providing all the means to increase financial
inclusion in the nation at the desired scale by providing increased speed, transparency,
securities and cost efficiencies (World Bank 2014b).

Digital payments have become a very significant component for any nation. There are
various new instruments which are emerging like UPI, digital wallets, etc. The principle
explanation behind the popularity of digital payments as compared to the traditional
payment methods is its numerous favorable characteristics such as security, reliability,
transparency, etc. (Gaonkar, 2018). Apart from these, digital payments will also lead to
reduction in the costs spent on printing and circulating the paper currency; it will curb
the black money and will also lead to financial inclusion (Madasu, 2015). An effective
and efficient payment system is the backbone of every country. There have always been

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efforts to raise the digital payments in the nation for boosting productivity and
competitiveness.

Developed nations, for instance, US or UK have a completely developed digital payment

system (Kim et al., 2010). And in line with these countries, developing nations, for
example, Malaysia, China, Japan or India provide the growth driving force to the
industry and are trying to shift their preference from cash driven to cashless economy.
(Singhraul & Garwal, 2018; Gaonkar, 2017). The Government of India is constantly trying
to encourage the people to use digital payments by various means such as
Demonetization, introduction of BHIM-UPI, or zero balance accounts.

Digital payments have gradually become a considerable mode for the inflow of
government benefit payments and salaries. On the other hand, cash is still the leading
mode for the outflow because of the underdeveloped nature of the acceptance
ecosystem for digital payments. There is a gap between the “digital credits” the
consumers in India gets and the “digital debits” the consumer needs to make for
increasing the overall digital payments in the country. Furthermore, the unorganized
sector of the economy still continues to be dependent on cash for their credits as well as
debits (RBI Report 2019).

Cashless economy is basically a new concept in emerging economies like India; past
studies have focused more on developed countries. Motivating factors such as GDP
Growth, sound banking infrastructure, technological advancement and also the
perception as well as awareness by the citizens have a great impact on the nation’s
progress towards the cashless economy. The studies on a variety of dimensions of
conversion towards cashless economies with respect to emerging economies are very
limited hence requires further focus. It will be beneficial both for academia and industry
(Madasu 2015; Mukhopadhyay 2016).

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Anyhow, there is a strong need to improve the knowledge of factors that influence the
adoption of digital payment systems by the consumers. Understanding the
determinants and their impact of these critical factors on adoption will be essential for
the countries to migrate to digital payments. As such, in this research, factors impacting
the adoption of digital payment systems have been examined empirically.

1.7 Research objectives

The research has the following objectives:

1. To assess the usage pattern and nature of transactions done by the consumers
for its different uses.
2. To identify the factors impacting intention to adopt Digital Payment System.
3. To validate the factors identified which impacts the intention of consumers to
adopt the Digital Payment System.

1.8 Structure of the Thesis:

The introduction to the research is preceded by the following chapters:

Chapter 2 – Review of Literature:

This chapter featured the past literature related to the digital payment system. The
chapter gave a deep and exhaustive review of both Foreign and Indian studies that dealt
with Digital payments, Mobile payments, Mobile banking etc. The chapter divided the
literature into Foreign and Indian studies to observe the differences between the two
and find out where the Indian studies lack. The review extracted the crucial factors and
six were finalized for the research i.e. Perceived Ease of use, Perceived Usefulness,
Social Influence, Perceived Risk, Perceived Trust and Digital Payment Knowledge. Then
the studies related to these factors were studied accordingly.

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Chapter 3 – Research Methodology:

The chapter looked into the fundamentals and details about the research methodology
used by the researcher. In the last chapter the critical factors were identified, on the
basis of which research hypotheses were formulated and the research framework was
framed. Further, the research methods used and techniques of data collection, sampling
technique and sample size as well as analysis technique were well explained in this
chapter of the dissertation.

Chapter 4 Data Analysis and Interpretation:

This chapter discussed the data analysis and interpretation of the study. Firstly, the EFA
was performed for grouping the items. Then the reliability and validity of all the
constructs was checked. Model indices suggested a good fit as most of the indices were
in the acceptable range including CMIN/DF, GFI, AGFI, RMSEA and others. Hypothesis
testing revealed that four of the six hypotheses were supported. Only Perceived
usefulness and social influence were not supported. Also perceived ease of use turned
out to be most significant.

Chapter 5 – Discussion and Conclusion

This chapter summarized the consolidated findings of the research followed by the
implications for the practitioners. As no research is perfect, despite the contributions
this study has few limitations too. So, study’s limitations were discussed here which
provide the scope for further future studies.

1.9 Summary of the chapter

This chapter lays the foundation of the study. Digital payment system is defined and its
various modes are explained. It then presents the objective of the research study.
Subsequently, it outlines the structure of the dissertation.

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