A

PROJECT REPORT

ON

“FUNCTIONAL ANALYSIS OF DIGITAL PAYMENT”

Submitted By

NIXON VELRAJ

FOR THE DEGREE OF

THE BACHELOR OF MANAGEMENT STUDIES

UNIVERSITY OF MUMBAI

UNDER THE GUIDANCE OF

MRS. FLEUR FERNANDES

S.I.E.S. COLLEGE OF COMMERCE AND ECONOMICS

SION (EAST), MUMBAI – 400022

ACADEMIC YEAR 2018-2019

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 DECLARATION

I, Mr Nixon Velraj studying in the Third Year of Bachelor of Management Studies course in the

academic year 2018-19 at S.I.E.S College of Commerce & Economics, Sion (East), hereby

declare that I have completed the project titled “Functional analysis of digital payment” as a

part of the course requirements of Bachelor of Management Studies of University of Mumbai.

I further declare that the information presented in this project is true and original to the best of

my knowledge.

Date:

Place: Mumbai

NIXON VELRAJ

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 CERTIFICATE

I, Mrs. Fleur Fernandes hereby certify that, NIXON VELRAJ studying in the Third Year of

Bachelor of Management Studies course at the S.I.E.S College of Commerce & Economics, Sion

(East), has completed a project on “Functional analysis of digital payment” under my

guidance in the academic year 2018-19.

I further declare that the information presented in this project is true and original to the best of

my knowledge.

Date:

Place: Mumbai

Coordinator’s Signature Miss. Fleur D’souza

Examiner’s Signature & Date PRINCIPAL

(Dr. Nina Roy Choudhury)

College seal

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 ACKNOWLEDGEMENT

I have taken efforts in this project. However, it would not have been possible without the kind
support and help of many individuals. I would like to extend my sincere thanks to all of them.

I am highly indebted to my guide, Miss. Fleur D’souza for her guidance and constant
supervision as well as for providing necessary information regarding the project & also for their
support in completing the project. Motivation, tips and tricks provided by her made the work
easy and interesting.

I would like to express my deep regards and gratitude to our principal, Dr Nina Roy Choudhury
and our coordinator Mrs. Jinal Shah for her support and facilities provided to us for the same.

Nixon Velraj

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Executive Summary

My project aims on studying the consumer behaviour towards Digital Payment. To build
the case for e-payments, this report explores the current inefficiencies in government payments
systems and quantifies the potential financial and strategic benefits of making government
payment flows electronic. The improved efficiency and greater penetration of an digital payment
setup will likely encourage greater participation from poor rural citizens, and bring the central
government closer to its cherished goal of reducing poverty and hunger through its welfare, food,
and housing subsidy schemes.

Advances in technology and new business models have provided them with a powerful
tool-an electronic payment or ‘e-payment’ system known as digital payment. Digital payment
may well ensure that every poor household in India- approximately 80 to 100 million will have
unparalleled access to secure and convenient benefits directly from the government, and without
the interference of intermediaries. A digital payment infrastructure allows greater penetration
into the heart of rural India, where traditional payment systems remain inadequate in terms of
reliability, convenience, and accessibility.

By using digital payment method one can have direct and indirect benefits such as
improved delivery of government services, and reduced corruption, potential increases in
utilization of government services, increase in per capita income of poor households by 15 to
20%. This stage of connectivity is driving digital payments transformation – the migration of
cash payments made over digital channels, either from dematerialized cards held on digital
wallets or in the cloud, or from new digital payments mechanisms.

Consumers rapid adoption of these devices to manage their daily lives- ranging from
reading books, to sending emails, to checking Facebook, to navigating the streets has taken many
organizations by surprise. Whereas, some months ago mobile and digital were components of a
typical strategy, now they are the strategy, and at the heart of business transformation.

In commerce and in banking, payments are at the forefront and center of the digital
migration, reflecting their key role as the source of mass transactions for digital processes and
the mechanism through which consumers interact on a daily basis with their bank with retailers.

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 Table of conduct
Sr.no Particulars Page
No.
Cover page
Declaration
Certificate
Acknowledgment
Executive summary
1 Introduction
2 Literature Review
3 Research and Methodology
4 Consolidated Results
5 Conclusion
6 Bibliography
7 Annexure

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 1. INTRODUCTION

1. 1 INTRODUCTION TO DIGITAL PAYMENT-

Digital payments refer to electronic consumer transactions, which include payments for goods
and services that are made over the internet, mobile payments at point-of-sale (PoS) via smart
phone applications (apps), and peer-to-peer transfers between private users.

Digital payment is a way of payment which is made through digital modes. In digital payments,
payer and payee both use digital modes to send and receive money. It is also called electronic
payment. No hard cash is involved in the digital payments. All the transactions in digital
payments are completed online. It is an instant and convenient way to make payments.

If we talk about cash payments, you have to first withdraw cash from your account. Then you use
this cash to pay at shops. Shopkeeper goes to the bank to deposit the cash which he got from you.
This process is time-consuming for you and also for the shopkeeper. But in digital payments, the
money transfers from your account to the shopkeeper’s account immediately. This process is
automatic and neither you nor the shopkeeper is required to visit the bank.

Digital payment methods are often easy to make, more convenient and provide customers the
flexibility to make payments from anywhere and at anytime. These are a good alternative to
traditional methods of payment and speeden up transaction cycles. Post demonetization, people
slowly started embracing digital payments and even small time merchants and shop owners
started accepting payments through the digital mode.

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ADVANTAGES OF ONLINE PAYMENTS

In the Age of High Technology cash strives to endure the competition with electronic money,
because more and more people prefer to have virtual wallets. It is clear, electronic payment
systems have a range of pros in comparison to traditional banking services:

1. Time savings

Money transfer between virtual accounts usually takes a few minutes, while a wire transfer or a
postal one may take several days. Also, you will not waste your time waiting in lines at a bank or
post office.

2. Expenses control

Even if someone is eager to bring his disbursements under control, it is necessary to be patient
enough to write down all the petty expenses, which often takes a large part of the total amount of
disbursements. The virtual account contains the history of all transactions indicating the store
and the amount you spent. And you can check it anytime you want. This advantage of electronic
payment system is pretty important in this case.

3. Reduced risk of loss and theft

You cannot forget your virtual wallet somewhere and it cannot be taken away by robbers.
Although in cyberspace there are many scammers, in one of the previous articles we described in
detail how to make your e-currency account secure.

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4. Low commissions

If you pay for internet service provider or a mobile account replenishment through the UPT
(unattended payment terminal), you will encounter high fees. As for the electronic payment
system: a fee of this kind of operations consists of 1% of the total amount, and this is a
considerable advantage.

5. User-friendly

Usually every service is designed to reach the widest possible audience, so it has the intuitively
understandable user interface. In addition, there is always the opportunity to submit a question to
a support team, which often works 24/7. Anyway you can always get an answer using the forums
on the subject.

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DISADVANTAGES OF ONLINE PAYMENTS

1. Restrictions

Each payment system has its limits regarding the maximum amount in the account, the number
of transactions per day and the amount of output.

2. The risk of being hacked

If you follow the security rules the threat is minimal, it can be compared to the risk of something
like a robbery. The worse situation when the system of processing company has been broken,
because it leads to the leak of personal data on cards and its owners. Even if the electronic
payment system does not launch plastic cards, it can be involved in scandals regarding the
Identity theft.

3. The problem of transferring money between different payment systems

Usually the majority of electronic payment systems do not cooperate with each other. In this
case, you have to use the services of e-currency exchange, and it can be time-consuming if you
still do not have a trusted service for this purpose. Our article on how to choose the best e-
currency exchanger greatly facilitates the search process.

4. The lack of anonymity. The information about all the transactions, including the amount,
time and recipient are stored in the database of the payment system. And it

means the intelligence agency has an access to this information. You should decide whether it's
bad or good.

In general, the advantages of electronic payment system outweigh its disadvantages and they
have bigger opportunities comparing with ones of traditional wire transfers.

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1.2 INTRODUCTION TO INDIAN DIGITAL PAYMENT SECTOR

Payment and settlement systems in India are covered by the Payment and Settlement Systems
Act, 2007 (PSS Act), legislated in December 2007 and regulated by the Reserve Bank of
India and the Board for Regulation and Supervision of Payment and Settlement Systems,

India has multiple payments and settlement systems, both gross and net settlement systems. For
gross settlement India has a Real Time Gross Settlement (RTGS) system called by the same
name and net settlement systems include Electronic Clearing Services (ECS Credit), Electronic
Clearing Services (ECS Debit), credit cards, debit cards, the National Electronic Fund
Transfer (NEFT) system and Immediate Payment Service. The Reserve Bank of India is doing its
best to encourage alternative methods of payments which will bring security and efficiency to the
payments system and make the whole process easier for banks.

In the case of India, the RBI has played a pivotal role in facilitating e-payments by making it
compulsory for banks to route high value transactions through Real Time Gross
Settlement (RTGS) and also by introducing NEFT (National Electronic Funds Transfer) and
NECS (National Electronic Clearing Services). Behavioral patterns of Indian customers are also
likely to be influenced by their internet accessibility and usage, which currently is about 32
million PC users, 68% of whom have access to the net. However these statistical indications are
far from the reality where customers still prefer to pay "in line" rather than online, with 63%
payments still being made in cash. E-payments have to be continuously promoted showing
consumers the various routes through which they can make these payments like ATM’s, the
internet, mobile phones and drop boxes.

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Due to the efforts of the RBI and the (BPSS) now over 75% of all transaction volume are in the
electronic mode, including both large-value and retail payments. Out of this 75%, 98% come
from the RTGS (large-value payments) whereas a meager 2% come from retail payments.

In line with government reforms, Prime Minister Narendra Modi has pushed Indians to adopt
cashless transactions, giving the digital payments sector a significant boost. The Digital India
programme is a flagship programme of the Government of India with a vision to transform India
into a digitally empowered society and knowledge economy. “Faceless, Paperless, Cashless” is
one of professed role of Digital India.

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The sector is experiencing an unprecedented jump in growth since November last year, when the
government demonetized high currency bills (Rs 500 and 1000) – which represented 86 percent
of India’s cash in circulation. By February this year, digital wallet companies had shown a
growth of 271 percent for a total value of US$2.8 billion (Rs 191 crore).

Prior to the sudden developments in 2016 enabling the massive disruption in India’s payments
landscape, a Google-BCG Report estimated that India’s digital payments industry would grow to
US$500 billion by 2020, contributing to 15 percent of the country’s GDP. An important driver of
this growth is India’s vast smart phone user base – the second largest in the world.

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DIGITAL PAYMENT DIVISION

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

Hon’ble Finance Minister, in his budget speech announced several activities for the promotion of
digital payments including setting a target of 2,500 crore digital payment transactions in FY
2017-18, through Unified Payments Interface (UPI), Unstructured Supplementary Service Data
(USSD), Aadhaar Pay, Immediate Payment Service (IMPS) and Debit Cards.

Ministry of Electronics & Information Technology (MeitY) has been entrusted with the
responsibility of leading this initiative on “Promotion of Digital Transactions including Digital
Payments”. MeitY is working on various strategies, ideation with multiple stakeholders
including Banks, Central Ministries/Departments and States, to create an ecosystem to enable
digital payments across the country.

MeitY is working on strengthening of Digital Payment infrastructure and creating awareness

through promotions of digital payments with all the stakeholders to achieve Government’s vision
of making citizens of this country digitally empowered. Citizens have been provided multiple
options to make digital transactions.

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MAJOR NEW DIGITAL PAYMENT MODES IN INDIA

Online or mobile wallets

• Online wallets are used via the internet and through smart phone applications.

• Money can be stored on the app via recharge by debit or credit cards or net banking.

• Consumer wallet limit is US$ 311 (Rs 20,000) per month or US$1,554 (Rs 100,000) per
month after KYC. The merchant wallet limit is US$777 (Rs 50,000) per month after self-
declaration and US$1,554 (Rs 100,000) after KYC verification.

• Facilitates P2P fund transfers.

Prepaid credit cards

• Pre-loaded to individual’s bank account. It is similar to a gift card; customers can make
purchases using funds available on the card – and not on borrowed credit from the bank.

• Can be recharged like a mobile phone recharge, up to a prescribed limit.

Debit/RuPay cards

• These are linked to an individual’s bank account.

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 • Can be used at shops, ATMs, online wallets, micro-ATMs, and for e-commerce
purchases.

• Debit cards have overtaken credit cards in India. In December 2015, there were more than
630 million debit cards as compared to 22.75 million credit cards.

AEPS

• The Aadhaar Enabled Payment System uses the 12-digit unique Aadhaar identification
number to allow bank-to-bank transactions at PoS

• AEPS services include balance enquiry, cash withdrawal, cash deposit, and Aadhaar to
Aadhaar fund transfers.

USSD

• Stands for Unstructured Supplementary Service Data based mobile banking.

• Linked to merchant’s bank account and used via mobile phone on GSM network for
payments up to US$77.68 (Rs 5,000) per day per customer.

UPI

• The United Payments Interface (UPI) envisages being a system that powers multiple bank
accounts onto a single mobile application platform (of any participating bank).

• Merges multiple banking features, ensures seamless fund routing, and merchant
payments.

• Facilitates P2P fund transfers.

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1.3 ECONOMIC ANALYSIS

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Entry of global players into India's digital payment space is expected to grow the segment by
about five-fold to USD 1 trillion by 2023, investment banking firm Credit Suisse said in a report.

Digital payments (in India) currently aggregate less than USD 200 billion, of which mobile is
still at just USD 10 billion in financial year (FY) 2018 E (estimated) . We estimate that the total
digital payment market in India will grow to USD 1 trillion by FY23E led by the growth in
mobile payments.

It said that in just four months of launching its payments app, Google is already processing the
same number of digital transactions as Axis Bank (4th highest among banks in India) and has
resulted in unified payment interface (UPI) transactions increasing about eight times.

The digital payments will further explode when the most popular application in India,
WhatsApp, integrates a payments button, the report said. Share of cash transactions in India are
estimated to account for 70 per cent of total transactions in value terms and 90 per cent in
volume.

Payment integration in to popular apps in India will drive the digital payment market in India to
USD 1 trillion over the next five years. Digital payments in India are soaring on the back of the
entry of global tech giants that are acting as aggregators for retail transactions.

The report by research analysts Ashish Gupta, Sunil Tirumalai, Kush Shah, Anurag Mantry and
Viral Shah cited trend of digital payments in China as example.
Digital payments in China leapfrogged to over USD 5 trillion in the past four years on the back
of rising mobile and data penetration.

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Data usage for 300 million Indian smart phone users has jumped to 5-10 GB per month from
1GB in the last year. The surge in digital payments in China was triggered by its integration into
e-commerce and social platforms, which now have a 95 per cent market share the report said.

It said that unlike China, mobile payments in India are being built on public infrastructure like
UPI and Aadhaar that allow open-architecture and an inter-operable payment system to evolve.

With 800 million bank accounts now linked to mobile, existing bank accounts should be mobile-
transaction ready. We believe that the top four banks (SBI, HDFC Bank, ICICI, Axis) are better
placed as the aggregators are expected to look to tie up with these franchises, given they account
for about 50-70 per cent of non-cash transactions. The Credit Suisse report said that there is also
no loss of customers for the banks even as they transact on the platforms of these aggregators,
and the banks would gain access to customer data.

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CHALLENGES FACED BY THE DIGITAL PAYMENTS SECTOR IN
INDIA

RBI Governor Raghuram Rajan has said that PBs will “revolutionize” in India, without posing a
competitive threat to existing banks. And the decision to grant licenses to one in four applicants
represents a pretty unusual degree of latitude from the central bank. Further, the RBI has stated
that the entities that didn’t receive approval this time (along with many others) could be accepted
in future licensing rounds, as it intends to grant more licenses "virtually on tap." So the
government clearly views PBs as a powerful weapon in its financial inclusion arsenal.

But the impact of these banks is not guaranteed, and they will face the same hurdles as any
financial services provider that aims to serve the country’s low-income, rural communities. If it
were simple to serve these customers, India’s previous Business Correspondent efforts – not to
mention its experience with private services like M-PESA, which captures almost every payment
in countries like Kenya and Tanzania – would have met with more resounding success. Let’s
take a look at 10 challenges PBs will face – and how they can live up to the government’s
ambitious goals.

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FINDING THE RIGHT LEADERSHIP

The Payments Bank concept is perhaps the first of its kind anywhere in the world – a hybrid of
banking and distribution with a running thread of technology. Thus far, business leaders from the
fast-moving consumer goods and technology sectors have led teams in the payments space in
India. But with payments now married to banking – a granular business of managing distribution
points prudentially – it will be critical to have the right set of skills steering PBs’ efforts. Without
the right mix of people, they may become a juggernaut hurtling towards failure.

DESIGNING THE RIGHT PRODUCTS

Remittances generate profits – indeed, India’s Business Correspondent initiative survived largely
because banks outsourced remittance services to them. But because of these competing services,
PBs will need to explore a “remittance plus” model, creating a differentiation between
themselves and existing Business Correspondents. This essentially means investing heavily in
customer-centric product design, thus capturing face-to-face and remote transactions by offering
innovative products delivered via mobile phone.

MOVING BEYOND CASH IN/CASH OUT

How well a PB is positioned with its network of cash-in/out points or low-cost and tech-heavy
branches will undoubtedly determine its initial footprint in the hinterlands. But cash-in/out alone
will not be enough, as these banks’ sustainability and scale will ultimately depend on customers’
adoption of digital cash for making transactions. Just cash-in/out services and no (or negligible)
transactions would result in inactive digital accounts, whereas PBs’ whole value proposition is
based on developing a revenue model around actual payment transactions. Critical drivers,

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therefore, lie in PBs’ ability to leverage the e-commerce ecosystem in India, which is slated to
cross the USD $16 billion mark by the end of 2015.

PULLING CUSTOMERS OUT OF ‘CASH IN KING’ MENTALITY

The challenge of moving toward e-payments isn’t limited to infrastructure: For PBs to
succeed, cash-obsessed Indians will need to migrate to digital alternatives, which will require
behavioral changes above and beyond technological hurdles. Though a few e-wallet players and
online marketplace providers like Paytm, Foodpanda, Shopclues, etc., have been experimenting
in this space in recent years – albeit mainly in urban centers’ – for PBs, the task will be
herculean. Ultimately, they will need a concerted ecosystem effort and additional policy support
to spur the growth of interlinkages and missing markets.

SHIFTING INTERACTIONS TO ATMS AND MOBILE

According to the World Bank, just 39 percent of all account holders in India own a debit or ATM
card, and as mentioned, mobile banking has struggled to take off – especially in rural areas. Yet
compared to branch banking, ATM and especially mobile banking are far less expensive per
transaction, not to mention more convenient for customers. PBs have a great potential to change
the patterns of interactions between customers and banks by making banking transactions via
ATMs and mobile phones self-assisted, seamless, convenient and foolproof over the payments-
based architecture in India.

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ENABLING PAYMENTS ECOSYSTEM PARTNERSHIPS

Effective partnerships will be crucial for running a digital payments system – particularly at
cash-in/out points and merchant/retail points. Facilitating these relationships is often the role of
special intermediary services providers like Pep Intermediacy in Kenya and Uganda, which
manages float and distribution points for major supermarkets and players like Airtel, M-PESA
and KCB Mattani Bank, and Kopo-Kopo, which helps to manage the merchant ecosystem in
Kenya. India will need to put similar service providers in place to make PBs’ partnerships
successful.

AVOIDING THE GOVERNMENT BUSINESS TRAP

Government business, in the form of government to person (G2P) payments, may seem like low-
hanging fruit to many PBs. But they should resist the temptation to make G2P services a core
part of their business case, or else they’ll run the risk of encountering the same sustainability
challenges that Business Correspondents have faced in the past in India. With government
commissions for G2P services subject to frequent and unpredictable decreases, depending on
government business could bring the sustainability of PBs into question.

WORKING WITH REGULATORS

PBs will have to comply with RBI regulations and prudential banking norms, maintaining
prescribed bank ratios like statutory liquidity, cash reserve and capital adequacy, and following
rules involving financial fraud, Anti Money Laundering & Combating Financial Terrorism
(AML-CFT), etc. And the need to comply with these regulations is one of the factors that many
analysts blame for mobile money’s struggles in India, which has required mobile money players
like Vodafone and Airtel to work through partner banks to offer payment services. With the
important role PBs play in the government’s financial inclusion drive, and the degree to which
the RBI is clearly invested in their success, hopefully it will ensure that these requirements won’t
deccelerate PBs’ momentum.

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EMBRACING THE RISK AND INNOVATION

PBs’ success in India will largely depend upon how well they are able to break the traditional
banking mentality and innovate. For instance, India’s banks – particularly those in the public
sector – have often heavily invested in government securities and bonds, as these instruments are
perceived to be safer than credit-market investments. But with Prime Minister Modi calling upon
Indian bankers to take a more proactive approach to banking, it’s clear that PBs must avoid this
lazy and risk-averse mindset and embrace new thinking and innovation. Even though they may
not have the option, right now, of offering credit products, PBs should embrace a forward-
looking mindset in exploring payments innovations – and even eventually offering credit
services directly or in partnerships.

LOCATING PATIENT CAPITAL

Even though they are allowed to raise deposits, this may not be sufficient for PBs to fund their
expansion. And with cutthroat competition, acquiring customers will be a substantial challenge –
as will maximizing revenue per customer. So the PB industry will need deep-pocketed, risk-
taking investors – and they must be in it for the long term. The mere fact that the RBI issued so
many initial licenses clearly indicates that not all are expected to stay alive. So investors must be
willing to remain patient, at least for three years (or until they attain a net worth of USD $80
million), at which point PBs will be allowed to have an IPO and get listed on the Indian Stock
Exchange.

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SECURITY ISSUES IN DIGITAL PAYMENT

Concerns around the security of transactions and identity theft still prevent thousands from
moving over to the digital payment platforms. Some 66% of the respondents in our survey said
that security concerns remain their biggest worry. A cultural and mindset change is required to
bring people on board and make them feel comfortable with digital payments.Experts insist
digital payments platforms are fully secure provided the necessary precautions are taken by the
user. Cash can get stolen and you will have to bear the loss.

However, if there is a fraud related to your debit/credit card then you have a recourse. As per
regulatory guidelines, the banks will investigate the case when you report a fraud and you will
get compensated in case it's not because of lapses on your part. Most popular e-wallet platforms
also comply with the latest security specifications and have added further layers of security, say
experts.

However, the existing machinery for protection of consumers requires a huge revamp before
consumers become comfortable with digital payments. As more and more digital transactions
move into the yet unregulated fintech space, proper fraud prevention, including device
fingerprinting and consumer protection mechanisms, needs to be put in place. There is a definite
need to improve the quality of the safeguards.

However, service providers are taking steps for added protection. Freecharge, for instance,
recently launched an e-wallet protection plan (at no added cost) for all its users, where the
underlying wallet balance of all the customers will be insured up to a limit of Rs 20,000, as long
as the user is transacting at least once a month. Other e-wallet platforms are also expected to
follow suit.

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ROLE OF THE RBI IN ENCOURAGING E-PAYMENTS

As the apex financial and regulatory institution in the country it is compulsory for the RBI to
ensure that the payments system in the country is as technologically advanced as possible and in
view of this aim, the RBI has taken several initiatives to strengthen the e-payments system in
India and encourage people to adopt it.

The interface has been developed by National Payments Corporation of India (NPCI), the
umbrella organization for all retail payments in the country. The UPI seeks to make money
transfers easy, quick and hassle free.

 The Payment and Settlement Systems Act, 2007 was a major step in this direction. It
enables the RBI to "regulate, supervise and lay down policies involving payment and
settlement space in India." Apart from some basic instructions to banks as to the personal
and confidential nature of customer payments, supervising the timely payment and
settlement of all transactions, the RBI has actively encouraged all banks and consumers
to embrace e-payments.
 In pursuit of the above-mentioned goal the RBI has granted NBFC’s (Non-Banking
Financial Companies) the permission to issue co branded credit cards forming
partnerships with commercial banks.
 The Kisan Credit Card Scheme was launched by NABARD in order to meet the credit
needs of farmers, so that they can be free of paper money hassles and use only plastic
money.
 A domestic card scheme known as RuPay has recently been started by the National
Payments Corporation of India (NPCI),promoted by RBI and Indian Banks Association
(IBA), inspired by Unionpay in China, which will be promoting the use of cards ie.
"Plastic money". Initially functioning as an NPO, RuPay will focus on potential
customers from rural and semi-urban areas of India. RuPay will have a much wider
coverage than Visa, MasterCard or American Express cards which have always been used
for card-based settlements.

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  The NREGA (National Rural Employment Guarantee Scheme) introduced by the
Government will ensure rural employment in turn ensuring that the employees get wages.
Each employee will have a smart card functioning as his personal identification card,
driver’s license, credit card which will also function as an electronic pass book, thus
familiarizing the rural populations with e-payments.[2]
 However, the Indian banking system suffers from some defects due to certain socio-
cultural factors which hampers the spread of the e-payments culture even though there
are many effective electronic payment channels and systems in place. Despite the
infrastructure being there nearly 63% of all payments are still made in cash. A relatively
small percentage of the population pays their bills electronically and most of that
population is from urban India-the metropolitans.

Ministry of Electronics & Information Technology (MeitY) has been entrusted with the
responsibility of leading this initiative on “Promotion of Digital Transactions including Digital
Payments”. MeitY is working on various strategies, ideation with multiple stakeholders
including Banks, Central Ministries/Departments and States, to create an ecosystem to enable
digital payments across the country.

MeitY is working on strengthening of Digital Payment infrastructure and creating awareness

through promotions of digital payments with all the stakeholders to achieve Government’s vision
of making citizens of this country digitally empowered. Citizens have been provided multiple
options to make digital transactions. A dedicated ‘Digidhan Mission’ has been setup in MeitY
for building strategies and approaches in collaboration with all stakeholders to promote digital
payments and create awareness.
Meity has taken several initiatives to promote digital payments and achieve the targets in a
mission mode. Few of them are outlined below.

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(a) Digital payment transactions target have been assigned to Central Ministries with high citizen
touch points, Public Sector and Private Sector Banks to achieve the target as announced in the
Budget speech for FY 2017-18.

(b) Training and workshops on digital payments awareness with several Ministries have been
conducted and planned ; MoRTH, MoHFW, Ministry of Agriculture, MSME, Department of
Post, Ministry of Power, Panchayti Raj, Ministry of Defense
(c) Promotional materials on publicity of digital payments including IEC materials is being
shared with stakeholders to create awareness and sensitization

(d) Digital Payment dash board has been created to track and monitor the progress of digital
transactions achieved by Banks

(e) Promotion and awareness approach framework on digital payments has been shared with
Banks

(f) BHIM cash back schemes for merchants

(g) BHIM Aadhaar merchant incentive schemes

(h) BHIM referral bonus schemes for Individuals

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1.4 OBJECTIVES OF THE STUDY

 To get an overall overview of digital payment system in India especially in rural areas
 To study the consumer perception of digital payment modes.
 To study about the changes in payment methods from cash to online banking post
demonetization.
 To study the impact of demonetization on digital payment companies.
 Make sense of the trends in payments and how they are shaping the digital payments
landscape.
 Understand key features to make a digital payment proposition successful.
 Identify the key action to set a digital payments strategy and build capabilities to bring
digital payments propositions to market.

1.5 SCOPE OF THE STUDY

The project on digital payment sector is carried out to gain in-depth knowledge of the digital
payments modes and methods prevailing in India. This project will give us an insight on how the
traditional payment method of cash is gradually transforming into online payment methods
through e-wallets and net banking. It will help us to study about the impact of demonetization on
digital payment companies. Also it will help us to know the status of digital payment in rural
India. Through this project, we can understand the digital payment platforms currently prevailing
in India and their position in the market, which will further help to choose the better payment
option. Also we can learn the drawbacks and the challenges faced by the Indian digital payment
sector.

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 2. LITERATURE REVIEW

• 'Demonetization and its impact on adoption of digital payment: opportunities, issues and
challenges’ written by Dr. Dhani. Shanker Chaubey and Mr. Piyush Kumar and
published in the year June-17

This paper intended to know the importance of digital payment after Demonetization as
perceived by the people of India, to assess the people trust and confidence in digital
payment system after Demonetization, to assess the uses pattern and nature of transaction
done by the people after Demonetization and to identify the factors of digital payment
after Demonetization.

From this paper, the authors concluded that the digital payment had given relief and force
to learn digital transaction after demonetization. People adopted technology slowly, but
don’t wanted to pay extra for digital transaction. However, people of India faces money
problems during demonetization they suffer with no cash. In addition, for this medium
like paytm helps them.

• ‘Impact of demonetisation on cashless transaction’ written by Ananya Mitra, Sonali Rath

and Jayant Kumar Nayak and published in the year July-17

The paper aimed to study the usage of various mode of electronic payment, to study the
effect of demonetization on cashless transaction in India and to suggest measures to
successfully promote cashless India.

30
 The findings of the study were that the decline in digital transactions in two successive
months goes against the government’s objective of a “less cash” economy. During the
scarcity of funds people preferred to use debit and credit cards at point of sale terminals
and mobile banking but these are also the two to be disposed of quickly. RTGS and Paper
Vouchers usage fell drastically after demonetization when compared against pre
demonetization period. The value of digital transactions in January and February taken
together dropped below that of combined figure of September and October, before
demonetization was announced. To counter the negative effect and encourage digital
transactions, many private banks in the month of March, reintroduced charges on
transactions of cash deposits and withdrawals beyond the stipulated number of free
transactions. The step yielded positive result.

• 'Demonetization: impact on cashless payemnt system ' written by Mr. Manpreet Kaur,
Assistant Professor: SGTB Khalsa College, Anandpur Sahib and published in the year
January-17

The paper intended to study Role of Demonetization and to Examine Status

of Electronic Payment System.

The study concludes that the cashless transaction system is reaching its growth day by
day , as soon as the market become globalised and the growth of banking sector more and
more the people moves from cash to cashless system. The cashless system is not only
requirement but also a need of today society. All the online market basically depends on
cashless transaction system. The cashless transition is not only safer than the cash
transaction but is less time consuming and not a trouble of carrying and trouble of wear
and tear like paper money. It also helps in record of the all the transaction done. So, it is
without doubt said that future transaction system is cashless transaction system.

31
• ‘Study of consumer' perception of digital payment mode', written by Mr. Shamsher Singh
and Mr. Ravish Rana and published in the year December 2017

The objective of the study was to find out the customer perception and impact of
demographic factors on adoption of digital mode of payment. This study has made an
attempt to understand customer perception regarding digital payment.

It was found that demographic factor except education does not have much impact on the
adoption of the digital payment. Anova computation supported this finding as there was
no signification difference is perceived by the respondents on the basis of gender age,
profession and annual income. It was only education level of the respondents where
signification difference is perceived by the respondents. It indicates that adoption of
digital payment is influenced by the education level of the customer. If a person has
studied beyond matriculation and internet savvy, he or she will be inclined to use the
digital payment mode. It was also found that in the areas/region where education level is
high such as Delhi NCR and other metropolitan area, the possibility of acceptance of
digital payment is much higher. The growth of users of Smartphone and internet
penetration in such area also facilitated the adoption of digital payment.
 ‘Digital payments for rural india - challenges and opportunities', written by Shakir Ali,
Wasim Akhtar, and S. K. Safiuddin and published in the year June,2017

The paper aims to study the challenges and opportunities of digital payments in rural
India.

The findings of the study were to reduce the digital divide and increasing the awareness
in the rural public, to ease the complexities and enable end-of-day settlement process for
the merchants (As small retailers and merchants need rotation of cashflow in quick
turnaround time for their business operations), to reduce the transaction charges over the

32
 digital payments and discourage cash transactions. ICT infrastructure plays a vital role in
successful adaptation of digital payments and hence there is intrinsic need to improve and
offer requisite infrastructure for digital payments.
 'Black swan effect of demonetisation on digital mode of payment in india ' written by
Professor Manisha Rajdhyaksha and Satyendra Jaiswal and published in the year April
2017
The main purpose of this qualitative study is to study and position the concept of black
swan event like demonetization on the Indian digital mode of payment sector. This study
showed how a black swan event like the recent demonetization has far-reaching
repercussions and implications for an emerging sunrise sector like the Digital Payment.

The Indian Digital Payment sector has shown agility and dynamism in their
innovativeness and adaptability to survive and thrive in this black swan event. Moreover,
the Indian Digital payment sector adopted novel approaches on multiple parameters like
business processes, product and or service development, reaching hitherto untouched
markets, creating market niches, technological excellence, and creating world-class
services in this payment arena. The proactive approach of Government of India to
instigate this demonetization and create enabling environment through positive policies
will jump-start this sector exponentially and boost their competitiveness. With India
ready to take its place in world order as an economic superpower, Digital Payment sector
will bring in new business models with disruptive technologies. And black swan event of
demonetization can unexpectedly become a catalyst for the growth and sustainability of
this sector.

 A study on demonetization and its impact on cashless transactions, written by Mr. K. C.

Balaji and published in the year March 2017.

33
 The Objectives of the Study were-

 To study the history of demonetization across the world and in

India.
 To study the impact of demonetization on cash less transactions.

It was concluded that the growth of the cashless transaction system is reaching new
heights. People tend to move to cashless transactions. It is right to say that the cashless
system is not only a requirement but also a need for the society. But on the other hand,
the risk of cyber-crime is very much higher as almost all the cashless transactions are
done over internet. So proper and complete awareness must be made to the people to
keep their debit and credit cards safe and to use the internet banking and the digital wallet
in a most secure way. In order to punish the cyber criminals, the properly structured
cyber police force with high end forensic labs and technology must be created.
 'Impact and importance of cashless transaction in india', written by Ms.Pranjali A.
Shendge, Mr. Bhushan G. Shelar and Asst.Prof. Smitaraja S. Kapase and published in the
year April 2017.

The aim behind this Research was

· To know what a Cashless Transaction means.
· Impact and importance of Cashless Transaction System.
· Analyze the future trend of Cashless Transaction.

It was concluded that the benefits of this move have now started trickling in with more
and more people switching to digital modes of receiving and making payment. India is
gradually transitioning from a cash-centric to cashless economy. Digital transactions are
traceable, therefore easily taxable, leaving no room for the circulation of black money.
The whole country is undergoing the process of modernization in money transactions,

34
 with e-payment services gaining unprecedented momentum. A large number of
businesses, even street vendors, are now accepting electronic payments, prompting the
people to learn to transact the cashless way at a faster pace than ever before.
 'Opportunities and challenges of e- payment system in india', written by Mr. Sujith T S,
Julie C D and published in the year 2017.

The Objectives of the study were:

· To know the different modes of e-payment.
· To know the opportunities and challenges of e- payment system in India.
· To identify the future of digital payment system in India.

It was concluded that Electronic payment refers to the mode of payment which does not
include physical cash or cheques. It includes debit card, credit card, smart card, ewallet
etc. E-commerce has its main link in its development on –line in the use of payment
methods, some of which we have analyzed in this work .The risk to the online payments
are theft of payments data, personal data and fraudulent rejection on the part of
customers. Therefore, and until the use of electronic signatures is wide spread, we must
use the technology available for the moment to guarantee a reasonable minimum level of
security on the network.
 'Emerging digital economy – a cashless perceptive in india', written by Mr. Parikshit
Agarwal and published in the year 2017.
It aims to study the initiative taken by the government towards Digital Economy in India,
challenges that will affect the implementation of Digital Economy and the Impact of
Digital Economy on India’s GDP.

It was concluded that the Government initiative to promote digital economy has provided
the use of latest digital infrastructure for quick delivery of financial service thereby
reducing time span for consumption of goods and services which ultimately adds towards

35
GDP of the country. The mainstream of Indian economy lies in rural areas, where 70%
population is largely depended on agriculture. If they are digitally connected their socio-
economic conditions will improve through development of non-agricultural economic
activities which will be possible only by providing them digital infrastructure and
financial literacy. The government move towards digital economy is a dynamic move
which require working all factors simultaneously like literacy, infrastructure, overall
business environment, regulatory framework, etc

36
 3. RESEARCH METHODOLOGY

3.1 RESEARCH PROBLEM

To understand and learn about the different digital payment platforms currently prevailing in
India and their position in the market. To study about the status of digital payment in rural India.
To study about the impact of demonetization on digital payment companies. To learn the
drawbacks and the challenges faced by the Indian digital payment sector.

3.1.1 SAMPLE SIZE:

Sample size determination is the act of choosing the number of observations or replicates to
include in a statistical sample. The sample size is an important feature of any empirical study in
which the goal is to make inferences about a population from a sample. In this project five digital
payment companies have been considered for the study. And hence the sample size is one.

3.1.2 QUANTITATIVE RESEARCH DESIGN

Quantitative Research Design is a formal, objective, systematic process for obtaining

quantifiable information about the world, presented in numerical form, and analyzed through the
use of statistics. Quantitative research is concerned with numbers, statistics, and the relationships
between events/numbers.

37
3.1.3 DATA COLLECTION: Data collection is the process of gathering and measuring
information on variable of interest, in an established systematic way that enables one to answer
stated research questions, test hypotheses, and evaluate outcomes. The following data collection
methods have been used in this project

1. Primary data

2. Secondary data

Primary data: The data collected through various methods like surveys, observations, physical
testing, mailed questionnaires, questionnaire filled and sent by enumerators, personal interviews,
telephonic interviews, focus groups, case studies, etc.

Secondary data: Secondary data implies second-hand information which is already collected and
recorded by any person other than the user for a purpose, not relating to the current research
problem. It is the readily available form of data collected from various sources like censuses,
government publications, and internal records of the organization, reports, books, journal
articles, and websites and so on.

For this project, primary data as well as secondary data has been collected from the following
sources in order to study the current trends, opportunities, challenges in the Digital payment
sector -

1. Questionnaires

2. Published research reports, charts, research papers, journal and articles.

38
3.2 ANALYSIS OF DATA

The central government’s decision to demonetize Rs500 and Rs1000 notes has given a
major push to e-wallets and the recently launched unified payment interface (UPI), an
interoperable system launched by the Reserve Bank of India (RBI) and the National
Payments Corporation of India (NPCI), which will allow peer-to-peer and peer-to-entity
payments. E-wallets like Paytm, Freecharge have been quick to capitalize on this and
have been aggressively advertising to promote the usage of digital wallets as a way of
moving towards a cashless economy.

Ola sent out notifications to its passengers saying – ‘Recharge Ola Money now and you
don’t have to worry about carrying any notes, whether 500 or 1000. Ride cashless’.

Mobikwik also is providing cash pick up facility to its customers for some days. A person
can click on ‘cash pick up’ on the Mobikwik app, a representative of the wallet will come
to them to exchange Rs500 and Rs1000 notes and will directly load it in their e-wallet.
This means, one doesn’t have to go to bank or automated teller machines (ATM’S) at
all.

39
Big Bazaar kept all its stores open on Tuesday up to 11:50 pm and popular cafe Social
too was accepting Rs500 and Rs1000 notes until midnight. The fact that the trend has
always been low value-high volume transactions in the online space is likely to change
in future.

For the study of this project, analysis has been made on the following five companies/e-
wallets-

1. PAYTM

Paytm is an Indian e-payment and e-commerce brand based out of Delhi NCR, India.
Launched in August 2010, it is a consumer brand of parent company One97
Communications. The name is an acronym for "Payment through Mobile". The company
employs over 13,000 employees as of January 2017 and has 3 million offline merchants
across India. It also operates the Paytm payment gateway and the Paytm Wallet. In a
short span of time, it has scaled to over 250 Mn registered users. One of the biggest
beneficiaries of demonetization has been Paytm as people have moved to cashless
payments owing to cash crunch.

40
Within 12 days, Paytm has witnessed over 7 million transactions worth Rs 120 crore a
day. The mobile wallet is now four months ahead of its target and crossed $5
billion GMV sales. Now wherever we go, whether it’s small shops or a big store, we see
a Scanning code on wall with “Paytm logo” which says PAYTM KARO. Gross
Merchandise Value (GMV), which is an industry term for estimating the total worth of
goods sold through a digital platform, for Paytm was $3 billion last year.

Paytm is registering over 7 million transactions worth Rs 120 crore in a day as millions
of consumers and merchants across the country try mobile payments on the Paytm
payment platform for the first time. Offline transactions now contribute to over 65 per
cent of the overall business from 15 per cent about six months ago. They are also
working on expanding our merchant network by 150,000 additional merchants.

Mobile payment transaction value in India is also likely to register over 150 per cent
CAGR and cross Rs 2,000 trillion by FY 2021-22 from just over Rs 8 trillion as of FY
2015-16. Taglines like “Ab ATM nahi, Paytm karo” “cash is so yesterday” are doing the
rounds.

41
2. MOBIKWIK

MobiKwik is an Indian company founded in 2009 that provides a mobile phone

based payment system and digital wallet. Customers add money to an online wallet that
can be used for payments. In 2013 the Reserve Bank of India authorized the company's
use of the MobiKwik wallet, and in May 2016 the company began providing small loans
to consumers as part of its service. In November 2016, the company reported having
1.5 million merchants using its service and a user base of 55 million customers.

In April 2015, MobiKwik was used by 15 million users and claimed to be adding one
million new customers every month. In a partnership with Cash Care, MobiKwik began
providing small loans between 500–2,500 Indian rupees to customers in May 2016.In

November 2016,

42
MobiKwik had over 1.5 million merchants using its service and 55 million users.

Mobile wallet company MobiKwik witnessed an over 40 percent increase in app downloads in

less than 18 hours of the demonetization of the Rs 500 and Rs 1000 notes. Following the 2016

Indian banknote demonetization in November 2016, MobiKwik realized a 400% increase in

financial transactions using the service by late December, 2016.

Additionally, user traffic and merchant queries went up by 200 per cent among its over
35 million users. This has prompted the mobile wallet company to revise its business
targets to now achieving a gross merchandise value of $ 10 billion by 2017. As part of
the demonetization offering, MobiKwik has introduced a new feature where e-commerce
players can ask for payment via “MobiKwik on delivery” since cash on delivery has
become a non-option for many.

3. UPI & BHIM

43
Unified Payments Interface (UPI) is an instant real-time payment system developed
by National Payments Corporation of India facilitating inter-bank transactions. The
interface is regulated by the Reserve Bank of India and works by instantly transferring
funds between two bank accounts on a mobile platform.

Pre-demonetisation
It remained a slow-starter. According to NPCI, the number of UPI transactions touched
1.22 lakh in September 2016.Some banks launched their own UPI apps, too. Though
many banks have made a mention about UPI in their annual reports, only a few have
given numbers on UPI (see info graphics).

Post-demonetization

Then came demonetization, and the number of UPI-based transactions shot up. The
launch of the UPI-based BHIM (Bharat Interface for Money) app on December 30, 2016,
by NPCI gave a further thrust to the payment platform.

RBI data put the volume of UPI transactions at three lakh, 20 lakh and 42 lakh during
November, December and January, respectively.

UPI usage seems to have gained further traction with the number of transactions
crossing the one-crore mark in the last two months. UPI is currently being offered by 52
banks.

Recently, NPCI stated that the number of BHIM app downloads had crossed 1.6 crore.
BHIM had an active customer base of 40 lakh as of June-end.

With the UPI completing a year in operation in about a fortnight, it is to be seen how the
common user and merchant establishments, including private and government
agencies, take it forward.

44
4. PHONEPE

PhonePe is a Fin-Tech company headquartered in Bangalore, India. Founded in

December 2015, it provides online payment system based on Unified Payments
Interface (UPI), which is a new process in electronic funds transfer launched by National
Payments Corporation of India (NPCI).

It is licensed by the Reserve Bank of India for issuance and operation of a Semi Closed
Prepaid Payment system with Authorization Number: 75/2014 dated 22 August 201

PhonePe is one of the best applications for the shopping. Offers like, refer and earn
program, 100% cash back on first UPI transaction, on fifth UPI transaction 50%, for first
bill payment 100% cash back in the wallet. There are so many other offers as well.
Everyone should have this application, as it is friendly and it is having so many good
features that we all expect in current time like one of the best is Split Bills. Lastly, we
can keep track in the mailbox as well as in the application for our expenses with full
detailed information.

45
The service which was acquired by Flipkart in April 2016 has also extended its offline
merchant network, especially in the last nine months, riding on the ‘cashless economy’
wave sweeping the nation. At present, over 25,000 offline merchants accept PhonePe
payments. While peer-to-peer payments and bill recharges generate maximum volumes
on PhonePe, the service also intends to get into the selling of financial products, and
wealth management in the near future. PhonePe rival Paytm ventured into the NBFC
space with Paytm Payments Bank earlier this year.

5. FREECHARGE

FreeCharge is an e-commerce website headquartered in Gurgaon. It

provides online facility to recharge any prepaid mobile phone, postpaid
mobile, DTH & Data Cards in India. On 8 April 2015, Snapdeal acquired Freecharge in
what is being referred to as the second biggest takeover in the Indian e-commerce
sector so far, after the buyout of Ibibo by rival MakeMyTrip, and the biggest Venture
Capital exit in India to date. According to The Economic Times, the deal is expected to
be anything around US$400 to US$450 million. On 27 July 2017 Axis Bank acquired
FreeCharge for $60 million.

Within the first 24 hours of the announcement of demonetization, the wallet loads of
Snapdeal-owned mobile transactions platform Freecharge grew 12 times and has been
increasing by the same average since then.

46
Within the first 24 hours, wallet loads grew by 12x versus the 30 days average before.
The number of people downloading the Freecharge app, registrations for mobile wallet,
transactions on third party merchants -- are all growing by 10-15 times on a per day
average basis. Demonetisation has given a boost to the cashless society and people
are finally seeing the value of commerce, logistics and payments being integrated.
Freecharge is also going to offer digital utility payments on your doorstep soon.

Apart from above, below are the names of some more digital payments companies/e-
wallets-

1. Airtel money

2. Citrus Pay

3. HDFC PayZapp

4. ICICI pockets

5. JioMoney

6. Ola Money

7. Citi Master Pass

47
3.2.1 DIGITAL PAYMENTS IN RURAL INDIA

In both urban and rural areas, online financial transactions, e-commerce activities as
well as digital payments still lag considerably, despite demonetization and the drive to
promote digital payments over the last one year.

Rural India lags behind urban areas in not just Internet penetration but also in Internet
access for online financial transactions due to lack of electricity and poor network
quality, a study by Internet and Mobile Association of India (IAMAI) and market research
firm Kantar IMRB said.

In both urban and rural areas, online financial transactions, e-commerce activities as
well as digital payments still lag considerably, despite demonetization and the drive to
promote digital payments over the last one year, the report said, adding that the
situation was worse in rural areas.

Only 16% of rural users access the Internet for financial transactions, while in urban
areas 44% users access the Internet for this purpose, according to the report.

A lot of these payments are peer to peer, and therefore there is a multiplier effect. So
this has picked up in urban areas but the required critical mass has not been built in
rural areas. Moreover, rural users are not continuously online in real time but switch off
the Internet for long periods.

Lack of electricity to charge devices, poor network quality and affordability of Internet
service packs are the reasons for such behavior and unless this trend is reversed,
usage purposes will remain skewed and off take of digital payments will remain

48
restricted, the report said. “Connectivity, and more importantly quality, of connectivity is
a question mark in rural areas.

As of December 2017, India had 481 million Internet users, an increase of 11.34% from
a year earlier. Of this, urban India has 295 million Internet users and rural 186 million.
While rural India saw Internet usage grow at 14.11% year-on-year, compared to urban
India which grew at 9.66%, this was mainly due to a low base effect as the total number
of Internet users in rural India is still critically low, the report points out. It expects the
Internet user base in the country to grow to 500 million by June 2018.

As far as frequency of Internet usage is concerned, 182.9 million urban users access
the Internet every day, as against 98 million users in rural areas. This usage pattern is
closely related to connectivity, quality of service and affordability.

Among the urban population, online communication is the top activity with 86% of users
accessing the Internet for this purpose, followed by entertainment (85%) and social
networking (70%). In rural India, however, entertainment stood out as the most popular
Internet activity for 58% of the population surveyed, followed by online communication
(56%) and social networking (49%).

CSC e-Governance Services India Ltd is a special purpose vehicle set up by the
ministry of electronics & IT to oversee implementation of the CSC scheme and ensure
delivery of essential public utility services, social welfare schemes, and healthcare to
citizens through these centers.

Infrastructure needs to be made a lot better and services need to be more affordable to
achieve the desired growth in Internet usage in rural areas. For the purpose of the
study, Kantar IMRB collected data from 60,000 individuals from different demographic
segments across 170 cities and from 15,000 individuals across 750 villages.

49
CONSUMER PERCERPTION TOWARDS DIGITAL PAYMENTS IN RURAL AREAS

The survey carried out by me on consumer perception towards digital payment received
85 respondents. While answering to the question on digital payment in rural areas,
many of them gave similar reasons for the failure of digital payments in rural areas.
Some of the reasons put forth by the respondents are as mentioned below-

 Absence of proper infrastructure and illiteracy

 Poor network connectivity in rural areas

 Lack of awareness about digital payments in rural areas

 Security is the major concern of these people

 Adoptability and convenience issues

 Sudden changes take time to be implemented completely

50
3.2.2 CONSUMER PERCEPTION TOWARDS DIGITAL PAYMENT
MODES

I had carried out an online survey on ‘Consumer Perception towards Digital payment
Modes’ through Google questionnaire forms, which received 87 respondents. Here is
the list of the questions asked in the questionnaire

1. Name
2. Age
3. Gender
4. Occupation
5. Which mode of payment do you frequently use?
6. If online banking, then why?
7. How often do you use digital payment modes to make online payment of bills
and purchases?
8. For which of the transactions mentioned below, do you prefer to use digital
payment modes.
9. How will you rate the convenience in the use of digital payment modes?
10. How much do you think are digital payment modes secured?
11. Do you think security is a major concern as some people are still using
traditional methods?
12. Has your usage of digital payment modes increased post-demonetization?
13. Do you think demonetization has helped in the promotion & acceptance of
digital payment modes?
14. Digital payment modes are still not preferred much in rural areas. Please
comment on this.
15. Comment on 'India taking a step on the road to cashless economy'.

51
All the above question were answered by the 87 respondents, results of the same are
discussed below-

As seen from the above graph, the most of the population makes use of cash.
Debit/credit card, online banking combinable. Only a 10% of the population makes use
of online payment.

52
If you prefer online banking, then please state the reason.

Majority of the people use online banking to save their time, followed by faster transfer
of funds. Avoid standing in the queue is also one of the reasons. Half of the population
is attracted towards the discounts offered by the digital payment companies. Very use
the same for recording their transactions.

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Only 27 % of the population always uses digital payment modes, and it mostly younger
age group between 15 to 30 years, followed by 44% who uses it frequently. 24 % of the
population uses it only when they are in a hurry or fall short of money.

54
As we can see most frequently it is used for recharge, fund transfer and online
shopping. Comparatively lesser people use it for payment of electricity and other bills.

55
As we can see that 83% of the population feel s that digital payment modes are secured
but there are still 4% who feel that they are still not at all secured.

56
Thus we can say that demonetization has impact of digital payment modes as 67%
population claims that their use of digital payment modes has increased post
demonetization.

57
Digital payment has surely been benefited by demonetization as claimed by 85 % of the
population.

58
When asked to comment on ‘India taking a step ahead on the road of cashless
economy, many similas responds were received which are as follows-

 Cashless economy is not possible in India due to the dominance of traditional

methods
 Completely not using cash will also not be possible as the same is required while
making payments to small vendors
 Many feel that India should review its infrastructure policies and adopt strong and
secured network connections
 Some of them give it a definite support and claim that it will be a great start for
transparent economy.
 Some of them like the concept of cashless society and claim that 20 years down
the line, India can become a cashless economy

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3.2.3 CHANGES IN PAYMENT METHODS FROM CASH TO ONLINE
BANKING POST DEMONETIZATION.

The adoption rate of online platforms was high during the demonetization period, but it
plateaued out as soon as cash became available in the system.

When the Modi government banned high denomination notes of Rs 500 and Rs 1,000
notes on November 8 last year, removing an overwhelming amount of cash from the
economy, people had to willy-nilly fall back on plastic or online transactions. The fact
that 86 per cent of the cash available in the system was sucked out. But once cash was
back in circulation, those who earlier dealt mostly in cash went back to doing so.

The PCI was formed under the aegis of Internet and Mobile Association of India in 2013
to cater to the needs of the digital payment industry. During November, December 2016
and January 2017, online transactions were at their peak. In October 2016, debit card
transactions stood at Rs 21,941 crore and those of credit cards at Rs 29,942 crore.
Post-demonetization, in December 2016, debit card transactions jumped to Rs 58,000
crore and those of credit card were at Rs 31,150 crore.

However, in August 2017, 10 months after the note ban, debit and credit card
transaction stood at Rs 36,000 crore each, having come down substantially from the
heights they achieved, but not falling back to the pre-demonetization lows.

60
After the cash flow in the system eased, small kirana shops stopped transacting through
online payment channels, because they did not want to take a tax number or a Goods
and Services Tax number. They do not have the wherewithal to pay taxes and the
government needs to incentivize merchants, otherwise small and medium enterprises
are going to go back to cash mode.

Security and trust in payment systems was something all stakeholders need to work on
together. Online transactions are bound to grow over a period of time, but in a country
which overwhelmingly ran on cash; it may be difficult to do a quick digitization.

61
3.2.4 IMPACT OF DEMONETIZATION ON DIGITAL PAYMENT
COMPANIES.

Over the past twelve months, demonetization has attracted mixed reviews, depending
on the analyst’s lens. While a few businesses may have been impacted in the short to
medium term, digital payments companies stand out as one of the most significant
beneficiaries of the move. Post demonetization, there has been a marked reduction in
the resistance towards digital payments, and this medium should continue to see
sustained adoption going forward.

One of the talking points of the digital payments story has been the phenomenal growth
witnessed by new age instruments such as Unified Payments Interface (UPI), prepaid
payment instruments (PPIs), Aadhaar Enabled Payment System (AEPS), along with
well-established ones such as National Electronic Fund Transfer (NEFT), Real Time
Gross Settlement (RTGS) and cards.

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Digital payment companies have seen a substantial jump in their business as a result of
the government’s measures towards promoting cashless transactions post
demonetization last year. These firms are likely to further consolidate their business with
more incentives for digital transactions.

63
In the year after demonetization, digital transactions have grown considerably. Indeed,
disruptions in the digital space have not only revolutionized the way we manage our
finances, they have also made contactless and cashless transactions the preferred
choice of many among us. And, with digital wallets, quick response (QR) codes, near
field communication (NFC) technology, sound wave systems, virtual cards, unified
payment interface (UPI) and Aadhaar Pay offering top-notch secure payments options,
the smart phone has become the most sought after all-in-one device.

Official statistics indicate an 80% increase in the value of digital transactions in 2017-18,
with the total amount expected to touch Rs 1,800 crore in the wake of the impetus
provided by demonetization.

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The value of digital transactions till October this year, at Rs 1,000 crore, was nearly
equal to that for the whole of 2016-17. It was a continuation of a trend, with June, July
and August registering Rs 136-138 crore transactions on an average, according to the
ministry of information technology.

Interestingly, the volume of digital transactions rose in March and April (Rs 156 crore in
both months) when the effects of demonetization in terms of lack of cash had begun to
wear off. Thereafter, the monthly average of Rs 136-138 crore indicates a steady
pattern even as the value is rising.

The report, shared with the finance standing committee of Parliament, shows significant
increases in average daily transactions across all platforms, such as UPI-BHIM, IMPS,
M-wallet and debit cards, since November last year, when PM Modi announced
demonetization.

There has been progress in establishing the 'Jan Dhan-Aadhaar-Mobile trinity', with 118
crore mobiles, a similar number of Aadhaar numbers and 31 crore Jan Dhan accounts.

65
66
Since November 2016, there has been a 221% increase in volume of transactions and
118% increase in value of transactions in the non-tax receipt portal," the government
said. In close proximation to Aadhaar architect Nandan Nilekani's recent statement that
the government had saved around $9 billion by eliminating frauds in benefit payments,
the government said direct benefit transfer had resulted in savings of Rs 57,029 crore
up to 2016-17.

There has been a big increase in e-toll payments from Rs 88 crore in January 2016 to
Rs 275 crore in August 2017 but the number of tags remains low at 6 lakh till September
2017. There has been a strong growth in volume and value of BHIM-UPI transactions.
The value rose from Rs 101 crore in November 2016 to Rs 7,057 crore in October 2017.

Mobikwik had 3-3.5 crore users in the pre-demonetisation days and a year after note ban it has

6.5 crore. The company also witnessed a sharp rise in transactions from one million to three

million within a year.

Digital transactions have grown. But the key thing is that a lot of stepping stones for future

adoption have been laid down -- like the BHIM (Bharat Interface for Money) app by the

government. Demonetisation was the shock that forced people to move to online channels.

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FACTORS THAT HAVE DRIVEN THE RISE IN DIGITAL PAYMENTS
OVER THE LAST 12 MONTHS:

1. Embedding of offline space in the business growth strategy

Offline space has evolved into the most recent battlefield for payment service
providers. Acquiring banks have deployed almost 29 lakh POS terminals across the
country, up by almost 95% from last year. 3 This space has also attracted the attention
of UPI and PPI players, and many of them have developed innovative solutions to
assist large merchant outlets, micro-merchants, cash on delivery payment facilitators of
ecommerce firms, etc., in accepting payments seamlessly over mobile phones.
Customers facing issues with cash availability post the note ban began to experiment
with these digital payment modes.

2. Building of ecosystem around digital payments

Quite a few players rolled out multiple solutions allied with digital payments, which
further helped in their adoption. A notable few were:

 Integration of enterprise resource planning (ERP) of corporates with the UPI solution for

real-time management information system (MIS) updates

 Disbursement of instant loans based on the footprint generated by digital payments

3. Boost to interoperability

One of the most significant changes in the payments landscape is the push towards
interoperability, with instruments such as UPI allowing transfers between 55 banks,
independent of the acquirer payment service provider mobile app.The increasing

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adoption of the Bharat Bill Payment System (BBPS), Bharat QR and interoperability
guidelines for PPI players will lend a further push to seamless, secure and
interoperable payments.

4. Promotional efforts by players

Several payment processing firms and FinTech companies leveraged demonetisation

to penetrate the market. In an effort to expand their market share, quite a few of them
offered loyalty points, instant cashbacks and referral rewards to users. While some
may have doubts about the long-term sustainability of such offers, the promotional
efforts definitely provided an impetus to users considering a switch to digital payments.

The way forward

The growth streak of digital payments is likely to continue in the future. The next push
to the adoption of digital payments could come from relatively slow adopters such as
the rural economy and the small and medium-sized enterprises (SME) sector.
Government incentives such as discounts on digital GST payments and set-up of
accelerator programmes will provide an added boost. A few specific use cases may
emerge in the space of business to business (B2B) payments, Electronic Clearance
Service (ECS) mandates, equated monthly instalments (EMIs), person to government
payments (P2G) in smart cities, etc. These are likely to have a positive impact on
transaction volume size going forward.

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 4. CONSOLIDATED RESULTS

An upshot of demonetization was that the digital modes of payments picked up sharply.
After demonetization, there has been a significant emphasis on digital modes of
payment. The Government of India and the Reserve Bank have initiated a series of
measures, some of which are temporary, to promote movement from cash to non-cash
modes of transactions. They include,

(i) Reduction in the merchant discount rate (MDR) and point of sale (POS) fees;

(ii) Monetary incentives in the form of discounts and prizes;

(iii) Service tax relief on MDR for small transactions;

(iv) Waiver of charges for small value transactions under Immediate Payment Service
(IMPS), Unified Payment Interface (UPI) and Unstructured Supplementary Service Data
(USSD) based *99# platform;

(v) Broadening Prepaid Payment Instrument (PPI) reach by enhancement of limits;

(vi) Introduction of a new category of ppis;

(vii) Permitting banks to issue ppis to a larger set of entities; and

(viii) Permitting National Payments Corporation of India (NPCI) to launch

(a) the common app for UPI; and

(b) National Electronic Toll Collection (NETC) system.

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The government also announced that it would ensure that transactions fee/MDR
charges associated with payment through digital means shall not be passed on to
consumers. These measures are encouraging migration of consumers from cash to
digital modes of payments.

After the announcement of demonetisation, digital activity levels were low in the initial
weeks as people were busy depositing/exchanging SBNs. However, in December 2016,
digital payment activity increased alongside progressive remonetisation. The usage
statistics show that the y-o-y growth for major modes of electronic payments was good
in October 2016, mainly on account of festive season.

The continuance of that high growth with a further pick up in some components from
November to January 2017 was a positive fallout of demonetisation. However, the pace
of growth moderated somewhat in February 2017.

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 GROWTH IN SELECT ELECTRONIC MODES OF PAYMENTS

(y-o-y growth in per cent)

Oct- Nov- Dec- Jan- Feb-

Category
2016 2016 2016 2017 2017

Volume 16.2 23.3 39.0 38.0 34.5

NEFT
Value 37.6 38.3 40.8 60.2 49.5

Volume -1.1 23.0 58.4 52.7 20.2

CTS
Value 2.9 8.6 13.0 19.3 0.8

Volume 116.7 89.6 157.2 177.7 150.4

IMPS
Value 150.7 135.9 186.6 196.7 184.2

Volume 53.0 30.8 58.3 19.8 -0.9

NACH
Value 89.8 76.3 116.7 22.8 54.2

Source: RBI Bulletins and Press Releases on Electronic Payment Systems -

Representative Data

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The recent pick-up in digital payment activity is better reflected in the sequential growth
in the months following demonetisation. The pattern of digital transactions in February
2017 over November 2016 shows that the growth rates surged in both value and
volume terms compared with the corresponding period of last year for most electronic
modes of payment, even as there was some decline in the use of digital payments after
December 2016.

RECENT GROWTH IN DIGITAL MODES OF PAYMENTS

(Volume in million, Value in ₹ billion) Change (%)

Feb-17 Feb-16
CATEGORY
Nov-16 Dec-16 Jan-17 Feb-17 over over

Nov-16 Nov-15

Volume 123 166 164 148 20.4 10.4

Value 8808 11538 11355 10878 23.5 14.3

NEFT
Average ticket size
71583 69376 69159 73397 2.5 3.5
(₹ )

Volume 87 130 118 100 15.3 18.0

Value 5419 6812 6618 5994 10.6 19.2

CTS
Average ticket size
62236 52395 55873 59677 -4.1 1.1
(₹ )

Volume 36 53 62 60 65.2 25.1

IMPS
Value 325 432 491 482 48.5 23.2

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 Average ticket size
8982 8183 7870 8071 -10.1 -1.4
(₹ )

Volume 0.3 2.0 4.2 4.2 1346.1 -

Value 0.9 7.0 16.6 19.0 2001.2 -

UPI
Average ticket size
3150 3565 3995 4577 45.3 -
(₹ )

-
Volume 0.007 0.102 0.314 0.225 3091.9

Value 0.007 0.104 0.382 0.357 4789.4 -

USSD
Average ticket size
1037 1015 1215 1589 53.2 -
(₹ )

Volume 206 311 266 212 3.3 3.9

Debit and
Value 352 522 481 391 11.1 -5.6
Credit Cards at

POS & Average ticket size

1714 1679 1812 1844 7.5 -9.2
(₹ )

Volume 59 88 87 78 32.8 4.3

Value 13 21 21 19 41.9 15.2

PPI #
Average ticket size
224 242 241 239 6.8 10.4
(₹ )

74
While it is important that efforts be made for increasing acceptance of digital payments,
it is equally vital to ensure that the digital payments are safe and secure. It has been the
constant endeavour of the Reserve Bank to enhance security features of currency notes
to maintain confidence in India’s paper currency. Similarly, there is a need to constantly
review and ramp up security features of digital payments to maintain and enhance trust
of its users, especially, given the low levels of literacy in India. In this context, the
Report of the Committee on Digital Payments (Chairman: Shri Ratan Watal) submitted
in December 2016 has also underlined, inter alia, the need for enhancing the resilience
of the Indian payments and settlement systems; and strengthening the consumer
protection framework in digital payments.

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 5. CONCLUSION

Digital payment is extremely useful for the people who belong to the class where cash is
considered the most suitable medium. If this technology grows to the point that every
store accepts exchange of money through wallets, then it would remove the need to
carry cash or cards. The three most popular digital Wallets available in Indian market
are MobiKwik, Paytm and PayU.

Besides private actors like Paytm, Mobikwik, and FreeCharge, the Indian government
has been aggressively pushing several digital payment applications, including
the Aadhaar Payment app, the UPI app, and the Bharat Interface for Money (BHIM)
app developed by the National Payments Corporation of India (NPCI).

The new apps aim to ease the transfer of funds across India, especially in rural
communities, and more importantly, seek to facilitate a behavioral change towards the
greater adoption of cashless services. As such, the digital payments industry is fast
becoming a highly attractive destination for foreign investors keen to establish a
foothold in India.

Multiple factors and parallel institutional and behavioral trends seem to be powering
India’s transition towards a less-cash economy. The rapid penetration of smartphones
and spread of internet connectivity on mobiles, digital payment services provided
by non-banking institutions and the rise of the fintech sector, consumer expectations of
one-touch payments, and progress in regulatory governance and tax breaks, have
altogether shaped India’s payments landscape in favor of digital solutions.

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The Indian banking sector has been growing successfully, innovating and trying to adopt
and implement electronic payments to enhance the banking system. Though the Indian
payment systems have always been dominated by paper-based transactions, e-
payments are not far behind. Ever since the introduction of e-payments in India, the
banking sector has witnessed growth like never before.

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 6. Bibliography

https://paytm.com/

https://www.mobikwik.com/

https://razorpay.com

https://www.wikipedia.org/

www.freecharge.com

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 Annexure

1. Which mode of payment do you frequently use?

a. Cash
b. Debit/Credit Card
c. Online Bank
d. Paytm
e. e-Vault
f. Wallet payment
g. UPI App

2. If you prefer online banking, then press state the reason

a. Saves Time
b. Avoid standing
c. Fast transfer
d. Discounts/offers
e. Record Transaction

3. How often do you use digital payment modes to make online payment of bills and
purchases?
a. Rarely
b. Frequently
c. Always
d. Only when I fall short of cash
e. Only when I am in a hurry

4. For which of the transactions mentioned below, do you prefer to use digital payment
modes.
a. Recharge
b. Fund transfer
c. Online shopping
d. Payment of electricity
e. Payment of others

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 5. How much do you think are digital payment modes secured?
a. Higly Secured
b. Secured
c. Not at all secured

6. Has your usage of digital payment modes increased post-demonetisation?

a. Yes
b. No

7. Do you think demonetization has helped in the promotion and acceptance of digital
modes?

a. Yes

b. no

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