Digital payment platforms, such as mobile wallets, payments banks, and electronic authentication, are on an upward surge in India. The volume of digital transactions in the country grew from 32% in 2013-2014 to 62% in 2017-2018. IDC Financial Insights estimates that the percentage of transactions at Point of Sale (PoS) will exceed transactions at ATM by 2022 in terms of both volume and value.
The Indian digital payments industry is also expected to reach around $283 billion by that same year in terms of value of transactions, an 80% increase. Implementation of government initiatives, such as the Goods and Services Tax (GST), financial inclusion, better digital infrastructure, and new payment systems such as Aadhaar (a unique 12-digit number issued to Indian residents)-enabled payments are also nurturing the upward trend of digital payments.
Less Cash = More Cashlessness: Demonetization
Another factor behind the rise of digital payments is the Indian Reserve Bank’s recent policy of demonetization, the act of withdrawing old currency notes of certain denomination. On November 8th, 2016, the Indian government announced the withdrawal of all 500 and 1,000 Rupee notes to curtail the use of counterfeit cash in illegal activities and terrorism. A year on, digital transactions have grown considerably.
It naturally follows that, with less cash in circulation, there is more opportunity for cashless solutions to fill the gap created by the cash crunch. “There was a surge right after demonization,” said Praveen Dhabhai, COO of Payworld. “After cash circulation was back in the market, the peak has come down, but the numbers are almost 35% higher than what it was pre-demonetization.” Kiran Vasireddy, COO of Paytm said that his company has “registered a 3.5 times surge in digital payments this year [in 2017] and we will continue adding new online and offline use-cases, enabling more consumers and merchants to experience the power of digital payments.”
Advantages and Incentives of Adopting Digital Payments
The government and companies have been incentivizing digital payments through lower costs. The HDFC Bank has recently waived online transactions through Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT). Also, consumers do not have to pay service tax on card transactions up to 2,000 Rupees. Moreover, the government and wallet companies have been working to make their services more user-friendly with 24/7 support teams to deal with any queries.
Consumers, likewise, are eager to adopt digital payments. A study conducted by Visa and YouGov found that 78% of people surveyed are likely to embrace new forms of payments. One key factor was the ease of transition to digital forms of payment, as stated by 86% of respondents. Those that have already made the transition cited convenience and the efficiency at which digital transactions are conducted as main reasons for transitioning away from cash.
Concerns about Security
Security is a major concern. Around 81% of those surveyed prioritize security over convenience when it comes to making payments online. The study stressed that this concern was near-universal across all genders, ages, household incomes, and education levels. India, according to R Venkatachalam, the managing director of FIS Global’s India and South Asia branch, “has been at the lower end of frauds as volumes were low.” As digital payment volumes surge, he believes that is set to change.
Akhilesh Tuteja, partner and global head of cybersecurity at KPMG says that while the benefits of digital payments are exponential so are the security risks. What makes the concern more pressing is that the cost of orchestrating a theft a customer’s credentials is coming down, with several reports of credentials of customers for sale in the dark web.
Money can be lost as easily in a digital economy as can be gained or transferred. In October 2016, 3.2 million card details were stolen in a malware-related security breach. Most of these cards were used at ATMs. While the heist is still under investigation, it is likely to be forgotten in the rush to adopt digital payments.
Digital payments has taken off in India as is showing little to no sign of slowing down. With the Indian government demonetizing the 500 and 1000 Rupee note and government agencies companies incentivizing adoption by lowering fees and waiving taxes, Indian consumers are embracing cashlessness wholeheartedly. Nevertheless, as demand for digital payments grow, so will concerns for security. It is ultimately up to the companies promoting digital alternatives to cash to provide adequate security for their services, as well as consumers to maintain good security habits.