Digital everything has become the “new normal” over the past two years. The consumer behavior, technology advancements and regulatory policies are collectively pushing the needle for digital adoption across all the industries, with the rise in “virtual” here to stay post the pandemic. This includes remote & hybrid corporate working models, virtual meets & conferences, online platforms for education & upskilling, and definitely – Digital Payments.
With 48 billion digital transactions recorded in 2020-21, Digital Payments are the fastest-growing reality that India is adopting. In terms of volumes, digital payments have grown 5x from ~ $140 mn (in 2016-17) to ~$800 mn (in 2020-21), and the digital payments market in India is expected to increase by 3x from $300 mn (2020-2021) to $1 trillion by 2025-26. As India moves towards a cashless economy and businesses embrace digital innovations, we will today dive into – What are Digital Payments? What are the different modes & channels of Digital Payments? What are the benefits of Digital Payments? How Digital Payments impact Businesses?
What are Digital Payments?
Digital payments are transactions that take place via an electronic medium, with no physical exchange of cash or cheque etc. In a nutshell, this means that the payer uses a digital/electronic medium to transfer funds to the payee, and the payee also uses a similar method to accept these funds.
Digital payments are not only limited to online channels (i.e., internet) but can also happen across offline channels – instore & at your doorstep. For example, if you buy something from Flipkart or Amazon and pay for it via Card, it qualifies as a digital payment (Online Channel). Now, suppose instead of paying online at the time of ordering, you have opted for COD (Cash on Delivery) and chose to pay via UPI to the delivery person at the time of delivery, then that too is a digital payment (Offline Channel – Doorstep). Similarly, if you purchase something from your grocery store and choose to pay via a card or UPI, that also is a digital payment (Offline Channel – instore).
Over the last 5-6 years, Digital Payments have evolved beyond card-based payments with new age payment instruments, with focus on delivering a seamless, frictionless payment experience for customers, irrespective of their demographics & economic strata.
What are the different modes of Digital payments?
- Cards – Debit, Credit, Corporate and Prepaid cards among others are used as an alternative to cash payment. One of the most widely used payment systems, since the first card was launched in India in 1981.
- UPI – a payment system that powers multiple bank accounts into a single mobile application (of any participating bank), merging transfer of funds, other banking features, seamless fund routing & merchant payments into one hood. According to NPCI (National Payment Corporation of India), a total of 4.5 Bn transactions amounting to ~INR 8.27 Tn were done in Feb, 2022. It is probably safe to say that what cards accomplished as a payment instrument in over a decade, UPI has surpassed in less than 2 years.
- Aadhaar Pay – a payment system which allows businesses to collect payments from a consumer using his Aadhaar number and biometric authentication. The Aadhaar seeded account of the consumer gets debited and business’s account gets credited.
- Point of Sale (PoS) Terminals – PoS refers to the location of the sale. Terminals are deployed at these points, for example – the checkout counters in stores, where consumers can swipe and pay via Cards.
- Bharat QR – QR based payment solution, which can be used to make digital payments. This means that you can directly scan the Bharat QR code of the payee (such as QR Code at grocery store), using any Bharat QR enabled mobile applications such as Google Pay, Apple Pay, Phone Pe etc to transfer funds.
- Internet & Mobile Banking – allows the customers of a particular bank to make transactions and avail other financial services via the bank’s website or bank’s mobile application.
- Mobile Wallets – Mobile Wallets enable consumers to carry cash but in a digital format and use it for digital transactions. Many Banks & private label companies have launched their wallets such as – Paytm, Airtel Money, JIO Money among others.
- Unstructured Supplementary Service Data (USSD) – USSD enables consumers with limited access to internet and other banking facilities the option to transact via their feature phones by dialing *99# on any feature phone. This service is currently offered by majority of the Indian banks, across all TSPs and in 12 languages including Hindi and English.
What are the benefits of Digital Payments?
In a vast country like India, one witnesses many different social groups with varied access to financial services depending upon their socio-economic demographics. One of the key reasons why the Digital India program by the government gained momentum was that it tries to bring in financial inclusion for the hitherto unbanked or provide better access to those with minimal facilities otherwise at the last mile.
Some key benefits of digital payments across the overall ecosystem are mentioned below:
- Ease & Convenience: The most powerful advantage of digital payments is the seamless & frictionless experience they provide to the consumers. Instantaneous payments, no dependency on cash, multiple modes of payment options including buy now pay later options have redefined the contours of the payments for both consumers & businesses, and digital payments have now become the preferred option as compared to traditional payment methods like cash & cheques. With digital payments, one can now avail consumer services, and send &receive funds from anywhere in the world at the click of a button.
- Higher Security & Robust Tracking: Digital Payments eliminated the risks of managing cash transactions for both the businesses as well as consumers, and therefor facilitates higher transaction security & efficient tracking of sales, expenses etc. Further, the digital payments are now secured with technologies such as tokenization, encryption, SSL etc. to provide a secure & robust environment for transactions.
- Contribution to the Economy: Digital Payments have enables businesses to roll out their respective services to any consumer type, irrespective of their demographics. As the consumers start transacting availing via digital payments, they understand the ease, convenience and security of such payments, resulting in increase consumer trust as well as digital transactions. This efficient increase in the flow of money leads to positive contribution to the overall economy.
How do Digital Payments impact Businesses?
As businesses embrace digital transformation either for survival or to do things better & faster, they are realizing the value of Digital Payments as a convenient tool for accepting payments that are safe, quick, seamless, enrich consumer experience, lower the operational expenses of the business, and enhances their revenues.
- Growing Consumer Base: As consumer trends have shifted towards digital payments, it has become quintessential for the businesses to offer all the preferable digital payment modes to its consumers not only to grow their consumer base but also retain their existing base.
- Consumer Experience & Enhanced Revenues: The more seamless the checkout experience, the more pleased will be the consumer & higher probability of him/her to return to avail the services of the businesses. In addition to seamlessness, digital payments collection is more secure, quick, and ensures higher transaction success rates, resulting in enhanced revenues for the businesses.
- Leverage Consumer Behavior: Digital Payments enables businesses to capture a lot of data points, which can be leveraged by businesses to understand consumer behavior and do either intelligent targeted selling or offer other value-added services to the consumers.
- Reduces overhead costs: Digital Payments automate manual tasks related to accounting & reconciliation functions of the businesses as well as reduces their cash management costs, thereby helping them register a better bottom line.
- Scalability: Digital Payments enable businesses to accept payments from anywhere & anytime, thereby enabling the businesses to scale up smoothly both domestically & internationally.
As it is evident from the above points, Digital Payments has now become an essential infrastructure that needs to be embedded in service offerings by all the businesses in order to thrive and grow during the current times. This is true for any businesses, irrespective of their size – be it a startup looking to launch an online portal for selling its services or a large enterprise looking to create an omnichannel payment experience for its consumers. Digital payments need to be embraced by these businesses/merchants irrespective of their industries be it: e-commerce, utilities, retail, financial services, education, hospitality, travel, real estate, logistics, govt. services among others.
The first step for any business to incorporate digital payments is to partner with a robust, efficient, and trustworthy Payment Aggregator/Payment Gateway service provider, which would be able to meet the payment requirements of the business across any channel (online, offline, doorstep) and offer all/any payment modes for consumers of the businesses to pay. This third-party partnership is the most efficient & simplest way for a business to start collecting or disbursing digital payments across channels.
As a business, you need not look further than PayPhi (digital payment platform of Phi Commerce) – as a Payment Aggregator of your choice. PayPhi powers frictionless payments for businesses/enterprises backed by an omnichannel digital platform, deep payments tech expertise & vertical-specific insights. Using its omnichannel payment enablement strategy – PayPhi helps businesses digitize payments/collections, enabling them to accept any mode of payment (270+ payment modes supported) across all the channels – online, doorstep and in-store (offline), thereby enabling an inclusive approach to payments.
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