ABSTRACT: creation in the economy. A recent study

ABSTRACT: The demonetisation by the Indiangovernment undertaken in November 2016 was partially aimed at increasingcashless transactions in the Indian economy and also contribute to increasingacceptance by the population to participate in use of digital payment systemson a large scale. The government is constantly trying to induce the use ofvarious digital payment modes and systems for various purposes so as totransform India into a cashless economy over the course of time. The needs forsuch transformation has resulted from two factors, ‘the Cost of Cash’ and ‘thesafety of digital payment systems over traditional cash’.It has been established thatdigital payment systems will lead to large scale job creation in the economy. Arecent study has also established a positive relationship between the value ofelectronic or digital payments with the Gross Domestic Product of thecountry.

  Key words: Demonetisation,Cashless transactions, Digital Payment Systems, Cost of Cash. INTRODUCTION:Digital Payment Systems are systems whereby payment ismade through digital mode i.e.

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both the payer and payee send and receive moneydigitally. It is also known as electronic payment as electronic devicesconnected to a network are used for performing such transactions. Digitalpayments do not involve any physical transfer of hard cash and are termed as aconvenient and instant way to make payments as the transaction gets completedonline. Physical transfer of cash is a very long and timeconsuming process.

It also costs more as the cash needs to be carried andallied activities have to be performed by the bank involved in the transaction.There is also lack of safety when it comes to physical cash. It is verydifficult to transact physical cash in large volumes and also storage of suchamounts is very insecure.

Thus due to all these underlying risks, digitalpayments are slowly being preferred over traditional mode of payment.  EVOLUTION OF DIGITAL PAYMENTS ININDIA:There are typically two types of payment systems inIndia. The first being paper based like cash, cheques, drafts, etc. The secondis the electronic payment system which includes the digital payment systems.Electronic payment systems mean payments done by electronic mode using ECS,NEFT, RTGs etc.

and are used extensively by the people such as Pre-paidInstruments (PPI), ATM, Point of Sale (PoS) transactions, Mobile banking,Digital wallets, etc.The first Automated Teller Machine (ATM) was installedin India by HSBC Bank in Mumbai in 1987 which led to a large scaleestablishment of ATMs all over India along with the spread of ‘plastic money’in the form of Debit and Credit Cards. Computerisation occurred in the IndianBanking Industry in 1988 and was followed by the introduction of the ElectronicClearing System (ECS) in the 1990s to handle bulk and repetitive paymentrequirements.

This was followed by the National Electronic Fund Transfer (NEFT)system in 2005 to facilitate real-time transfer between individual accounts. In2008, National Electronic Clearing Service (NECS) was started to facilitatemultiple credits to beneficiary accounts. This was proceeded by a smallerversion called Regional Electronic Clearing System (RECS) in 2009. A year laterin 2010, Immediate Payment Service (IMPS) was rolled out which allowed instant24/7 fund transfer through internet, mobile and ATM at very low costs.The Reserve Bank of India has stated that it has anobjective of driving financial inclusion and enabling high-volume low-valuetransactions thereby reducing the dependence on cash. Due to this, next-gen payment services have emerged inthe Indian economy since 2008-09.

·            Bank-led: Banksprovide mobile apps as well as wallets of their own so that consumers can makepayments based on their requirements. This is done to ensure a seamless experiencewhile transacting through the apps.·            Telecom Company-led: Largescale telecom companies like Airtel, Vodafone and Jio have launched their ownpayment solutions which are targeted at their own consumer base. ·            Prepaid Wallets: In2008-09, RBI issued licenses to 26 Prepaid Payment Instrument (PPI) issuers.The number of such license holders has grown to 46 in 2016. o  Mobile Wallets: Theseare app-based accounts of stored value and are funded by credit or debit cardsand netbanking.

o  Prepaid Cards: Companiesoffer solutions with an agent-assisted offering to customers who are notdigitally savvy. ·            Payment Banks: RBIprovided in-principal approval to 11 entities to set-up Payment Banks in 2015. Thescope of activities of a payments bank includes acceptance of demand depositsup to INR one lakh per customer, issuance of ATM or debit cards, offeringpayment and remittance services, acting as a Business Correspondent (BC) toanother bank and distribution of mutual funds, insurance services etc.

Thesebanks cannot undertake any lending activities or issue credit cards, accept NRIdeposits or become a virtual bank.  REASONS FOR GROWTH OF DIGITALPAYMENTS IN INDIA:1.        DEMOGRAPHICS: Thepopulation of India was estimated to be 1250 million in the year 2015 and isexpected to reach 1350 million by 2020. Based on data available from the 2011 Censusand Election Commission of India, around 31.3% of the population is between theages 18 and 35.

According to a recent survey conducted by American Express -Nielsen, 81% of the people aged 18-25 prefer to pay bills online and around 70%of the people aged 26-30 are likely to opt for online payment. Thus, thedemographic factor strongly favours the growth of digital payments systems inIndia. According to a report titled ‘Internet in India’, there were around 136million internet users in 2016 in this demographic. 2.

        NUMBER OF MOBILEPHONE AND SMARTPHONE USERS IN INDIA: In 2011, the number of smartphone users inIndia was a mere 33.2 million which has grown by almost 800% to reportedlycross the 300 million mark in January 2017. Similarly, the number of tabletusers has grown from 23 million in 2013 to 54 million in 2017.

Thus it is ascertainablethat the users of internet enabled devices in India is growing manifold since2011. According to Morgan Stanley, people who have been using the internet fortwo years or less don’t transact business on the internet. However, once aperson has been online for five years or more, they’re more likely to transactonline. For now, that accounts to 30% of the 432 million internet users inIndia.  In 2016, 77% of the urban peopleand 92% if the rural people who accessed the internet did so by using a smartphonewhereas 6% of the urban people and 1% of the rural population used tablets forthe same purpose. The number of mobile phone users in India isexpected to be 1200 million and the number of smartphone users is estimated toreach 520 million by the year 2020.3.        INTERNET USERS ININDIA: As of January 2017, there are around 420 million Indianswho use the internet which corresponds to approximately 33.

6% of thepopulation. The reported number of internet users in June 2012 was just 135million which was 10.8% of the population.

According to a World Bank Report, in2011 just 10.1% of the Indian population were internet users. Thus, we canconclude that the number of Internet users grew by almost 233% in the last 6years. Internet users in India are expected to be around 650 million by 2020going up from 300 million in 2015. The penetration rate will also go up from33.

2% to 48.15% by the end of the decade.4.

        SUPERIOR EXPERIENCEFOR CUSTOMERS: Use of digital payments is expected to mirror the popularitythat e-commerce has gained in India in the past few years. Digital paymentsprovide customers the ability to conveniently pay for everything without havingto worry about paying the exact amount in cash. Also, the settlement process ismuch easier.

Payment stops being a separate process and starts being a part ofthe background which allows the customer to enjoy the activity without havingto worry about transaction settlement. This induces the customers to prefer thedigital modes of payment over traditional modes.5.        OFFERS AND DISCOUNTS:As the mode of digital payments is still new to India, the digital paymentservice providers give regular offers and discounts like cashback and specialdiscounts on products if payment is made using a specified digital mode. Thegovernment has also offered discounts at various rates for payment made throughdigital modes. DIFFERENT MODES OF DIGITALPAYMENTS AVAILABLE IN INDIA:·            UPI Apps: Unified Payment Interface (UPI) isa payment mode which is used to make fund transfers through mobile app. Fundscan be transferred between two accounts by using UPI apps.

Registration formobile banking is a prerequisite for use of UPI apps. It is not mandatory touse the UPI app from your bank to enjoy UPI service. You can download and useany UPI app. UPI apps are a faster solution to send money using Virtual PaymentAddress (VPA) or even Indian Financial System Code (IFSC) and bank accountnumber.

There are many UPI apps available on the app stores such as; BHIM, SBIAnywhere, HDFC, iMobile, PhonePe, etc. Anyone who uses a smartphone and hasaccess to internet can download and sign-up to use these apps.·            AEPS: Aadhaar Enabled Payment Service (AEPS)is an Aadhaar based digital payment mode. Customer needs only his or herAadhaar number to pay to any merchant.

AEPS allows bank to bank transactions.It means the money you pay will be deducted from your account and credited tothe payee’s account directly. You need to link your Aadhaar number with yourbank account to use AEPS. AEPS can be used with the help of PoS (Point of sale) machines. Cash can be withdrawn or deposited and money can be sent to another Aadhaarlinked account with AEPS. AEPS uses the account holder’s fingerprint as apassword.

·            USSD: USSD banking or *99# Banking is amobile banking based digital payment mode. You do not need to have a smartphoneor internet connection to use USSD banking. You can easily use it with anynormal feature phone. USSD banking is as easy as checking your mobile balance. Thisservice can be used for many financial and non-financial operations such aschecking balance, sending money, changing MPIN and getting MMID.·            Cards: Cards are provided by banks to accountholders. They are the most widely used mode of digital payment. They are usedto transfer funds and make payments.

There are three types of cards. Creditcards which are provided by banks or other authorised entities. They allow youto withdraw in excess i.

e. on credit. Debit cards are linked to your accountand the transaction results in a direct debit in your account. Prepaid cardshave to be recharged like SIM cards and have stored value in them. ·            E-Wallets: E-wallet or mobile wallet is the digitalversion of the physical wallet with more functionality.

Money can be kept in anE-wallet and used by the customer when needed. E-wallets may be used torecharge phones, pay at various places and send money to others. The populare-wallets are State Bank Buddy, ICICI Pockets, Paytm, Freecharge, etc. E-wallets allow transferfrom one wallet to the other. However, they do not have the functionality yetto transfer money to bank accounts.

Thus, e-wallets are a very easy and fastway to make payments especially for e-commerce transactions. EFFECTS OF DIGITAL PAYMENTS ONTHE INDIAN ECONOMY:A study by Visa and Moody’s has established that goingcashless is the way to boost economic growth. Electronic payments are believed to be a major force ineconomic development and significantly affect spending behaviour andconsumption. Thus, digital paymentsystems will surely stimulate economic growth and the following will justifythe same with respect to the Indian economy.

1.        Digital payments addto GDP: In the years between 2011-2015 $6 billions were added to the Indian GDPjust from digital payments. It has been said that digital payment sector grewthree times faster than expected because of demonetisation and India is thriceas advanced as compared to its overall growth when it comes to digitalpayments.2.        Increase in cardusage leads to bigger contributions in growth: 1% increase in card usage led to0.07% increase in the GDP of India during 2011-15. This is expected to be evenmore in the aftermath of demonetisation. 3.

        Increase in digitalpayments leads to almost the same percentage increase in Gross Domestic Product(GDP): In the data available for 2011-15, it was observed that for eachpercentage point increase in digital payments there was almost one percentagepoint increase in the GDP of India. 4.        Increasein digital payments results in increased consumption of goods and services: Interms of consumption, each 1% increase in usage of electronic paymentsproduces, on average, an annual increase of approximately $104 billion in theconsumption of goods and services, or a 0.02% increase in GDP, assuming allother factors remain the same.5.

        Jobcreation: In the aftermath of demonetisation, the Indian economy has access to Rs. 7.9 crore new monthly digital transactions therebyensuring prospects for formal job creation in the Indian economy for carryingout these increased digital payment activities. It is estimated to create 2.6million jobs all over the world on an average annually. During 2011-15,approximately 3,36,930 jobs were created due to increased use of cards inIndia.6.

        Financial servicesbecome affordable: Financial Services may be simply defined as services offered byfinancial and banking institutions like loan, insurance, etc. FinancialServices are concerned with the design and delivery of financial instrumentsand advisory services to individuals and businesses within the area of bankingand related institutions, personal financial planning, investment, real assets,insurance etc.When financial services areprovided using digital payments systems, the costs of carrying and mobilisingphysical cash are eliminated which makes it easier and cheaper to providefinance to those in need. Research indicates that financial inclusion has a positiveimpact on economic growth and can help reduce income inequality.7.

        Economise lending activities: Physical cash has high carryingcost and large inherent risk of safety which can be done away with by usingdigital payment systems. The cost of storage and physical movement of cash arediscarded and the funds can be easily transferred without having to worry aboutthe physical placement. Since the money does not get stuck in one place asphysical cash it can be recycled faster and made mobile in an easier way. Thisleads to more credit available in the economy that too at cheaper rates whichallows more borrowing and this in turn leads to more investment which resultsin more profit for the economy. CONCLUSION: As per a report by Mastercard in 2015, Indian economywas one of the least ready countries to transform into a cashless economy priorto the demonetisation implemented by the Government.

However, lack of cashavailability to the masses during the few months following the demonetisationhas led to more and more people using digital payment systems to try andcontinue operations of their businesses in the cash-less economy. Since then the masses have realized that cashlesstransactions are much easier and hassle free and make the transactions moreseamless as compares to those involving physical transfer of cash. This has ledto constant increase in the users of digital payment systems which keeps onmultiplying every day. Digital payment systems provide more convenience toboth the payer and payee and enable them to just complete any transaction in amatter of seconds.

There is no need to keep any records or details of thetransactions as they are stored in the accounts or on the devices of the userand can be accessed easily at any time in the future. The user also receivesnotifications from the service providers regarding any and all transactionsundertaken by them. The level of security protocols established by thedigital payment systems are also very secure and this gives the user theconfidence to transact freely irrespective of the value and volume of thetransaction.Digital payment systems are not just beneficial forthe users but they are also very helpful to the economy as well.

They result inmore jobs being created which leads to more income for the economy i.e. GDP andthereby results in economic development and economic growth at faster rates. AsGDP grows, the standard of living of the people grows which ensures that moregoods and services are consumed in the economy and in turn this results in moreproduction and services being offered for consumption which ultimately leads tomore GDP for the nation.

Using digital payment system ensures that more moneyis freely available to those who need it on credit and thus there are moreoptions for investment in the economy. The records of digital transactions are maintained bythe service providers which allows the government to tax these transactionsbased on their nature. This leads to more money for the government which can beutilized in various activities for the development of the economy.

Hence, thereis less scope for tax evasion or black money in the economy.Thus, it can be said that the growth of digitalpayment systems is a huge boost for the economy and the increase in the use ofdigital payment systems directly supports economic growth.


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