Promoting Economic Sustainability Through the Adoption of Digital Payment Systems

Introduction

Digital payments are transactions that happen online or through other digital platforms without a physical exchange of money. Both the parties in the transaction, the payer and the payee, use electronic means to exchange money. The government of India has taken several measures to promote digital payments in our country. According to Statista (2022), the goal of “Digital India” is to establish a “digitally empowered” “Faceless, Paperless, Cashless” economy. The evolution of digital payments in India dates back to 1980s much before internet was introduced. At that time, there was no internet infrastructure in our country and only credit card and debit card were used by people instead of cash. Later in 1990s internet become quite popular and e-commerce sector began to grow. With the introduction of National Electronic Fund Transfer (NEFT) & Real Time Gross Settlement (RTGS) in 2005, and Immediate Payment Service (IMPS) in 2010, the digital fund transfer became very popular. But the problem was the interoperability with each other. Roy & Sahoo (2016) explains the areas of improvement in the existing payment systems - specifically the risks and other challenges faced in India. To overcome this issue, Unified Payments Interface (UPI) was introduced by National Payment Corporation of India (NPCI) in 2016. UPI is considered to be the most advanced, real time payment systems in India. According to Thakkar J et. al (2022), UPI has been a game changer in digital payment ecosystem in India. The author also talks about the strategies initiated by the government to increase the usage of UPI in India. Rastogi et al (2021) talks about how UPI is contributing to the Indian economy by not only supporting the financial literacy but contributing to the financial inclusion of the poor. Mahesh A et.al (2021) talks about the remarkable growth of UPI in the recent past and how customers have shifted to the paperless and contactless payment system. Naranje (2023) explains the rapid growth in popularity of digital payments in India. He also mentions the government’s role in being pro-digital which is encouraging people to adopt digital payments.

According to Statista (2023), more than 72 billion digital transactions were recorded across India during the financial year 2022. The market for digital payments is expected to reach a total transaction value of US$180.40 billion in 2023. By 2027, it is anticipated that the overall transaction value will increase by 15.56% each year (CAGR 2023–2027), totalling US$321.70 billion.

The volume of digital payments got a major fillip due to demonetization in 2016 and Covid pandemic in 2020. Jose (2023) explains the tremendous change in the payment system witnessed in our country and also the after effects of demonetization and Covid-19 pandemic that led to changing demographics which paved the way for a sustainable economic growth. . Singh et al., (2023) found that there is a significant increase in the number of people shifting to digital payment mode for all their financial transactions. More than 76% of the respondents showed the intention to use fintech payment services during pandemic. Manocha et al., (2019) found that demonetization made a significant impact in rising the number of digital payments in the country. There is a transformation from cash economy to digital, cashless economy creating a digitally empowered nation. Contrary to this is the study conducted by Sandeep Kaur et al (2020), where the authors analysed the impact of demonetization on digital payment by conducting an event study. Eight indicators of digital payment like credit card, debit card, RTGS, NEFT, M-wallet, M-banking, IMPS and PPI cards were analysed for a period of 49 months and it was observed that there was no significant impact of demonetization on the digital payment system in India. Similar findings were seen in the study conducted by Kanchan K (2018). The author observed that there was a sudden growth in the digital transactions in the next month of demonetization. This phenomenon was due to the temporary cash crunch in the economy. After few months there was a decline in the usage of digital payments due to the availability of cash in the market.