Digital Payments in India: Methods and Importance

India is progressing fast towards a cashless economy. Several events and initiatives have fueled this transition over the past few years. Penetration of the internet and mobile devices, a robust digital infrastructure, simplicity of use and convenience, and a variety of digital payment options are among the factors that have aided the move.

There were 89.5 million digital payments in India in 2022. India accounted for 46% of all real-time payments made globally in 2022, surpassing the digital payments made by the following top 4 nations.

With such a high volume of digital transactions, every online business in India must be part of this cashless environment. As a business, you must incorporate a variety of digital payment options, which should be the key strategy to provide your consumers with easy digital payments.

This article goes into great length regarding the many kinds of electronic payment systems and their importance in making businesses more efficient.

What are digital payments?

Instead of employing a transfer of cash, digital payments are conducted using digital methods. Digital payments are the new standard in our increasingly cashless culture, and they happen every day worldwide. Fundamentally, the phrase refers to any payment made via digital technology. While it may appear quite simple to the user, a lot of activity is going on in the background. This is because security is crucial when sending money online.

Digital payments happen in real-time despite the security encryption in the background, making them ideal for uses like online purchasing.

Digital Payments in India

There are several digital payment methods in India. Some payment options have been in use for many years; others have only recently evolved and gained popularity, yet others are still in their toddler stage. Let’s get into more depth about the different online payments in India.

1. Bank cards: One of the most popular ways to pay digitally is with a card, which has several features and advantages, including simplicity and payment security. These cards can be used in different types of digital payments. For instance, customers can keep card information in mobile wallets or online payment apps to complete a cashless transaction. MasterCard, Visa, and Rupay are a few of the most well-known and reputable card payment systems. Online purchases, digital payment apps, PoS devices, and other online transactions can all be completed using banking cards.

2. Unified Payments Interface (UPI): Any consumer with a bank account from any financial institution can send and receive money using an UPI-based app thanks to this interoperable payment system. This is one of the most popular digital payement methods where the service enables users to link several bank accounts on a UPI app on their smartphone to quickly start financial transfers and submit collect requests around the clock and every day of the year. The primary benefit of UPI is that it facilitates money transfers without the need for keying in a bank account or IFSC number. Only a Virtual Payment Address (VPA) is required. On both the Android and iOS platforms, UPI apps are widely accessible in the market.

3. Unstructured Supplementary Service Data(USSD): For many Indian citizens who lack access to reliable banking and internet services, USSD was introduced as one of the digital payement methods. By simply dialling *99# on any necessary feature phone, users of USSD can conduct mobile banking transactions without a connection to the internet.
   Customers can use this number to access services, including interbank account-to-account fund transfers, balance inquiries, and mini statements across all Telecom Service Providers (TSPs). In 12 distinct languages, including Hindi and English, around 51 of the largest banks provide USSD service.

4. Aadhaar Enabled Payment System (AEPS): AEPS is possible for all banking operations, including balance inquiries, cash withdrawals, cash deposits, payment transactions, and Aadhaar to Aadhaar fund transfers, among others. Aadhaar authentication underpins the use of a banking correspondent for every transaction. No credit or debit cards, a physical branch visit, or even a signature on a document are required. You can only use this service if the bank where you have an account has registered your Aadhaar number. It is yet another step the NPCI has taken to advance digital payments nationwide.

5. Mobile wallets: As the name implies, this digital payement method is a type of wallet that allows you to carry cash but in a digital format. To enable secure digital transactions in India, clients frequently link their bank accounts or credit cards to their wallets. Adding money to a mobile wallet and using that balance to transfer funds is another way to use wallets.
   Many banks today have introduced their wallets. Furthermore, eminent private businesses have built a presence in the mobile wallet market. Ones that are frequently utilised as online payments in India are Paytm, Freecharge, mRupee, Airtel Money, Jio Money, SBI Buddy, Vodafone M-Pesa, Axis Bank Lime, ICICI Pockets, etc.

6. Internet Banking: This became one of the popular digital payement method used in the recent years. The process of doing financial transactions online is referred to as Internet banking. These could include various services, like money transfers, making new fixed or periodic deposits, cancelling accounts, etc. The terms e-banking and virtual banking are also used to describe Internet banking. Online payments in India using NEFT, RTGS, or IMPS are typically made using internet banking.

7. POS Terminals: Traditionally, the phrase “point of sale” (PoS) terminals referred to the devices that were installed at all stores where customers made transactions using credit/debit cards. The device that reads bank cards is typically portable. The scope of PoS is growing, though, and this service is now accessible through internet browsers and mobile platforms. Different PoS terminal types exist, including Physical PoS, Mobile PoS, and Virtual PoS. The PoS terminals that are kept at shops and retailers are the physical ones. Mobile PoS terminals, however, function through a tablet or smartphone. Small business owners benefit from not having to invest in pricey computerised registers because of this. Payment processing is done through web-based applications in virtual PoS systems.

8. Bank Prepaid card: A prepaid card that your bank issues is used as a payment card for digital transactions in India. It can have a certain amount loaded into it. These cards don’t necessarily have to be kept on a lender’s external account. These cards are an excellent substitute for conventional bank accounts. Opening a savings or current account with any lender is unnecessary. These cards have a validity term when they are issued. A prepaid debit card can be used to pay at merchant locations. Some banks also issue prepaid debit cards with a cash withdrawal option. You can get cash in an emergency if a prepaid debit card is active.

9. Micro ATM: Business Correspondents (BC) can provide customers with crucial financial services using a micro ATM. These Correspondents, who might even be local business owners, will act as a “micro ATM” for quick transactions. By simply confirming your fingerprint, they could utilise a gadget that lets you transfer money using a bank account linked to your Aadhaar.

In essence, Business Correspondents will act as banks for their clients. Utilising their UID (Aadhaar), customers must confirm their legitimacy. Withdrawal, deposit, money transfer, and balance enquiry are the fundamental functions that mini ATMs will support. You must link your bank account to Aadhaar to use Micro ATMs.

Now that we have taken you through the different modes of digital payments available in India, let’s dive into the next section on advantages of digital payments.

Advantages of Digital Payments

Digital payments offer several advantages for businesses and customers, contributing to convenience, security, and efficiency. Here are the benefits of online payments in India for both parties:

Advantages for Businesses:

Cost Savings: Reduced physical cash handling, storage, and transportation costs. Lower processing fees for digital transactions compared to traditional payment methods.

Efficiency: Faster transaction processing, reducing checkout times and improving customer experience. Streamlined accounting and record-keeping, making financial management more efficient.

Increased Sales: Expand customer base by enabling online sales, including global markets. Encourage impulse purchases and repeat business through easy payment options.

Security: Reduced risk of theft and counterfeit currency. Enhanced security measures, including encryption, reduce the risk of payment fraud.

Data Insights: Access to valuable customer data for analytics and personalized marketing. Helps in understanding customer behavior and preferences.

Cash Flow Management: Faster access to funds and improved cash flow management. Easier reconciliation of payments, reducing accounting errors.

Digital Invoicing: Simplified invoicing and payment tracking, reducing administrative overhead. Automatic reminders for overdue payments.

Advantages for Customers:

Convenience: Easy and quick transactions from anywhere with an internet connection. Access to various payment options, including mobile wallets and UPI.

Transparency: Access to detailed transaction histories makes tracking expenses more manageable. Receipts and confirmation emails provide clear records of purchases.

Rewards and Discounts: Access to cashback offers, discounts, and loyalty programs when using specific digital payment methods. Accumulation of reward points for future benefits.

Accessibility: Inclusion of underserved populations by providing access to financial services via mobile phones. Enables people in remote areas to participate in the digital economy.

Reduced Contact: Contactless payments reduce the need for physical contact during transactions, promoting health and hygiene. Suitable for times of health crises, like the COVID-19 pandemic.

Global Access: Ability to make international payments and transactions, simplifying cross-border purchases and remittances.

Juspay’s contribution in digital payments in India

Juspay is India’s leading payments platform for online businesses. With over a decade of experience making Payments simpler, Juspay has continued to compound on its unique positioning as a strong Ecosystem Player with Core Payments innovations in 2FA, Cards, and UPI; Merchant experience innovations with plug & play scalable Payments solutions, and customer experience innovations with native & frictionless 1-click checkout flows.

Processing 70M transactions/day with an uptime of 99.99%, Juspay is an indispensable growth driver for online merchants. Our merchant partners have seen upto 10% uplift in Success Rates, 2 point growth in NPS, and 80% reduction in Payment operations cost, helping them drive growth.

Our ecosystem contributions include BHIM, network protocols like UPI, BECKN (Namma Yatri), OCEN, redefining 2FA with auto-OTP capture, 1-click checkouts, and the first horizontally scalable on-cloud UPI infra for banks.
We collaborate with our partners to solve large, foundational problems using a first principles approach, unlocking endless possibilities.

Juspay’s products cater to building robust Payments experience for growing startups, enterprises, and banks.

Digital Payments in India: Conclusion

The process of online payments in India has evolved significantly, transforming the way businesses operate. Initially, it started with online credit card transactions, enabling e-commerce growth. Subsequently, mobile wallets and Unified Payments Interface (UPI) systems emerged, simplifying peer-to-peer and merchant payments through smartphones. Cryptocurrencies like Bitcoin introduced decentralized, borderless transactions. Contactless payments and Near Field Communication (NFC) technology brought speed and convenience. Businesses now offer various modes of digital payment options, from in-app purchases and QR code scanning to subscription-based models, enhancing customer experiences and reducing cash dependency. These developments have expanded financial inclusion, improved security, and revolutionized financial transactions across industries.

FAQs About Digital Payments in India

1. What are digital payments in India?
When products or services are purchased via different electronic platforms, they come under digital payment. There is no actual movement of cash or cheques when using the digital payment option.

2. How many digital payments are there in India?
Digital payments come in many different forms and ways. Among these are debit/credit cards, internet banking, mobile wallets, digital payment apps, Unified Payments Interface (UPI) service, Unstructured Supplementary Service Data (USSD), bank prepaid cards, and mobile banking, among others.

3. How many digital payments per day in India?
As per govt of India data, approximately 3,300 crore digital payment transactions were made in the fiscal year 2022–23 (up to the 24th of July 2022), and more than 8,840 crore were made during those two years. On average, 28.4 crore digital transactions are made each day.