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Digital Payments in India: Challenges and Opportunities For around 1 billion credit and debit cards, there is merely 37.22 lakh Point of Sale (POS) terminals in the country

By Anurag Gupta

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In recent years, digital payments have seen momentous growth in India. In terms of volume, digital transactions grew from INR 220 Crore in 2013-14 to over INR 2,000 Crore in 2017-18. This huge growth is largely credited to Unified Payment Interface (UPI) based mobile transactions, which saw over 3 billion transactions last year with 620 million transactions worth INR 1 Lakh Crore in December alone.

Demonetization and the adoption of UPI platform by national and international players like Google, WhatsApp, Paytm and PhonePe have played a significant role in enabling the rural Indian economy to move towards digital payment in a big way. While digital transactions continue to grow, cash still plays a massive role in the economy with currency to GDP ratio pegged at 10.70per cent as of March 2019.

Challenges and opportunities in the move towards digital payments

Even though the number of digital transactions is a positive sign for the economy, we are far from creating a robust digital payment ecosystem. There are several structural challenges that are hindering the growth of digital payments in the country. While a growing number of e-commerce platforms are adopting digital payment methods, consumers still prefer the option of paying by cash. This phenomenon is in part related to the scare regarding cybersecurity in digital transactions. It is to be noted that during 2016-2018, India was the second most cyberattacks affected country. Lack of technological awareness and high risks associated with cybersecurity have kept consumers from adopting digital payment methods wholeheartedly.

While there is no dearth of digital payment modes ranging from debit/credit cards to online banking, there is a need to make transactions cheaper and enhance interoperability of the payment systems to make them more flexible for the stakeholders. This is not only an opportunity for non-banking companies to innovate but to also adopt the already available technologies like Aadhaar Enabled Payment System (AEPS), which does not involve transaction charges and is consumer-friendly. Since the growth of digital payments largely depends on the rising rural population getting connected to high-speed internet and smartphones, it is important for digital startups to focus on secure consumer-friendly methods in order to build trust and drive adoption.

Current Scenario

The costs associated with online payment through RTGS and NEFT systems have also created a hindrance. These methods are not only expensive but also time-consuming at a time when there are a number of technologies available that offer real-time fund transfer. Startups that focus on technologies providing quicker digital payment solutions to the consumers will have a better opportunity to get ahead in the move to bring the tier 2 and tier 3 cities under the digital umbrella. While numerous non-banking entities are focusing on driving digital payments for consumers through incentives, the adoption remains low among the merchants. For around 1 billion credit and debit cards, there is merely 37.22 lakh Point of Sale (POS) terminals in the country. In order to boost digital payments, there is a need for more POS terminals along with better and cheaper payment options for the smaller merchants. In the absence of POS terminals, QR Codes can be used to onboard merchants. Since QR Code technology is easy to use and does not involve any additional infrastructure cost apart from the smartphone.


According to a recent report, the Indian digital payment industry is expected to reach $1 trillion by 2023. The Indian startup ecosystem is expected to play a crucial role in enabling this industry as it is capable of leveraging the opportunities by addressing a multitude of challenges.

While India has a robust startup ecosystem capable of addressing these challenges, the Government can help accelerate the process through better policies and framework. The introduction of UPI by National Payments Corporation of India has already shown a remarkable result. RBI's Vision 2021 is a step in the right direction as it looks to create a robust digital payment ecosystem by moving towards a cash-lite economy. These measures are in sync with the Government's Digital India initiative and it will also enable its financial inclusion goals.

Anurag Gupta

General Manager (Services), AISECT

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