Digital Payment: Opportunities, Applications and Benefits

Digital payments are the fastest-growing segment in the financial services industry. In this digital age, people prefer ways to pay for goods and services that are more convenient, secure and timely. Digital payment methods such as mobile wallets, card payments, e-wallets, and Internet banking have gained popularity among users due to their ease of use and speed of transactions. Increased adoption of digital payments can be attributed to factors such as increasing smartphone penetration, cheaper data tariffs, faster internet speeds, increased availability of Wi-Fi connectivity and usage of digitized services like online bill payments and e-commerce.

What are Digital Payments?

Digital payments are transactions where money is transferred from one account to another through online/digital mediums. The key difference between digital and traditional payments is that the former is facilitated through online channels like the internet, mobile apps, online banking portals, and financial institutions’ call centers. Digital payments can be of two types – online payments and mobile payments. Online payments are those where payments are made through multiple online channels such as internet banking, debit/credit cards, net banking, and wallets. In contrast, mobile payments are payments made through smartphones using apps.

Opportunities in Digital Payments

The digital payments ecosystem is expected to grow at a CAGR of 33%, reaching $40 billion by 2022, according to a report by the Boston Consulting Group (BCG). The overall digital payments ecosystem comprises the following segments:

● Transactions: These include all types of digital payment transactions in the country, including utility bill payments, travel bookings, online shopping, and other services through internet/mobile channels.
● Cash-in: This is where a user deposits cash in a wallet account by visiting a merchant outlet or through the internet/mobile apps.
● Cash-out: This is where a user withdraws cash from a wallet account and deposits the same in a bank account through the internet/mobile apps or visiting the outlet of the wallet provider.

Benefits of Digital Payment 

● Simplicity of usage: Digital payments are easy to use and provide a superior user experience.
● Accessibility: Digital payments are accessible to everyone, irrespective of their location, device, or age.
● Cost reduction: Digital payments are cost effective, secure, and cheaper than other payment methods.
● Improved transparency: Digital payments are transparent, and all transactions can be recorded, tracked, and reported.
● Increased trust: Digital payments are secure and trusted payment methods, as the government regulates them.
● Inclusion: Digital payments are inclusive payment methods and can reach unbanked and underbanked people.
● Timely payments: Digital payments are real-time and instantaneous; thus, the payment terms are adhered to.

Digital Payment Applications

The country's rapid adoption of digital payments is driving the growth of various digital payment segments, including card payments, e-wallets, and mobile payments.

● Card payments are mainly driven by credit/debit card transactions, while mobile wallet transactions primarily drive mobile payments. Credit/Debit card- Digital credit/debit card payments are instant, easy, and convenient methods of payment that can be used at any merchant outlet or online. Debit cards can be used only at merchant outlets, while credit cards can be used both at merchant outlets and online.
● E-wallet- An e-wallet is an online account that allows users to store money for use for online and offline purchases. The money can be transferred from the user’s bank account to the e-wallet account, and vice versa. E-wallet transactions are expected to grow significantly in the coming years. 
● Mobile payments- Mobile payments refer to real-time payments made via smartphones. These payments can be made by using the mobile wallet app or by linking a credit/debit card to the phone.

Conclusion

The digitization of the financial services industry has led to the country's rapid adoption of digital payments. As the Indian economy becomes more digitized, it is expected that the growth of digital payments will be further accelerated by factors such as increasing smartphone penetration, cheaper data tariffs, faster internet speeds, and the increasing adoption of digitized services.