Adoption of Digital Payment Wallets in India: Key Success Factors in the Journey towards Cashless Economy

Introduction and Macro Trends

The online transactions which support economic activities of a nation and are highly significant on an individual as well as on a national front. According to Global Payment Report, mobile wallet was the most used method of payment Point of Sales (POS) globally in 2020, with 25.7% of payments done on (POS). This share is estimated 33.4% by 2024¹.

The world is getting techno-savvy and India too. There has been a long debate in the context of digital transactions and digital payments. There is an inevitable need to be receptive to the digital transformation. However, there are certain parameters, which affect the readiness to accept such changes. Shifting the entire population from a cash-based economy to a cashless economy is a huge challenge. The industry 4.0 has brought about several digital innovations, one of them being digital payment wallets. Industry 4.0 is the term used to denote the revolutionary changes in digital functions that have metamorphosized the world economy.

Digital payment technology is beneficial to the economy in many ways. With the use of digital mode of transactions, consumers’ purchasing power has subsequently increased giving rise to employment opportunities and the economic growth in large. The infrastructure which supports digital payment makes it easy for the users to transfer money with just a few clicks. The process is a lot easier and efficient than conventional methods of doing transactions. Digitalization is a vital part of a developing economy. It is an integral part of the payment system in the current situation.

The major factors having an impact on digitalization used in payment scenarios re-classified into five different categories namely, the infrastructure, the building blocks of the adoption of digital payments, other institutional factors as well as change and innovation with respect to the digital wallets. These factors explain the reasons why digital payments are self-sustaining and do not require extra support from anywhere else. Digital transactions would just require two fundamental elements to support it, that is a good network coverage for the device and properly functioning internet bandwidth. That is enough to cater to the needs of a digital wallet. However, these basic elements can only work proactively depending on the geographical area as well as the electrification level in those areas.

The geographical landmarks must also give space to banks for the development of financial inclusion. It is the only pathway to connect the rural and urban areas with the basic financial infrastructure to enrol a greater number of people in the digital platforms. With a larger engagement of people into digital transaction’s technology, it would substantially pave way for a cashless nation in the coming years.

Digitalization in India

Digitalization has made its mark with the help of innovation. It has brought in new products for digital transactions to take place. Innovation gives rise to new products. But whether the products would be successful depends on the accessibility and affordability of such products. The demographic characteristic of a certain place is important when any innovation or customized products are meant to be made for a targeted customer base. The change can only take place if the customers are receptive of it, based on their education and income level.

The growth in digitalization of India can be speculated with the data available on penetration into the smartphone market and the access to internet. India is on the second number in the list of digital transactions growth statistics. The nation has seen a tremendous increase in purchase of mobile subscriptions. The telecom industry in India is improving and giving its 4G services at affordable rates and with this, the demand for smartphones has also shown a huge growth in numbers. Earlier the mobile phones only supported first generation services, wherein only voice calls were possible. However, the 4th generation services along with providing fundamental facilities are also supporting huge bulks of data sharing, streaming multimedia, and higher bandwidth for uploading, downloading, and surfing the internet.

Global connectivity has made it possible for digital technologies to prosper in the remote locations as well. Huge investments are being spurred into the industry of mobile payments. The start-ups working on mobile payment applications are being funded by giant companies because it is known to them that these apps could help in adding strategic value to their enterprises.

After an underlying wave in the payment systems working digitally, to a great extent ascribed to a deficiency of money in the financial framework or banking system as you may call it. The digital transactions have seen a plunge, showing a slow-moving inversion in the utilization of technological platforms for making payments.

Digital Wallet: Concept, Architecture and Adoption Metrics

Digital wallet also commonly known as e-wallets refer to an electronic medium which supports payment activities. It could also be a software or an online application which helps different businesses or individuals to perform their transactions electronically with just few clicks. The wallet is just like a physical wallet, but this one is virtual, which stores all the required information about the user’s payment. It could be done via several modes such as net banking credit or debit cards, gift coupons and so on. Customarily conveyed as a cell phone application, an e-wallet can likewise exist in different locations such as desktops or laptops as well. However, it is a user-friendly platform and the mobile version of it, is the more popular and common version of the digital wallet, because of its portability and adaptability. These digital wallets are advantageous to use in specific cases as well as more secure than customary physical wallets. The e-wallet users need to download the applications made by banks or confided in other client companies to offer these services.

Digitalization has made financial inclusion much easier and far reaching than ever before. The financial technology, commonly called ‘Fintech’ has a wider scope of delivering financial products and services in a much better way than the physical banks. The digital wallets make use of the technological interventions for developing the customer base with the inclusion of personalized solutions for transactions.

Types of Digital Wallets

Success Factors in the Journey towards Cashless Economy

The perusal of electronic medium for performing transactional activities can be predicted because they are in sync with the education and income level of the consumers. These are such factors which determine the potential as opposed to the desire or willingness of individuals for adopting certain digital payment apps for transactions. If the firms can provide good options or solutions for their digital payments, then they would be able to grasp a larger customer base for their products or services. With user friendly solutions to payment transfers, the development and inclusion of acknowledgment for the cash transactions increases in different consumer groups.

The economy, especially the informal sector of the country mirrors the inclination towards use of cash for their transactions or exchanges. The organization impacts, arising out of a predominantly informal economy, where the acceptable form of transactions done in cash has remained the same till date.

Whether India is ready for becoming a cashless economy depends on the steps which RBI and other financial institutions are taking along with government interventions for building a solid infrastructure to sustain the process of adapting to the new system. The important aspects with the intention to make a better infrastructure would support digital payments and reduce the risks associated to the system. It has designed an authorization framework which would focus entirely on the payment systems offered by retail merchants.

The Reserve Bank of India has set up ATMs for a greater participation of Fintech players. RBI is all set to provide licenses to some of the competitive digital payment organizations. The digital payment entities all over India are on their way to bring up new innovations and strengthen the infrastructure of digital payment systems. They are likely to build more risk free and efficient products which shall enhance the process of smooth transactions and make all parts of India financially inclusive while contributing to the larger goal of Digital India.

Financial Inclusion and Access to Digital Products

The digital products are much more accessible and easier to use. The products have a far-reaching capacity than done via conventional physical logistics. With the advent of financial technology especially digital payment applications, the users from all over India be it rural or urban have shown a positive acceptance rate towards these Fintech products. The only mandates are strong internet connection along with mobile connectivity and a smartphone that would support the transaction. These would suffice to use the financial products in any nook and corner of the nation. To make this possible, is the aim.

However, the Fintech companies are making attempts to include the tier two cities and other remote areas for spreading the reach of the digital transaction applications or platforms catering to the payment needs. Some areas in India have a smaller number of banks or are very far from the proximity of the banks. Those remote locations are being tapped by financial players for financial inclusion.

This being a case, financial literacy is an important element without which digitalization would not have a greater impact. Awareness among the public is necessary and so is investment in the support structure of digital payments. The telecom industries also have a greater task ahead of them to expand the internet connectivity in tier two cities and remote locations as well.

The products offered by digital payment infrastructure are the initial contact point for the users to get an easier access to the products offered by financial institutions or banks such as small loans, insurance, credit products and other investment products and so on. This means the intervention of digital payments have a lot more to offer than just digitizing the transactional process. The platforms have the capacity to provide a good number of offerings in the financial sector to the customers.

With the approval of RBI and the changes that have been made in the recent times, the Fintech companies can now offer various quasi-banking products or services to cater to the demands of the customers in the financial domain. The fintech start-ups have played a very imperative role in the financial domain to offer quick and reliable products to the customers for making different unreachable and untapped locations financially inclusive. This is helping the nation meet the objective of becoming financially inclusive and providing access of digital payment services to the citizens.

Benefits of a Cashless Economy

Some of the key benefits of the cashless economy have been listed here:

Conclusion