Challenges in digital payment systems in India

Weaning away from cash

Cash is all pervasive as it is perceived to provide anonymity, flexibility, convenience and swiftness of making payment; finality of payment, without any default risk; and high level of liquidity and acceptability.

Notwithstanding the above advantages of cash payments, a report by RBI, titled Assessment of the progress of digitisation from cash to electronic stated that India is progressively shifting to electronic payments at a rapid pace. It is on account of factors like trust (aided by measures like AFA), consumer confidence (no default risks and settlement in central bank books of accounts), low cost of access and convenience (easy to use mobile based payment system products), that have been brought in the digital payments by the efforts of the regulator and participants over a period of time. But still there is a long road ahead for migration of the country from predominantly a cash-based economy to a predominantly digital economy which is a work in progress.

Digital Financial Awareness and Digital Financial Literacy (DFA and DFL)

While there has been growth in adoption of digital payments across the geographies and cross-sections of the society, there is differential rate of adoption, owing to lack of DFA and DFL across the spectrum. A lot of efforts have been put on this front by the regulator and various PSOs through awareness campaigns like 'RBI Kehta Hai' and e-BAAT, among others.

Considering the diversity of users in the payment ecosystem, there is still a long road to be travelled, especially across the geographies (Tier III-VI centres) and societal cross-sections (say senior citizens and migrant workers). A targeted approach in DFA and DFL is, therefore, required to cater to these potential areas and probable user segments which will augment the efforts to attain the desired level of digital payment adoption.

Digital payment Products for users across the spectrum

While there are options in digital payment products for a smartphone user (mobile banking, internet banking, UPI, IMPS, digital wallets, etc.), there is a gap area in terms of digital payment products for the non-smartphone user. Even though USSD caters to this segment, it is only in a limited way as only certain transaction with low limits are allowed on this platform due to safety issues. There is scope for innovation which will offer digital payment products for the non-smartphone users who though declining, would still number around 50 crore by 2022 (according to ASSOCHAM-PwC study- December, 2018).

Customer Protection and Security of Digital Payments

While adequate measures are prescribed and adopted by PSOs as they provide digital payment platforms and products, there are instances of frauds, mostly due to customer vulnerability or sometimes on account of system breaches. This leads to apprehension in new users to move towards the digital payments as also makes it difficult to retain those customers who had a bad experience. Steps such as zero customer liability, switch-on / switch-off of digital transactions and digital ombudsman have been taken as customer protection measures to restore customer confidence and limit the liability of the customer. The high cost of implementation of cyber security measures leads to a tendency of an adhoc approach which become points of vulnerability leading to instances of system breaches. While such vulnerabilities are addressed through frequent advisories and instructions to the system participants, it brings the issue of cost to the forefront.

Cost and Connectivity

The cost of digital payments is sometimes a deterrence for users to adopt digital payments as against cash which is perceived to be free by such users. In addition, the cost of installation of acceptance infrastructure like PoS dissuades certain small merchants to adopt them. Low cost digital acceptance solutions like QR codes have helped in addressing this gap to a certain extent (there are over 7 crore QR codes deployed across the country), but there is scope for more innovative products and further expansion of QR code deployment. Effecting payment through the QR code still requires internet connectivity at the user's end and offline payment solutions can help plug this gap. As per the TRAI data, as on October 2020 there are 73.4 crore internet subscribers in India as against 117.1 crore telephone subscribers which implies that there is still scope for expansion of internet coverage.

Source : RBI