The objective of the paper is to study the aspect of the cashless environment and analyzing it in Indian circumstances, as part of encouraging cashless idea and converting India into a less-cash environment, various modes of digital payments are available.
The paper is prepared based on the secondary data. Research done on already research papers, published articles, journals, magazines, newspapers, and internet regarding the demonetization drive and cashless environment and modes of digital payment in India concept and analysis is done based on such research and conclusion is presented.
IV. THE CONCEPTS
A) Digital Payment Requirements
Criteria Need for criteria
Acceptability Transaction infrastructure needs to be broadly accepted.
Anonymity Individuality of the customers should be endangered.
Convertibility Digital Money should be transformable to any kind of fund.
Efficiency Cost per payment should be zero or near zero.
Integration Borders should be created to maintenance the existing system.
Scalability Infrastructure should not collapse if new customers and merchants join.
Security Should consent financial payments over open networks.
Reliability Should avoid single points of failure.
Usability Transaction should be as informal as in the real world.
B) E-Payments in India
India’s payment system is evolving to support e-payments in tandem with paper-based payments after the Reserve Bank of India started promoting automation in the banking industry in the 1990s. The RBI initially set up an electronic clearing service (ECS) to clear low-value, large-volume payments such as direct credits and debits within four days, and this drive succeeded despite the varying automation levels of India’s banks. Just recently, the RBI also built out the national EFT system for a special EFT (SEFT) system to act as a key component of India’s e-payment system and to resolve last-mile connectivity issues between entities, according to FinancialAsia.com.
Payment systems such as ECS and SEFT will in turn promote credit and debit card use in India, while the issuance of chip-based payment cards is expected to take off quickly. Once the RBI rolls out its real-time gross settlement system (RTGS), India’s banks and businesses will be better able to use the Internet to realize the value of e-payments to their operations. For greater automation in India’s payment system, the RBI has also linked clearing houses via Infinet (Indian Financial Network, a telecom network), set up a centralized funds management system (CFMS), and centralized the payments and settlement systems.
While India is unlikely to achieve a national e-payment infrastructure in the immediate future, “banks that do not invest or are unable to upgrade their technology will be at a significant disadvantage”, according to FinanceAsia.com. New e-payment systems will enable banks to offer their clients value-added services and support the propagation of e-payments to their suppliers. Banks doing so optimize the management of their funds and boost their productivity, while enterprises improve their receivables management for greater payments efficiency, reduced operating costs and better risk management.
Credit card issuers have solid opportunities in the Indian market, with projections for 2005 ranging from 10 million to 14 million cards, up from about 6 million in early 2003, according to Electronic Payments International. Merrill Lynch also reports that card transaction volumes have risen 41 per cent in 2003 over 2002, to $2.2 billion, with a total of $5.3 billion likely by 2005. In terms of card numbers, annual growth of 20 per cent to 25 per cent is expected through 2005, when some analysts expect 14 million to 15 million credit cards to be in issue, even though debit cards are overtaking credit cards in popularity.
India’s payments market is still dominated by cash and cheques, but almost every bank issues credit cards, with MasterCard being the acknowledged leader in terms of market penetration, at 4.21 million, or 84 per cent of cards. Visa leads in terms of card usage, and in 2002 had 64 per cent of transaction volume, EPI reports, with a similar ratio in the debit card market, in which MasterCard has 57 per cent of cards issued, but only a 29 per cent share of transaction volume. Debit cards are fuelling India’s cards market, given its credit- averse consumers, and the country was Visa’s fastest-growing market for card issuance in 2003.
Merchant and consumer use of credit cards in India has been restricted both by government laws requiring credit cardholders to lodge a tax return, and by the anonymity of cash, which does not leave audit trails. Most merchants are small, family-run businesses, and do not see credit card acceptance as beneficial, while cardholders must pay a 5 per cent tax on all transactions made. Credit card issuers are however on standby to tap an expanded market for credit cards that is expected to result from strong growth in India’s economy, which is in turn boosting average household incomes and demand for credit cards.