Online payments and digital transactions have seen tremendous growth in India over the last few years. However, there are still some key challenges and problems that need to be addressed for online payments to become ubiquitous in the country.
Lack of awareness and poor digital literacy
A major obstacle to the proliferation of digital payments in India is lack of awareness and poor digital literacy, especially in rural areas and among the older generation. According to IAMAI-Kantar ICUBE 2020 report, while urban India has 65% internet users, only 31% rural population has access to internet. This leads to lower awareness about different modes of digital payments and how to use them securely.
The digital payment players will have to invest more in education and awareness campaigns to improve adoption of digital transactions across all sections of society. The government and regulators also have a key role to play here.
Concerns around security and privacy
Security and privacy concerns are another major hurdle for online payments. Given the lower levels of digital literacy, many users worry about the risk of frauds, scams and leakage of personal/financial data when making digital payments.
Recent cases of data breaches and online fraud have accentuated these fears. Players like banks and fintech companies need to invest more in robust cybersecurity infrastructure, data encryption and KYC processes to assure users of safety of their money and data.
Connectivity issues
While internet usage in India has increased over the years, connectivity still remains a challenge especially in rural and remote regions. Lack of high speed internet infrastructure hampers adoption of digital payments in such areas.
Telecom operators and digital payment companies need to enhance penetration of mobile internet and connectivity to support digital payment habits across the entire population.
Merchant acceptance
Though merchant acceptance of digital payments has improved recently, a large proportion of small informal retailers and businesses are still averse to accepting online payment methods due to perceptions of high costs and low utility.
Players like Visa, Mastercard, Paytm etc. should focus on targeted merchant acquisition and continued education of small businesses on the benefits of accepting digital payments.
Complexity in user experience
The user experience related to digital payments can sometimes be overwhelming or cumbersome for first-time users. For instance, the multi-step process for completing a UPI transaction can create friction.
Companies need to invest in simplifying the product design and user flows related to digital payments keeping in mind various user personas like rural citizens, elderly population etc.
Regulatory uncertainties
Regulatory uncertainties and lack of standardised norms have also hindered innovation in the digital payments space occasionally. For instance, the 2018 RBI ban on crypto transactions led to turmoil in the industry.
Going forward, having clear regulations and compliance guidelines will be crucial for boosting confidence of players operating in this space.
Interoperability challenges
There is still scope for improvement when it comes to interoperability between different digital payment systems and instruments. For instance, money transfer between different UPI apps or between UPI and prepaid wallets can sometimes be tedious.
Players in the ecosystem will have to collaborate more closely and invest in building linkages between various payment rails for seamless user experience.
Inadequate grievance redressal mechanisms
Robust grievance redressal mechanisms are pivotal for any payment system for promptly resolving customer complaints and building trust. However, grievance redressal processes related to digital payments in India are still evolving.
Banks, fintech firms and regulators need to institute better complaint management systems, educate users on available grievance channels and continue improving efficiency of resolving issues.
Uneven adoption across sectors
| Sector | Digital Payment Adoption Level |
|---|---|
| E-commerce | High |
| Restaurants | Medium |
| Grocery Stores | Low |
| Public Transportation | Low |
As the above table shows, adoption of digital payments has not been uniform across all sectors. For instance, e-commerce sector has seen high adoption of online payments while public transport is lagging.
Industry bodies and regulators will have to analyse sector-wise trends and take customised steps to boost digital payment acceptance across different areas.
Conclusion
To summarise, while India has made significant progress in adoption of digital payments, there are still gaps when it comes to awareness, security, infrastructure, user experience and interoperability. Targeted steps are needed from ecosystem players and regulators to address these challenges comprehensively.
The growth potential for online payments is immense given the rapid rise in smartphone penetration and fintech innovation. With the right collaborative efforts between the government, regulators, banks and fintech firms, India can become a global leader in digital payments in the next few years and build a truly digital-first economy.
