Digital Payments In India: Definition, Tools, and Benefits

The Government of India has been taking several actions to promote and encourage digital payments in the country. As part of the 'Digital India' campaign, the government has been pushing to create a less-cash society to boost digital payments in India. If you look at the statistics below, over the years the total value of digital payments has gone up significantly, from 14.59 billion in FY 2018 to 71.95 billion in FY 2022. This is a noteworthy upsurge in the growth of digital payments, and it will continue to grow further.

Total value of digital payments in India (FY 2018-FY 2022)

Source: Statista.com

What are digital payments?

Any payment conducted through an electronic or internet-enabled medium, without a physical exchange of money between the payer and payee, is called a digital payment. Both the parties involved in a digital transaction - the payer and payee - exchange money through an electronic medium. Let’s understand it further.

For example - Digital payments can take place over the internet as well as in a physical outlet. If you buy something from a leading e-commerce website and pay for it via a credit card, it qualifies as a digital payment. Similarly, if you purchase something from your local grocery store and choose to pay via UPI instead of handing over cash, it also is a digital payment.

What are the different types of digital payment acceptance tools?

In India, various digital payment methods are trending today, and customers want all the available options across various touchpoints for their convenience and to get a seamless payment experience. It is essential for you as a business to ensure that all the bases are covered and offer your customers a unified payment experience. Let us understand some of the payment acceptance tools for enabling your customers to pay seamlessly.

1. Point of sale (PoS) Terminals

A point-of-sale (POS) terminal stands as a replacement for a cash register in retail locations. It is a hardware system that electronically accepts payments and makes cashless purchases possible at all these locations. It accepts debit and credit cards and offers QR scan payments.

Apart from processing payments, POS offers other value additions to you for efficient business functioning like inventory management to billing management system and more. The kind of POS system you will install is contingent on the kind of services you want to offer.

If you see the world of commerce today, it has been fully transformed in recent years. The requirements of businesses is changing and trying to fix new challenges like operational efficiencies and enhanced consumer experience. What businesses like yours are looking for today is beyond payments, preference is a full-service offer covering - instore, online and omnichannel acceptance and value-added services from a single POS device integrated with the ERP software.

2. Mobile Point of Sales (mPOS)

If you look at mPOS, it is a system that is designed to be used with smartphones and tablets to accompany you anywhere you go. Just plug the card reader into your device, connect to the internet, and you're ready to start accepting payments. mPOS systems offer all the same features as traditional POS systems, with enhanced portability.

mPOS systems can accept various payment modes– such as contactless cards, digital wallets, or by allowing customers to scan a QR code and pay online.

mPOS system can work for all types of businesses. Retail stores may need mPOS to scan barcodes and send digital receipts to customers’ emails. Cafes and fast-food restaurants might wish to invest in a self-service kiosk to speed up transactions. Whatever service your business provides, mPOS solution is a modern, flexible, and streamlined way to serve your customer.

3. SoftPOS

SoftPOS is a payment acceptance solution that converts a smartphone into a contactless payment acceptance device. It eliminates the need for small, medium and micro merchants to invest in a traditional POS terminal and allows them to accept payments via Tap-on-Phone.

In addition, it allows you to accept Link-pay (where an SMS/email is sent to customers and they can pay for it remotely) and QR, among others.

Another feature that can be enabled on the solution is ‘khata’ which allows businesses like yours to operate an electronic ledger as well as record all transactions, including cash. The app also has the capability to create a catalogue of items available with the merchant for sale.

4. Payment Gateway

A payment gateway is a technology that allows you to process transactions on your website or app. It authorizes you to conduct an online transaction through different payment modes like net banking, credit card, debit card, UPI, or the many online wallets that are available these days.

Payment Gateway basically transmits the payment data to the processor. It authenticates the digital credentials before forwarding the payment details to the payment processor. It acts as a facilitator to connect the payment processor to the merchant account and schemes.

5. Voice Alert Box

Voice alert box is a is an audio assisted smart device which provides instant notifications when you receive a payment. It is a small portable speaker for your daily payment alerts which comes with a SIM based connectivity. When a customer makes a payment by scanning a QR code the voice alert box will notify you of successful payments with a loud alert.

What are the benefits of digital payments?

If your business has just started to accept digital payments or is thinking of taking your business online, here are our top benefits of digital payments – and why your business, no matter how big or small, should be looking into the digital future.

Provide convenience for customers

One of the biggest benefits of digital payments for customers is convenience. When purchasing online or browsing at a retail outlet, they can select from thousands of products and services, compare easily, read reviews, make the payment seamlessly, and purchase the product or get it delivered within days (or sometimes, hours).

In fact, payment technology has evolved so much that customers are now able to make payments digitally even if they don’t have a credit card or a physical wallet on hand. From QR codes and PoS terminals, to payment links, it’s just as easy as logging into your account and completing the payment.

Reduce operational costs

When it comes to the benefits of digital payments, it’s also important to mention that they allow you to cut administrative and operational costs in a variety of ways, including:

Less paper

Using an online payment system means that companies can reduce paper-based processes by fully digitizing them. For example, billing – receipts are generally delivered via email and SMS. For you, this means cutting costs on materials such as paper, stamps, printing, and storage.

More data

Among the biggest benefits of digital payments is that they allow for the collection and analysis of customer data. As a result, you can study your strengths and weaknesses and become more efficient at every step in the process to target your customers better to boost sales.

Acquire more customers

The main benefit of digital payments for you is the possibility to acquire more customers and reach a bigger audience of potential clients. Because digital payments remove the geographical boundaries that physical stores have, merchants can sell anywhere, at any time, even reaching countries that they wouldn’t be able to otherwise.

For this reason, it’s important to implement an international payment gateway that can grow with your business and give customers the convenience to pay in their own currency.

Optimize and predict cash flow

Digital payments can help your business with the optimization of cash flow. The digitization of your business means that you will be able to charge automatically for subscription-based services, send payment reminders, communicate with customers, and offer flexible payment alternatives if the transaction has been declined. All of this will help you optimize your cash flow and have a higher predictability of your payments.

Secure your transactions

It is important to ensure full security for your business when processing digital transactions is by implementing a Payment Gateway that already compliant with local regulations and guidelines.

All payment aggregators that handle, process and accept digital payments should comply with PCI-DSS and Reserve Bank of India guidelines. It’s a set of safety measures with the purpose of ensuring the secure processing and handling of digital payments. It includes the implementation of methods such as encryption and tokenisation, which convert sensitive information into tokens for its secure and reliable transmission online.

Watch this space to learn about other aspects of digital payments, such as payment gateways, Point of Sale system and the role they play in the digital payment process.

With more than two decades of experience, Worldline India is the preferred partner for businesses across industry verticals for their payment needs. To know more about us, click here.

Frequently Asked Questions

How do digital payments get executed?

The digital payments ecosystem has many players who work in tandem to make payment processing seamless and secure.

Digital payments both in online and physical world is the money that transfers between an issuer bank to the acquiring bank. During this process, lot of steps comes together to make sure that money swiftly flows from one end of the tunnel to the other end of the tunnel.

For example, a customer who visited your e-commerce website gives consent to purchase the product. A payment request is sent from your website to the payment gateway that is integrated. Hereon, your integrated payment gateway will seek authorisation from your customer, accept the amount from the issuer bank and settled it to the acquirer bank. The payment gateway will also check the availability of balance in customer account with the issuing bank and based on the response it will accept or reject the transaction incase of insufficient balance or wrong entry of customer details.

Similarly, for physical card set-up, it is the POS provider who will does the job of a payment gateway to check the sufficient balance, credit limit with the customer bank and card provider. It will then authenticate through a PIN from the customer before proceeding with receipt and executing the fund.

What is MDR in digital payments?

Merchant discount rate or MDR is defined as the rate charged to a merchant for processing payment services. This fee is charged by banks on credit and debit card payments accepted from consumers for any services availed or goods bought. Generally, merchants set up the service and thereafter agree or commit to the rate before allowing credit/debit cards payment. The merchant discount rate is also known as Transaction discount rate - TDR.

The merchant discount rate encompasses all the charges and taxes that entails when a digital payment is made.