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The Digital India Program, which aimed to transform India into a knowledge economy empowered by
technology, contributed to the emergence and expansion of several digital payment methods, including UPI. The national payments cooperation of India had earlier launched payment systems that operated along similar lines to that of UPI such as RTGS (real time gross settlement) and IMPS (immediate payment service) but their penetration to consumer base remained restricted. But since its launch in 2016, the Unified Payments Interface, or UPI has undergone significant changes. Realtime payments began in India, which enabled consumers and businesses to cut the otherwise payment transaction costs by about $12.6 billion and generate almost $16.4 billion, or 0.56 %, of the nation's GDP. App-based digital transfers have brought a behavioral change in consumers, and this evolved into the adoption of electronic payments. There are several reasons why consumer confidence in payment modes like
UPI has sprouted, and one of them is that people are becoming more aware of the network's security.
Efficacies of digital payment
UPI facilitates various financial services, seamless fund routing, and merchant payments all to be available under a single platform along with making peer-to-peer fund transfers much easier. Banks offer unique UPI apps for several mobile operating systems, including Android, iOS, and Windows. UPI accounts are activated by linking the mobile phone number and the bank account, the maximum amount transferable per transaction being fixed at one lakh rupees. Studies on consumers' perceptions of digital transactions have illustrated a wide range of behavioral patterns a few revealed that favorable regulatory initiatives complemented with enhanced technological infrastructure have reflected an increase in the
use of digital payment transactions, positively.
Another survey on consumers' attitudes regarding digital wallets found that despite the growth of digital payment methods, many still hesitated to use such payment methods due to a lack of awareness and concerns regarding security. Though the convenience of opting for an electronic payment remains unquestioned, consumers tend to eventually prefer the original payment method, if they presume that the efficiency of using electronic payment is lower than that of the original payment method. A considerable influence on customer attitudes and intentions to use mobile wallets were determined by perceived
ease of use (PEOU), perceived usefulness (PU), trust, security, facilitating conditions, and lifestyle suitability. These elements along with convenience, safety, and cost define attitudes and beliefs as well as consumers’ subjective norms, thereby essential for the acceptance of digital payment methods.
Recent developments
According to the Finance Ministry, United Payments Interface (UPI) is a digital public good and no taxes are being proposed by the government for this. This claim helps alleviate concerns raised by the RBI's discussion paper on taxes in the payment system, which indicated the possibility that UPI payments would be subject to a tiered fee structure depending on different amount ranges. At present, there are no fees associated with UPI transactions. To decide on this, the Reserve Bank asked for
public opinion on fees and levies on payment systems to make such transactions both inexpensive and financially rewarding for the parties involved.
Digital Payment Service Providers (PSPs) like PayPal, Paytm, Razorpay, etc., have expenses, which are often funded by one or more of the participants in a payment system in exchange for finishing a digital transaction. Depending on the type of payment system, either the originators or the recipients are responsible for recovering the charges. The responsibility of such payment gateways is to manage client card information, get authorization from the consumer via an OTP or PIN, collect money from the issuer bank, and settle money with the acquiring bank, check the customer's account balance with the issuer bank before proceeding with authentication or rejecting the request if the balance is inadequate or the card information is incorrect. Operators of payment systems usually invest heavily in developing and running secure payment systems, attracting clients, and conforming to rules. Both customers and service providers must be encouraged by the cost structure to benefit from the services. The inception of UPI back in 2016 was fortunately complemented by the demonetization drive and the COVID-19 pandemic thereafter. This triggered its reach to such an extent that even cart vendors who earlier belonged to the non-internet literate category, now find it convenient to put up their own QR code than to juggle for cash and coins. Imposing transaction costs in such a time might seem not so strategic given that RBI is now initiating the launch of New Umbrella Entity (NUE) for private players to launch their personalized payment platforms. Similar to UPI, the NUEs such established will aid the creation of novel payment systems and standards, technologies and settlement methods. Additionally they would implement a security system in charge of monitoring, addressing and preventing fraudulent activities. Launching of NUEs therefore would broaden the financial inclusivity and promote development in Finance Technologies or FinTech at the cost of UPI’s popularity. Even if the charges are imposed, they should be acceptable and not act as a barrier to the adoption of digital payments. To promote ongoing investments and innovation in digital payments, even experts suggest that the pricing of financial instruments should be left to market forces.
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