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22

08/2023

We Are Witness To The Evolution Of Payment Industry: Unforgotten History

Many years ago, we had read in school that there were various forms of payment methods such as barter/ exchange system which was succeeded by coins of various metals which were designed and then discontinued by mighty rulers as per their wisdom. The phase also emphasized paper currency and its power in addition to teaching us many other practical aspects of life. Perhaps none of us might have ever dreamt of being witness to a period where physical currency with retained well-defined power and existence will be getting nearly invisible. Much has been highlighted on the benefits and challenges of digital payments, so I have decided to delve into the transformative journey of online payment methods through this article.

The digital landscape has undergone a paradigm shift in recent years. There has been a transition from traditional payment methods to online payment systems which have redefined operations and transactions in all spheres of life. As technology has advanced, the role of online payment methods has reshaped commerce and streamlined financial transactions, thereby bringing ease of doing business. Till the year 2000, Cash was the primary mode of payment in India and accordingly, most of the transactions were conducted in physical currency or through banks physically. The early 2000s witnessed the introduction of electronic payment methods like credit and debit cards, which was indeed the first step towards digital transactions in the country. In between years 2006-2010, along with tremendous technical growth in banking platforms, there was a proliferation of mobile phones and internet usage. Mobile wallets, such as #Paytm, #MobiKwik, and #FreeCharge were in the process of gaining popularity. The innovations occurring in banks along with mobile #wallets allowed users to store money digitally and make payments for various services and products purchased. Prepaid instruments like gift cards and prepaid cards had already marked their firm presence in the industry and were available in good numbers due to their strong B2B network.

In 2014, Unified Payments Interface (#UPI) was Introduced by the National Payments Corporation of India (#NPCI which allowed users to link their bank accounts to a single interface and make instant peer-to-peer (P2P) and peer-to-merchant (P2M) payments. UPI enabled seamless and real-time fund transfers, leading to widespread adoption. After initial hiccups, UPI has now revolutionized the payment space in India and now got it’s due and emerged as a future payment method of the masses. Interestingly, Various digital payment platforms emerged simultaneously, both from traditional financial institutions and tech companies. Google Pay, PhonePe, Amazon Pay, and other apps gained prominence, offering UPI-based transactions along with additional services like utility and credit card bill payments, recharges, and many more. Traditional banks also embraced digitalization and started offering mobile banking apps and online platforms, allowing customers to perform a wide range of banking services without visiting physical branches. It is also an established fact that- innovation in the #Fintech industry has contributed immensely by introducing services such as microloans, investment platforms, and financial planning tools accessible widely through digital channels. In fact, it was the other way around as well because the #fintech industry itself needed such pragmatic changes more than any other industry

Regulatory Changes and Innovation by the Reserve Bank of India contributed substantially to the promotion of digital payments and marketing campaigns organized by the Indian Government could retain the faith of the common man in ensuring that the transactions are secured. These included measures like strong authentication for card transactions, interoperability among wallets, and data localization requirements. The integration of Aadhaar, India's biometric identity system, with financial services allowed for easier KYC (Know Your Customer) verification and expanded financial inclusion to greater heights. The Indian government's decision to demonetize high-denomination currency notes in 2016 in fact has accelerated the adoption of digital payment methods, as people sought alternative ways to carry out transactions without physical cash. The #BHIM (Bharat Interface for Money) App introduced by #NPCI in (2016) as a UPI-based platform to facilitate digital payments simplified the process of making UPI transactions for users further is another milestone achieved.

The proliferation of e-commerce and the growing demand for seamless transactions paved the way for online payment methods to gain prominence. Traditional methods like cash and checks have gradually given way to digital alternatives, driven by the convenience, security, and efficiency they offer. There was a gradual but fast transition of customers from Debit and credit cards to mobile online payments. Industries such as travel and hospitality embraced online payments to streamline the booking process for flights, hotels, and other accommodations. This transition has contributed to the growth of online payments and global tourism sector. The rise of food delivery and online ordering services with online payment is on its way to eliminating the need for cash transactions.

Today in the payment industry, the mindset of the user has evolved from Security Concerns like Digital Divide, Transaction Fees, and Privacy to issues like Convenience, Efficiency, and Real-time settlement which is propelling this evolution ahead and this may now enable businesses to cater to international customers and to get Data Insights allowing businesses to gain more information about customer preferences and behaviors.

The future may witness the widespread adoption of innovative technologies such as Blockchain for enhanced security and transparency. Integration of biometric authentication and AI-driven fraud detection systems may also add value to online transactions.

We all look forward to a future that is promising with more advancements in technology, ensuring that online payment methods will continue to play a pivotal role in shaping the business landscape of India.