digital payment vs cash payment essay

Why Digital Payment is Better Than Cash

The ability to pay digitally has become more important than ever, as it benefits both businesses and consumers in many ways. In fact, in 2018, the Federal Reserve found that check payments had become less popular than automated clearing house debit transfers (ACH)—a type of digital payment in which money is pulled from a checking account to pay a bill. More specifically, there were about 16.6 billion ACH debit transfers compared to 14.5 billion check payments that year.

Additionally, from 2015 to 2018, the number of debit and credit card transactions increased by nearly 9% annually. And at the start of the pandemic in 2020, the importance of digital payments was even more apparent as touchless transactions were sought after whenever possible in the name of safety. Clearly, the use of cash and checks is dwindling, and there are several good reasons for that. Here’s what you need to know about why digital payment is better than cash.

Digital Payments Are Fast

One of the most apparent advantages of digital payments is how quick they are, especially for major purchases. Counting out cash can take a lot of time for both businesses and consumers. If you’re buying an item or service, you might have to count out dozens of bills, which can take a few minutes. And if you mess up the total and have to start again, you’re suddenly holding up the line! Then the person you hand the cash to has to count the bills, as well, and place them in the proper sections of the cash register. This can lead to wasted time and energy for both customers and cashiers, and could negatively affect the overall customer experience at the business.

Writing a check can take just as long. You have to get out the checkbook, wait to hear the total, and then hope you get all the information right the first time. If you make one mistake, you’ll likely have to tear up the check and start again with a new one. Then the person you hand the check to has to closely examine and verify it before storing it in the right place. And at the end of the business day, an employee has to take the cash and checks to the bank to deposit them into a checking account. All of this takes a lot of time, especially over several business transactions each day.

You can likely already see why digital payment is better than cash. It’s simply much faster. When businesses accept digital payments, customers only need to grab a card and swipe or tap it. If they’re paying online, they can enter their account information from home on their own time, meaning they’re not holding up a line at all. And the business gets the funds immediately, without having to deal with trips to the bank or days of waiting to see if a check gets accepted. Basically, one of the reasons why digital payment is better than cash is that it frees up time and makes cash flow more seamless than ever for businesses in all industries.

Paying Digitally Is Convenient for Consumers

Another reason to use digital payments instead of cash is the sheer convenience. This is especially the case when customers are out shopping for major products, such as home appliances—or even homes themselves! After all, real estate transactions can cost a lot of money that needs to be paid as soon as possible, with no time to waste.

But when you’re looking to spend hundreds or thousands of dollars, you’re not exactly prepared to carry that much in cash. And you don’t always know ahead of time how much cash you’ll need for the product or service you’re buying. Bringing a checkbook isn’t much more convenient, as it doesn’t easily fit into a wallet like credit and debit cards do—increasing the chance you’ll lose the checkbook altogether.

It’s much easier to just bring a credit or debit card, or even use a mobile wallet via a secure phone app. This way, when consumers are ready to make a purchase, they can do so on the spot, without having to go to a bank or return home to get cash or a check first. The result is typically more sales for businesses, since when a customer has to leave to get cash, there’s a chance he or she won’t return to complete the transaction. Therefore, accepting and even encouraging digital payments is important if you want to boost sales at your business.

Digital Payments Are Typically More Secure

Another important reasons why digital payment is better than cash is the security. The problem with walking around with large amounts of cash is that if it’s stolen or lost, you’ll likely never get it back. Not to mention that if anyone knows you frequently carry cash, you become a target for criminals, increasing your chances of being hurt during a robbery. This is a concern for both consumers and employees of businesses, which is why keeping a lot of cash on hand isn’t recommended.

Checks aren’t much safer for businesses or consumers. There are many types of check fraud that can affect individuals and businesses alike. Identifying and fixing the problem can take weeks or longer, and it might affect or completely cancel a sale you thought was already done and accounted for. Then there’s the ever-present threat of a customer’s check bouncing, which can result in delays and fees that both business owners and customers have to deal with.

You can avoid these security issues by encouraging digital payments instead of cash or check at your business whenever possible. While it’s certainly possible for digital payments to be targeted by cyber criminals who attempt to steal money, those funds are usually protected by financial institutions. This means you know you’ll eventually get the money back, which isn’t usually the case with stolen or lost cash.

Plus, online payment processors take the time to verify identities and ensure there’s enough money in the account before your business accepts the transaction. This offers some protection for businesses that can’t afford to risk the delays and fees that come with bounced checks, and need to know that every transaction will successfully go through.

As you can see, there many reasons why digital payment is better than cash overall. Paying digitally benefits not just businesses, but also customers. Whether you need help keeping real estate transactions seamless and quick or just want to make it as easy as possible on your customers to buy from you on a regular basis, digital payments are important.

At paymints.io, we’re aware of the many reasons why digital payment is better than cash, which is why we’re proud to offer a fully electronic, secure way to pay for products and services. If you want to find out more about what we can offer you, please feel free to  schedule a demo with us today!

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One of the more complex challenges banks must solve is to make payments more efficient. Recent news headlines show significant shifts from physical identification and physical forms of payments to digital forms in many jurisdictions. Europe recently announced a mandate that real-time payments be available from any provider who currently offers batch euro payments (such as SEPA credit transfers) at a price of no more than the cost of batch transfers.

This, combined with the increased use of digital identity in Europe and many other countries, is good news for consumers and businesses. These changes, along with other payments modernization efforts, may eliminate friction in financial ecosystems and the economy in general. But as some countries move forward with the advancement of digital identities and payments, other countries fail to realize the potential of these solutions.

Malaysia, along with many southeast Asian countries, is moving to align and integrate their digital payment systems with other networks to make cross-border payments easier. Malaysia’s payments network, PayNet, is collaborating with Ant Group (the parent company of Alipay) to allow Alipay+ wallet holders from seven countries to pay via QR code using PayNet’s DuitNow QR system. The service launch means that if a bank or wallet participates in Alipay+, customers can make real-time payments simply by scanning the QR code using DuitNow in Malaysia.

The cross-border advantage to this system allows customers in China, Hong Kong SAR, Philippines, Mongolia, Macau SAR, South Korea and Thailand to make payments with a single Alipay supported wallet. AliPay also introduced its “Smile to Pay” facial recognition application on mobile devices in 2017, which allows customers to make purchases by posing in front of point-of-sale machines. Mastercard also announced its pilot of biometric recognition just under two years ago. It is likely that this form of digital identity for payments will continue to expand.

In contrast to recent digital payment advancements, the Washington D.C. Council recently banned cashless businesses . Cash as a physical commodity is a costly means of payment, given the security issues, risks and handling costs to every stakeholder in the value chain handling the cash. Increasing the use of cash does not reduce cost or friction in the economy.

The reasoning for the D.C. ban is that many people don’t have a bank debit or credit card, so they must use cash to make payments. In the United States, approximately 7% of the population are unbanked, according to Global Finance . That 7% may not seem like much, but it represents around 23 million people who rely on cash or other non-bank forms of payments.

The D.C. ban makes access to retailers more equitable for the unbanked, but it doesn’t address the root cause of being unbanked in the first place. One explanation is the lack of access to government-issued ID, for reasons such as having no fixed address. A digital identity that is established based on some attribute of the person themselves, as opposed to where they live or if they can drive, makes the problem of economic access easier to solve.

For a good case study, look at what has happened in India since the introduction of Aadhaar, the digital identity system established by the country’s federal government. As a result of this system, financial inclusion for millions was possible. People could qualify for a bank account or a digital wallet with their digital identity, wherein they could store funds obtained from government or other sources. Those who formerly had no chance to participate in the economy, except through cash and the generosity of others, can now make payments at a merchant using India’s UPI digital real-time payments system.

The link between digital identity and financial inclusion is clear: with this system, India’s poverty rate declined by around 10% or nearly 135 million people in 5 years . Furthermore, the Indian economy is benefiting from this financial inclusion. Real GDP growth was 6.9% in FY 2022-2023 and is expected to be 6.3% in 2023-2024. The reduction in the use of cash is a contributing factor. It stands to reason that the US and other countries should consider accelerating the move away from cash to digital payments to achieve financial inclusion and economic growth.

There is an immediate opportunity to accelerate the adoption of digital alternatives to cash. Combined with the adoption of digital identity, the economies of countries who pursue this path will grow and be more competitive globally than those who don’t. Moreover, businesses and consumers will be more satisfied with the ability to conduct business as the economies in which we live become more efficient.

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Top 10 Advantages and Disadvantages of Online Payments

   4th September 2024 12 Comments

Table of Contents

• 1 What Are Online Payments?
• 2.1 Tips to follow while making online payments
• 3.1 1. Speed of transactions
• 3.2 2. Convenience 
• 3.3 3. Reaching global audience
• 3.4 4. Low transaction costs
• 3.5 5. Quick and easy setup
• 3.6 6. Variety of payment choices
• 3.7 7. Availability of more distribution channels
• 3.8 8. Easy management
• 3.9 9. Better customer experience
• 3.10 10. Recurring payment capabilities
• 4.1 1. Technical problems
• 4.2 2. Password threats
• 4.3 3. Cost of fraud
• 4.4 4. Security Concerns
• 4.5 5. Technological illiteracy
• 4.6 6. Limitations on amount and time
• 4.7 7.Service fees and other additional costs
• 4.8 8. Disputed transactions
• 4.9 9. Loss of smart cards
• 4.10 10. False identity
• 5.1 Latest posts:

The very purpose of setting up a business is to make profits. And the whole idea of making profits is possible only if your business offers its customers the ability to make payments. With technological advancements in recent years, online payments have become an inseparable part of the e-commerce industry. And, why wouldn’t they, considering the many benefits that come with online payment features. 

While the concept of online payments isn’t entirely new, the COVID-19 pandemic has only accelerated the use of online payment methods like credit/debit cards, UPI, and mobile banking across the globe, but especially in India. As more and more businesses adopt online payment gateways in their portals, the importance of these e-payment services is increasingly becoming more of a necessity for both vendors and customers.

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What Are Online Payments?

Payments made over the internet are generally classified under ‘online payments’. These payments are done while purchasing products or availing any services, both online or offline. Online payments can either be one-off payments (like a purchase from Amazon) or recurring payments (like subscribing to Netflix). Some of the common methods of online payment include

• Bank transfers
• Digital wallets like PayPal or Google Pay
• Online credit/debit cards
• QR Codes / UPI

How Do Online Payments Work?

Here’s a very basic and also the most common model of how online payments usually work:

• A customer places an order on the merchant’s website
• The payment gateway gathers all the required data and information needed for the transaction to take place
• The data is then forwarded to the financial institution or the credit card company
• This is further transferred to the customer’s card company
• The bank then confirms the transaction and informs the merchant
• Finally, the merchant sends a confirmation message to the customer saying that they have received the payment

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Tips to follow while making online payments

Though online payments seem highly convenient and safe, there are a few things you need to be careful of, given the increased fraudulent happenings.

• Do not save card details: Most of us prefer to save our card details on our smartphones or other devices to avoid entering them every single time. But this is not advisable as it can be used for wrong purposes in cases of theft. Always make sure to erase your card details after every use.
• Never share your passwords: As cliche as it sounds, it is very important to follow this advice. Don’t share your passwords with anyone, and keep changing them regularly so that you don’t fall prey to hackers or any other cyber criminals. Have a strong password and enable the OTP feature to ensure maximum security.
• Avoid using public WiFi networks: No matter how much of a hurry you are in, you must always avoid making transactions via public computers or WiFi networks as there are high chances of data theft and other cyber attacks.
• Use private windows: Make sure you perform all your transactions on private windows and avoid all kinds of suspicious apps or websites that are not recommended by the app store. You can find out about such apps by looking for reviews and the number of downloads.

Advantages of Online Payments

1. speed of transactions.

For both the seller and the customer, online payments save a lot of time. People don’t have to wait in lines, take time to write checks, or wait for paper bills. They don’t have to wait for banks to clear their checks so that they can access the money.

For sellers, it saves a great deal of time since they don’t have to waste time printing and mailing bills. Online payments also decrease the chances of late payments. Since it takes less than a few minutes to complete a transaction, people will not forget it or put it off for later.

2. Convenience 

People can pay for goods and services at any time of the day from any part of the world. It is easier to click a feature on your smartphone than to collect the correct amount of cash for your purchase. You don’t have to carry a lot of cash, get worried about theft or not having perfect change. With online payment options, you just need to remember a certain pin, and that’s it, your transaction is done! As simple as that. 

DID YOU KNOW?  In a survey conducted in 2020 to analyze the changing consumer sentiments concerning the COVID-19 pandemic in India, the respondents over the age of 40 were more inclined towards using credit and debit cards for payment. Contrary to this, UPI and online wallets were more popular with younger consumers.

3. Reaching global audience

One of the biggest advantages of having online payment gateways is that businesses can operate globally and have a customer base irrespective of geographical limitations. According to research , over 56% of online shoppers prefer to shop cross-border. So implementing online payment options on your e-commerce site will undoubtedly increase sales as you will be catering for a global audience.

4. Low transaction costs

In a traditional payment setup, businesses have to hire front-desk employees or cashiers to manage sales and payments. But with online payments, transactions take place in an automated environment. Merchants can set up online payment gateways with minimal investment and lower transaction costs.

5. Quick and easy setup

Instead of spending time on setting up a whole payment process that involves certain equipment and some extra employees, you can easily and quickly integrate online payment gateways for your business. However, before you choose the services of a particular vendor, you can evaluate the different options available in order to choose the best one. 

6. Variety of payment choices

With online payment features, you can offer your customers a wide variety of payment options to choose from. People have their own preferences, and if they can find that option while purchasing from you, there are obviously more chances of them actually getting through with the transaction. 

7. Availability of more distribution channels

As a business, having online payment options can benefit your distribution channels a lot. If you are ready to accept online payments, you can enter the affiliate domain and branch out your sales by displaying your products or services on other websites. It is a great way to increase sales. 

8. Easy management

Online payments make it easier to manage and store your money and other financial data. For both vendors and customers, there are a lot of tools available on the internet that will help you with transactions. You don’t have to keep track of your finances and let the tools do the job. It only gets easier since you don’t have to carry cash or cards.

9. Better customer experience

If customers feel it is convenient to purchase from you while also being able to save money and time, then that automatically translates to a positive customer experience. And as a business, you must put customer experience above everything else. Implementing online payment options for your business is a great way to achieve it, as many people nowadays prefer online payments over cash or card transactions.

10. Recurring payment capabilities

Online payments have made subscription markets operate with ease. Earlier, people used to make cash/card payments at regular intervals. Now, payments are automated and people don’t have to actually remember to pay or take the effort to go all the way to the physical place of business to make their payments. This has made receiving and accepting payments easier for both the seller and the customer. 

Disadvantages of Online Payments

1. technical problems.

Online payments are subject to technical failures or downtime, just like any other software that is dependent on technology. Though tech maintenance operations are announced in advance and usually take place during the night, sometimes, it can cause frustration among online shoppers. Especially when it takes place without prior warning, a lot of businesses experience heavy bounce rates.

2. Password threats

If you are a registered user with a website who uses online payments pretty often, there are high chances that the online portal can have access to your personal information or bank account details. Though most transactions use OTPs (one-time passwords), the need for password protection arises in such situations. Especially if you are someone who deals with different banks, you might face the risk of a privacy breach.

3. Cost of fraud

Just as more and more people are shifting to online payments and preferring them over other traditional forms of payment, so are cybercriminals. ID thefts, phishing attacks, and database exploits are becoming more common. In order to prevent these and increase security, businesses install a lot of payment-security softwares and eventually incur a lot of costs.

4. Security Concerns

As discussed in the previous point, using online payments come with a lot of security risks. Without proper security measures, fraudsters can easily hack important financial information and data. And since there aren’t any verification systems like facial recognition or biometrics, criminals can easily get away without getting caught.

5. Technological illiteracy

One of the main disadvantages of online payments is the technological illiteracy among many people, especially the older generation. Since they don’t have enough knowledge on how to go about using technology or smartphones, they refrain from using online payment methods. A lot of them also fear the complexities of it and continue to use traditional methods of payment. This is a huge drawback in developing countries like India.

6. Limitations on amount and time

Some banks limit the number of transactions you can do in a day or the maximum amount you can transfer in a day. Most online transactions also have a time limit under which you need to complete the process (like receiving and accepting OTPs). All these limitations can prove to be pretty inconvenient to some users. 

7.Service fees and other additional costs

While implementing online payment gateways, some services may demand setup costs or even processing fees for customers using those facilities. Setting up online payment options obviously requires access to the internet and other services that come along with it. This easily leads to incurring extra costs and both the sellers and customers can find it tiresome.

8. Disputed transactions

If you find someone using your electronic money, you can file a complaint with your bank or online payment processor. However, if you are unable to find the personal details of the person or for that matter, any details about them, then you cannot file a complaint or receive a refund. It gets tricky in such situations.

9. Loss of smart cards

Most online payments are done with the help of credit/debit cards, ATM cards, or identity cards. So if you lose any of these, automatically, your online payment accounts that are linked to your cards will be at risk too. Of course, you can block your cards after informing the bank, but the time between losing your card and blocking it may prove to be risky as many transactions by fraudsters can take place during that time period.

10. False identity

Unlike physical transactions, there are no ways to identify if the person making the online payment is the one he/she is claiming to be. Since there are no verification methods like photographs or signatures, most online payments are done behind a veil of anonymity. This can lead to a considerable amount of forgery and identity theft. 

Digital payments are shaping the e-commerce industry in ways more than one. As both a business owner and a customer, it is pretty much expected of you to have online payment options.

Though it is mainly considered to be advantageous for many obvious reasons, online payments have their own set of disadvantages that you need to be aware of. After all, in today’s digital world, every convenient feature comes with a bit of risk! With proper precautions and management, you can overcome most of these disadvantages. 

NTT DATA Payment Services offers a complete payment solution to advance your business. With the help of our cutting-edge and seamless payment gateway services, you can step up your business in no time! 

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I’m not sure where you are getting your information, but great topic. I needs to spend some time learning much more or understanding more. Thanks for excellent information I was looking for this information for my mission.

I like that you pointed out how online payments could save a lot of time, for both the seller and the customer. I was shopping around yesterday and I noticed that a lot of shops actually accept online payments now. It is nice to see that online payment is now common and could be used in a variety of ways, like online ticket purchasing.

It’s great that you elaborated on online payments and how they keep track of your online sales. My cousin is interested in starting a business in a few months, so he’d like to know more about an e-commerce payment system, and I think he’d benefit from your article. Thank you for the information on providing an accessible payment option for your customers.

This article does a great job of highlighting the key advantages and potential disadvantages of online payments. The convenience and speed of online transactions are huge benefits, but it’s also good to be aware of the additional security and fraud risks. Overall, a balanced and insightful perspective on the pros and cons of payment digitization.

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Why Digital Payments are Better than Cash

Over the past few years, consumers learned that paying for items using a cashless process was more convenient than using cash or writing checks. Business owners also adopted cashless payment options because doing so proved to be cost effective and faster than relying on cash.

According to industry data, the number of debit and credit card payments has been increasing by roughly nine percent annually in the years just prior to 2020. The pandemic created a greater reliance on online shopping, which suggests the newest data will likely show an even greater rate of increase in digital payments.

So, what’s the outlook for the use of digital payments in the future? Why should business owners explore different ways to accept those payments? If you’re unclear about the advantages of digital payments and why they’re better than cash, let’s review some of the reasons digital payments are increasingly popular.

What is a Digital Payment?

Before exploring the reasons that digital payments are so popular, it’s important to understand what a digital payment is. The basics are pretty simple to understand. A digital payment allows one person or entity to transfer money to another person or entity without the use of cash or a check. That means the transaction is completed almost immediately, and there is no need to transfer money physically. Online transactions are easy for everyone involved, and even in-person transactions using credit cards are completed quickly.

At this point, credit and debit cards are still used extensively for purchasing goods and services, but even those cards are becoming obsolete as other forms of digital payments enter the picture. Devices using biometric authentication are now appearing, which will dramatically alter the way payments are made in the future.

Using Digital Payments is Convenient for Everyone

While it’s unlikely people will stop carrying some cash anytime in the near future, most people are uncomfortable toting around large sums of money. Doing so puts them at risk, with the dangers of personal attacks being quite real. It’s also hard to imaging losing a large sum of cash, as such a loss can make life uncomfortable if the money was meant to make necessary payments.

That’s why the use of digital payments has increased significantly. While it may be inconvenient to lose a debit or credit card, there is generally no real risk of financial losses if the proper procedures are followed.

Another payment option increasing popularity is the mobile wallet which does not require the use of a card. Apple Pay is probably the best-known service, but many others are now commonly available, and all are easy to use.

At the same time, merchants of all types are now finding that accepting digital payments is better for their businesses. Customers can check out faster, as there’s no spent time filling out a check or waiting for the cashier to make change. Merchants also no longer need to check larger bills for counterfeit funds. While saving a few seconds per transaction may not seem like much, those seconds do add up.

Payments are Made Instantly

In addition to the time saved when checking out, it’s important to remember that there is never a lag between the time payment information is uploaded and the payment is credited. That’s especially important for online purchases. Digital payments are generally approved instantly, which means consumers and merchants alike know there are no financial issues with the transaction.

Companies accepting digital payments find their sales increase, as consumers appreciate the cashless process. It’s easier to schedule a variety of services if the provider is given digital payment information in advance. The provider knows immediately if there is a problem with payment.

Processing Costs are Low

The majority of new digital payment options do not charge excessive fees to users. That means your bottom line is protected. It is however, always important to review all fees prior to setting up different payment options. While Digital Payment Benefits are certainly worth their fees, some are costlier than others.

Regardless of the type of business, digital payment options are now a must, and there are times when some of those options may be more expensive to offer than others. Go over the cost of each digital payment option to make sure you’re getting the best service for the best price.

Transparent and Easy-to-Track Payments

A major issue facing all merchants is knowing their financial picture. When relying on checks or other payment types, it’s difficult to track your sales and expenses accurately. When using digital payments, it’s easy for customers and merchants alike to track those payments, which means there is a significantly reduced chance of payment disputes or returned checks.

Security is Enhanced

Given the recent hacking issues, the importance of cybersecurity is well-known. All companies, regardless of their size, must use appropriate precautions to ensure customer and company data is secure. Though not always easy, businesses can however make use of digital payment strategies using platforms proven to be safe.

Using Xpress-pay, for example, provides a wide variety of businesses with a safe, secure way to accept payments. These platforms are designed from the ground up keeping company and customer information and accounts safe from intruders . While there is no way to guarantee a site won’t be hacked, using safe practices always pays off, as intrusions are greatly reduced.

Even brick-and-mortar businesses are safer using digital payments as the odds of theft are virtually eliminated. Shrinkage at all levels is a real problem for brick-and-mortar businesses, and using every available and practical theft prevention method is always recommended. Reducing the use of cash and checks is proven to reduce theft.

Digital Payments are Contact-Free

With the onset of the pandemic, it quickly became obvious that all businesses had to find ways to limit direct contact between employees and customers. Businesses that had never seriously contemplated using contact-free payment options quickly adopted them. Since these methods are quick, easy and comfortable for everyone involved, we are likely to see those options used even more in the coming years.

A good example is the devices now commonly seen in restaurants allowing customers to order and pay their bill without needing to come in contact with waitstaff. While the human touch is nice, there are times when using digital options is safer for everyone.

What’s Coming in the Future?

Industry observers are quick to point out that the world’s payment landscape is rapidly evolving. Dealing with COVID-19 forced changes, but many of those changes were already occurring, even without the pandemic. In 2019, digital payments totaled over four trillion dollars, with e-commerce growth being the driving force behind the trend.

The proliferation of smartphones is another factor, as these devices allow users to purchase merchandise and services, and handle personal banking. In addition, improved software now makes completing those types of transactions faster and easier regardless of the platform being used.

Nations are experiencing an increasing number of digital payments. Online companies are finding it easier to market their products in other nations as digital payments can now be made using a variety of currencies. For example, the growth rate in the U.S. over the past couple of years has been relatively slow, but regions like Latin America are experiencing dramatic growth in the number of digital payment transactions.

The statistics for the last year, during the pandemic, are not yet in, but anecdotal evidence suggests the number of digital payments in the U.S. will climb significantly. It’s important to consider that, as people take advantage of digital payments, they are likely to continue doing so. That means every business should be looking for new and innovative ways to accommodate both online and in-person customers who wish to make payments digitally rather than use cash.

Moving Your Business Forward in a Digital Payment World

While most businesses today accept at least one or two digital payment options, the entire digital payment landscape is constantly evolving. Customers are demanding new and easier ways to use digital payments rather than cash. That means it makes sense to work with a digital payment partner who is continuously looking for new ways to accommodate the needs of business clients and those they serve.

Xpress-pay stays abreast of new or evolving trends to make sure every client has access to the best digital payment options available. While cash and checks are not likely to disappear any time soon, the number of people preferring to use digital payment options is bound to increase. Is your company ready for them?

For more information, or to learn how to prepare your business for the digital payment revolution, schedule a call with one of our associates now.

About the Author

Thomas Buttino

With over 25 years of Sales & Marketing experience, Thomas Buttino has dedicated his career to introducing business owners and operators to new and existing technology that simplifies their efforts so they can continue having a positive impact on the world around them. With a focus on bringing the latest digital payment technology to clients, we can enhance the customers experience, while ethically lifting revenue, and delivering the greatest outcome for everyone involved.

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Digital Vs. Cash: Exploring India’s changing payment landscape

India has long been a cash-centric economy, with cash transactions dominating daily life of the people. However, recent years have witnessed a dramatic shift towards India’s digital payment landscape. This change is driven by several factors, including the rise of fintech, advancements in technology, regulatory support, push from the Government, implications of the pandemic and changing consumer behavior. As the country transitions from a traditionally cash-dominant society to embracing digital payments, it is essential to understand the dynamics and implications of this shift. The scale of this transformation is staggering. Digital payments transactions in India have reached 11,660 crore in the FY 2023-24. This demonstrates the continued rapid growth and widespread adoption of digital payment methods across the country.

It is common now to notice small street vendors in cities and villages accepting payments through a QR code, and farmers in remote areas checking their bank balance on mobile. These scenes, once unimaginable, are now becoming commonplace across India. This is not just a change in how we pay; it is a transformation of how India operates. The shift from physical currency to digital payments is more than just a technology upgrade – it is a social and economic transformation that touches every aspect of life and business in the world’s largest democracy.

In this blog, we will explore how a country deeply rooted in cash traditions is embracing the digital future, and what this means for everyone.

Get ready to uncover:

• The forces driving India’s digital payments boom
• Cash vs digital payments: Who’s winning and why?
• The advantages and challenges of digital payments
• The challenges and opportunities in this new financial frontier
• A glimpse into the future of money in India

The rise of digital payments  

The Indian government has played a crucial role in promoting digital payments. Initiatives like the Digital India campaign, the introduction of the Unified Payments Interface (UPI), and the Pradhan Mantri Jan Dhan Yojana (PMJDY) have laid the groundwork for a robust digital payment infrastructure. UPI , in particular, has revolutionized the way transactions are conducted, offering a seamless and instant payment experience.

As of 2024, UPI has solidified its position as the cornerstone of India’s digital payment landscape. In the fiscal year 2023-24, UPI transactions reached an unprecedented milestone, with approximately 131 billion transactions processed, amounting to a staggering ₹200 trillion in value. The Reserve Bank of India’s annual report highlights UPI’s dominance, revealing that nearly four out of five digital payments in the country were conducted through this platform. These figures underscore UPI’s pivotal role in driving India’s cashless revolution and its widespread adoption across the nation.

Building on this foundation, the fintech sector in India has seen exponential growth, with numerous startups and established players offering innovative payment solutions. Mobile wallets, payment gateways, and contactless payments have become increasingly popular, providing consumers with convenient alternatives to cash. Companies like Paytm, PhonePe, and Google Pay have become household names, driving the digital payment revolution.

Complementing these developments, the proliferation of smartphones and affordable internet access has been a game-changer for digital payments in India. With over 700 million internet users and growing, more people have access to online payment platforms. This digital inclusion has bridged the gap between urban and rural areas, allowing even remote populations to participate in the digital economy.

Advantages of digital payments

Convenience and Speed

Digital payments offer unparalleled convenience and speed. Transactions can be completed within seconds, eliminating the need for physical cash handling. This is particularly beneficial in today’s fast-paced world, where time is of the essence.

Transparency and Accountability

Digital transactions provide a transparent and traceable record, reducing the risk of fraud and corruption. This transparency is crucial for both consumers and businesses, ensuring accountability and fostering trust in the financial system.

Financial Inclusion

Digital payments have played a significant role in promoting financial inclusion. Initiatives like PMJDY have brought millions of unbanked individuals into the formal banking system. Digital wallets and UPI enable even those without bank accounts to conduct transactions, promoting economic participation across all strata of society.

Challenges and concerns

Cybersecurity Risks

Despite the numerous benefits, digital payments are not without challenges. Cybersecurity remains a major concern, with the increasing threat of data breaches and online fraud. Ensuring robust security measures and educating consumers about safe digital practices are essential to mitigate these risks.

Digital Literacy

While smartphone penetration is high, digital literacy is still a barrier in many parts of India. Many users, especially in rural areas, lack the knowledge and confidence to use digital payment platforms effectively. Addressing this gap through education and training programs is crucial for widespread adoption.

Infrastructure Limitations

In certain regions, especially rural areas, the infrastructure for digital payments is still developing. Issues like unreliable internet connectivity and lack of access to digital devices can hinder the adoption of digital payments. Continued investment in infrastructure is necessary to overcome these challenges.

Cash: Still relevant in the digital age

Cultural and Behavioral Factors Despite the surge in digital payments, cash remains a preferred mode of transaction for many Indians. Cultural factors, habits, and the tangible nature of cash contribute to its enduring popularity. For many, cash provides a sense of security and control over their finances. This ongoing preference for cash highlights the complexities of the cash vs digital payments debate in India’s diverse socio-economic landscape.

Cash-Dependent Sectors Several sectors, particularly in the informal economy, still rely heavily on cash. Daily wage workers, small vendors, and rural businesses often prefer cash transactions due to their simplicity and immediacy. Recognizing and integrating these sectors into the digital economy is vital for a holistic transition. The persistence of cash in these areas underscores the nuanced nature of the cash vs digital payments transition, emphasizing the need for tailored solutions that address the unique needs of different economic segments.

Recommended Read: Streamlining debt collections through digital payments

Trends in the payment landscape

Unified Payments Interface (UPI)

The Unified Payments Interface (UPI) has revolutionized digital transactions in India, providing a seamless, real-time payment system that simplifies money transfers between bank accounts. Its interoperability and user-friendly nature have made UPI a preferred choice, driving the nation towards a cashless economy and setting a global benchmark for instant payments.

Contactless Payments and QR Codes The rapid advancement of digital technology has accelerated the adoption of contactless payments and QR codes. These methods minimize physical contact, offering a safe, convenient, and hygienic way to transact. QR codes, in particular, have become ubiquitous, allowing even small businesses to accept digital payments with minimal setup costs.

Buy Now, Pay Later (BNPL) Solutions The Buy Now, Pay Later (BNPL) model is gaining traction in India, offering consumers flexible payment options. This trend is particularly popular among younger consumers, who appreciate the ability to make purchases and pay over time without the burden of high-interest rates.

Related Read: Buy now, pay later (BNPL) vs. Credit cards

Prepaid Cards Prepaid cards have emerged as a versatile financial tool, offering users a prepaid spending limit. They provide a secure alternative to cash, are widely accepted, and are ideal for budgeting purposes. Businesses and consumers alike value their convenience for online shopping, travel, and gifting, highlighting their growing relevance in today’s payment ecosystem.

PoS Terminals Point of Sale (PoS) terminals have evolved beyond simple card readers into sophisticated devices that support various payment methods, including mobile wallets and NFC. These terminals enhance customer experience by enabling quick and secure transactions, and their integration with inventory and sales systems provides merchants with valuable business insights.

Digital Wallets and Super Apps The financial landscape is evolving rapidly, with digital wallets and super apps at the forefront. These all-encompassing platforms seamlessly integrate diverse services, from payments and investments to bill management and loyalty programs. As traditional banks and private companies alike enter the mobile wallet arena, consumers are presented with a plethora of options, including Paytm, Mobikwik, Freecharge, and bank-specific solutions like SBI Buddy and ICICI Pockets, revolutionizing how we interact with money in the digital age.

Neobanks Neobanks, or digital-only banks, are redefining banking with their fully online operations, user-centric services, and cost-effective structures. They cater to tech-savvy consumers seeking personalized and convenient banking experiences, offering features like instant account setup, seamless money management, and innovative financial products without the need for physical branches.

Aadhaar-Enabled Payments Aadhaar-enabled payment systems leverage India’s unique biometric identification program to facilitate secure and efficient transactions. By linking bank accounts to Aadhaar numbers, these systems ensure financial inclusion, allowing even those in remote areas to access banking services and participate in the digital economy.

AI and Machine Learning Artificial Intelligence (AI) and Machine Learning (ML) are transforming the payment landscape by enhancing fraud detection, personalizing customer experiences, and streamlining operations. These technologies analyze vast amounts of data to identify patterns and anomalies, ensuring secure transactions while also enabling innovative solutions like chatbots, predictive analytics, and automated financial advice.

Recommended Read: The digital payments landscape in India

The future of payments in India

India’s payment landscape is at a pivotal juncture, with digital payments poised to become the norm. The ongoing cash vs digital payments debate is shifting as more people recognize the benefits of digital transactions. While cash will continue to coexist, the convenience, transparency, and inclusivity offered by digital payments make them a compelling choice for consumers and businesses alike. The future will likely see a more integrated approach, where digital and cash payments complement each other, catering to the diverse needs of India’s population.

As India navigates this transition, it is essential to address the challenges and leverage the opportunities presented by digital payments. Continued investment in technology, infrastructure, and digital literacy will be key to ensuring a seamless and inclusive payment ecosystem. By embracing this change, India can pave the way for a more efficient, transparent, and inclusive financial future.

1. What are the main differences between digital payments and cash payments?

Digital payments are made using electronic methods such as mobile apps, online banking, or credit/debit cards. They are fast, convenient, and often come with transaction records. Cash payments involve physical money transactions, which are simple and widely accepted but lack digital records and can be less secure due to the risk of theft or loss.

2. What are the benefits of using digital payments over cash?

Convenience: Transactions can be made anytime and anywhere. Security: Reduced risk of theft and loss compared to carrying cash. Record Keeping: Automatic transaction records help in tracking expenses. Speed: Instant transfers and payments. Promotions: Cashback, discounts, and offers from various digital payment platforms.

3. Why is digital payment better than cash?

Digital payments offer numerous advantages over cash, including enhanced security, convenience, and hygiene. They enable faster transactions, easier tracking of expenses, and greater financial inclusion. Digital payments are environmentally friendly, reduce the risk of theft, and can help combat corruption and tax evasion. They provide valuable data for businesses and often come with rewards or cashback offers. While cash still has its place, digital payments are increasingly becoming the preferred choice for their efficiency, transparency, and ability to modernize financial systems.

4. Are digital payments more secure than cash?

Digital payment methods in India are generally safe. Financial institutions and payment platforms use encryption, two-factor authentication, and other security measures to protect users’ data and transactions. Unlike cash, which can be lost or stolen, digital transactions can be tracked and reversed if necessary.

5. Do digital payments help in budgeting and expense tracking?

Absolutely. Digital transactions are automatically recorded, making it easier to track spending, create budgets, and manage finances.

6. How do digital payments contribute to financial inclusion?

Digital payments can reach underserved populations, providing access to financial services for those without traditional bank accounts.

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The digital payments debate: is the future really cashless?

When did you last pay for something in cash? If you can’t remember, you’re not alone.

The payments industry is evolving as consumers all over the world switch cash for digital payment methods such as card and mobile.

The use of physical money is at an all-time low in the UK, with cash transactions representing only 28% of all payments in 2018, according to UK Finance . If we compare this to a figure of 60% in 2008, it’s evident how much the payments landscape has changed in just a short space of time.

The pace of change doesn’t look set to slow anytime soon either, with current predictions suggesting cash will make up only 9% of total UK transactions by 2028 — we are well on our way to becoming a “cashless society”.

Source: UK Finance

This divisive concept has been discussed at length all over the media, both in this country and abroad. Many see the shift towards cashless as inevitable, highlighting key benefits for both consumers and businesses associated with convenience, cost and physical security.

On the other side of the debate are those campaigning to protect universal access to cash, calling out the disproportionately negative effects that ditching notes and coins would have on the poorest segments of society. Notably in last year’s independent Access to Cash Review , which urges banks, regulators and the government to commit to defending access to cash for the millions in the UK who are still very much reliant on it.

Whether you’re in favour of the idea or not, there’s no denying that Britain is accelerating towards becoming cashless at one of the fastest rates in the world . Debit cards are now firmly established as our preferred payment method, having overtaken cash in 2017, and are predicted to account for 50% of all transactions by 2024 .

The relentless growth in popularity of smartphones, contactless payments, mobile and online banking, and digital-only financial providers have all been key drivers of change. Add to these the explosion in payments innovation, from iZettle’s portable, low-cost payment acceptance tools for SMEs to Stripe’s simple e-commerce payment processing platform, and you can see how a cashless future could actually become a reality in the UK.

Scandinavia leads the charge towards cashless societies

One country that’s front and centre of the global cashless revolution is Sweden, which is on track to become the world’s first cashless society by 2023. Cash represents barely 1% of the economy, compared with 10% in Europe and 8% in the US . Electronic payment methods, which are used to make 4 out of every 5 purchases in Sweden, reign supreme and it looks like only a matter of time before the Krona is no longer accepted as legal tender.

Consumers are hooked on the convenience of paying with their smartphones

What’s particularly interesting about the Swedish example is the close link between the decline in cash usage and the rapid growth of mobile payments . Consumers are hooked on the convenience of paying with their smartphones and mobile wallets have seen great success, particularly for shopping online.

The shift towards mobile has been accelerated by the success of fintech payments app Swish , which was set up as a collaborative venture by Sweden’s biggest banks in 2012. The free service enables its users to instantly transfer money by simply entering the mobile number of the recipient. Initially set up as a P2P payments tool, Swish is now used by more than two-thirds of the Swedish population to make individual, consumer-to-business and online payments.

Trends towards cash independence are clearly visible across most of the Nordic countries, with Denmark, Norway and Finland also demonstrating a high and rapidly increasing number of cashless transactions.

Digital wallets now dominate China’s payments landscape

That said, Northern Europe is not the only part of the world where cash payments are fast becoming obsolete. China is also marching towards becoming cashless at a significant pace, again, driven mainly by the widespread adoption of mobile payments services. The smartphone obsession in China is real and digital wallets now dominate China’s payments landscape more so than anywhere else in the world.

Two-thirds of online sales and more than one-third of payments in stores are made through leading mobile wallet operators including Alipay and WeChat Pay , according to Worldpay’s 2018 Global Payments Report .

Why is cashless a good thing?

Regardless of where you are in the world, the cashless trend presents a number of considerable benefits for consumers and businesses alike.

Everyone can appreciate convenience, and it’s certainly true that digital payments make it quicker and easier to pay in most everyday situations. Contactless has made it possible to tap and go - no queues and no faffing with loose change.

Mobile payments mean you don’t even have to carry a wallet with you at all, just your phone. The convenience of using smartphones to transfer money in a matter of seconds is impressive and we can split bills easily with friends and family at the touch of a button.

The crux of the cashless society debate is about the fundamental importance of fairness and inclusivity

For businesses, there are a number of pros associated with going cashless which are hard to ignore. In many areas, the cost of providing cash handling infrastructure is increasingly disproportionate to the number of customers that are actually wanting to use it, meaning that a growing number of retailers are opting not to take cash at all.

Not having cash on the premises can be a major win: reducing the risk of robbery; increasing physical security for staff and eliminating inefficient cashing-up processes at the end of every day.

Banks now charge significant fees for depositing cash which, coupled with the slow demise of local branches in the UK, has turned the whole process into a serious headache for many businesses as they’re forced to make longer journeys to pay more to deposit their money.

Why is cashless a bad thing?

A cashless future looks undeniably appealing on a number of levels. However, we must contextualise the benefits - it’s important to understand the potentially damaging implications a cashless system could have on certain segments of society.

Not everyone is happy with the idea of going cash-free and there will always be those individuals who don’t feel comfortable leaving the house without a wodge of cash in their pocket. These people will defend their right to use cash until the bitter end; stubbornly refusing to adapt to a digital-first payments system.

Nevertheless, the real crux of the cashless society debate is not about personal preference, it’s about the fundamental importance of fairness and inclusivity.

Around 17% of the British adult population - over 8 million people - would struggle in a cashless society, according to the Access to Cash Review . Poverty is highlighted as the biggest indicator of cash dependence, not least because the poorest in society are unlikely to have the means of accessing computers or smartphones to enable them to bank digitally.

We have a social responsibility to ensure...the vulnerable in society are not left behind

Other groups with a high dependence on cash who would be disproportionately affected include charitable organisations; rural communities without access to reliable internet/ mobile coverage; the unbanked; the elderly; those with physical or mental health issues who struggle to handle cash, as well as people with a history of debt problems. For this latter group, who may be particularly reliant on using cash to limit their spending, the lack of friction associated with digital payments could present a considerable problem.

Cash is vital in supporting financial inclusion and we have a social responsibility to ensure that as cash is phased out, the vulnerable in society are not left behind.

What’s next?

As global demand for frictionless commerce increases alongside smartphone ownership, the use of digital payments will continue to grow at the expense of physical cash.

The trend towards cashless is inevitable, but a gradual transition is key to avoid alienating those people who depend on cash as their primary payment method.

Educating the wider population about the benefits of digital banking and payments must continue to be a priority for governments and banks to ensure that people become more comfortable with using less cash in their day-to-day lives.

It will be fascinating to see whether becoming totally cash-free will actually become a reality in those countries, such as Sweden, at the vanguard of the digital payments revolution.

By keeping a close eye on their progress and challenges over the next few years, the UK can strive to plan and prepare properly for its own shift to cashlessness to ensure as few people as possible are left behind.

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