In the past few years, with the advancement of technology and everything going digital, traders worldwide have started adopting digital means of payment for their own and consumers’ benefits. Since the profitability of any business largely depends on the scope of different types of payment options available, giving their customers or debtors wide flexibility of choice to pay up their outstanding dues. There are various sources of digital payments through which consumers can pay for availing services or buying goods, which is why the importance of digital payments in India, especially for small businesses, has largely grown.
There are a slew of advantages for small traders and businesses if they start adopting digital means of payment, which we will discuss later in this blog, but first, let’s learn what digital payments mean.
Did you know?
A total of 8,193 crore digital transactions were reported to have taken place in India in 2021. A sharp rise of 30.21% from 2020.
What Are Digital Payments and the Importance of Digital Payments in India?
Digital means of payment refer to allowing payment to be made for goods and services offered electronically, using a smartphone and a stable internet connection. It is the source or means through which money is transferred from the consumer's bank account to the retailer or wholesaler's bank account through various sources such as internet banking, UPI, and mobile wallets.
Digital means of payment are vastly important, especially for SMEs ( small and medium enterprises), since there has been an upsurge in demand from consumers to pay for goods and services digitally and provide their valuable contribution towards making India a cashless and digital economy. The importance of digital payments in India is understandable from the data given below:
- About 55% of SMEs think that consumers are inclined to spend larger amounts of money when they are paying with either debit or credit cards rather than cash.
- 40% of SMEs have started to believe that digital means of payment have brought about a surge in their sales.
Benefits of e-Payment System to Small Businesses and Merits of e-Money
Electronic or digital means of payment come with unique advantages for small retailers and businesses. Let’s check out the primary and most important advantages of using the e- payment system:
Increase in Profitability:
Accepting digital means of payment could certainly increase a business’s profitability since there would be a substantial reduction in expenditure on operating costs. Besides, it is much easier to manage various trade contracts, all kinds of delivery records, and the amount receivable or due from debtors.
Increase in Participation:
Allowing digital means of payment will increase a business’s participation in the e-commerce sector which will build a positive and professional image of the firm in front of external stakeholders, leading to improvement in client relationship management and dealings with various kinds of vendors and financial institutions for expansion of the business.
Digital records can certainly help small businesses and entrepreneurs to manage their stock and make decisions that are cost-effective as well as beneficial for the business.
Helps in Record Keeping:
One of the key advantages of e-payment is that it helps keep records safe electronically. Any kind of information can be traced within no time, minimising any chance of documentation fraud or any other kind of malpractice.
Important for Female Entrepreneurs:
The use of digital means of payment can be vital for female entrepreneurs since various kinds of social norms or prejudices sometimes prevent women from traveling to a faraway destination to meet suppliers or visit a bank branch. Acceptance of digital means of payments can help them overcome this limitation by making it much simpler and easier to access money and get in touch with the stakeholders of the business.
Electronic Payment of Wages Benefits Employees:
Digitally paying wages to employees would certainly save a lot of time and money. Digital payments would give employees access to various kinds of financial services, which would lead to the systematic management of finances. Digital means of payment are also considered to be more secure, leading to an added amount of satisfaction for the employees.
Improved Access to Credit:
Small-scale retailers or entrepreneurs have minimal access to credit. Digital transactions can help to build a good credit score for small businesses. A financial entity can judge whether the credit score is good enough to grant loans and advances at nominal rates of interest to help small businesses.
Also Read: All About Prepaid Payment Instruments
Different Types of Digital Payment Methods and Digital Transactions Promises and Challenges
There are various types of digital payment means which can benefit small retailers and businesses. Some of them are mentioned below:
- Credit Card: It is one of the most preferred and popular forms of digital payment. Whenever a consumer uses a credit card for a transaction, that certain amount gets added to the credit card bill to be paid on a later date.
- Mobile Wallets: Many applications like Paytm and Phonepe provide a wallet option where the consumer can deposit money to their wallet. The money stored in mobile wallets is used to pay for various goods and services.
- UPI System: Unified Payments Interface allows for scheduled payment requests that can be paid as and when according to the consumer's convenience. It is enabled with various kinds of merchant payments, and multiple nationalised and private sector banks support these transactions.
- Point of Sale System: It is a medium through which a consumer can purchase or sell based on an in-store checkout. The software and hardware inscribed allow the seamless processing of electronic transactions.
- Mobile and Internet Banking System: Commonly referred to as an online banking mechanism, a consumer can send a particular amount directly from his bank account to the vendor’s bank account for a transaction, either through mobile or a computer, by logging into the specific online banking portal.
Although digital payments promise to bring about a revolution in the payments industry shortly, it is hard to deny that there are certain challenges involved that cannot be kept unnoticed, such as:
- The Less Developed Banking System in Underdeveloped Countries: Since banking infrastructure is not properly established in countries with low per capita income, it is hard to introduce digital means as a primary payment source.
- Lack of Electricity: Basic lack of electricity could be a major hazard and play a spoilsport towards introducing digital means of payment. Lack of cell phone towers and poor internet connectivity is a major challenge before introducing digital means of payment.
- Low Level of Financial Literacy: Lack of financial and technological literacy can hamper the growth of the e- payment ecosystem prevailing in the economy. It is because people who don’t know how to make digital payments would try to refrain from such payment methods. Thus, it will be much more difficult for small businesses and entrepreneurs to provide flexibility in payment methods.
Therefore, we can estimate that despite there being many types of digital payment methods being provided to the consumer and a list of e- payment benefits provided to small businesses, certain challenges have to be tackled for the seamless growth of the e- payment industry in India as well as across the globe.
Also Read: What is e-RUPI?
This was all about digital payments, the benefits of e-payment systems, various types of digital payment methods used, and the challenges faced by the e- payments industry. We are sure that the information shared in this blog will be helpful for small businesses to think about adopting digital means of payment to make India a digital economy. No doubt, the digital payments system technology is very promising, and society will overcome its challenges shortly if the right initiatives are taken. Let’s work together to make India a robust digital economy.
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