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The IUP Journal of Business Strategy
Digital Payment Sector: The Sunrise Industry in India: A Review
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Digital payments are the next-gen systems that are slated to take over the global commerce landscape in the same manner in which the internet and mobile telephony have dominated the traditional communication domains. The deployment of digital payments across the globe has not been uniform due to varied adoption and acceptance levels and different business models to tailor fit the economic and societal background of a country. In India, the digital payment sector holds tremendous promise in the backdrop of increasing internet and mobile penetration. This paper reviews the broad body of knowledge on digital payments with special focus on mobile commerce, both from literature and business applications and highlights the way forward for developing countries like India that are on the cusp of a revolutionary transformation of ushering an era of cashless economy.

 
 
 

The sudden announcement of demonetization of high value notes in November 2016, took not just India but the entire world by storm, as economists, business conglomerates, academicians, bankers, professionals and even the ordinary man, were all caught unaware by the precipitating move that is being seen by many as the next giant economic reform that would lay the path for a digital economy in the country. In the last decade, the Indian economic terrain was transmuted a great deal and continues to be in a state of flux. Internet, mobile technology and smartphones, and e-commerce have played key roles in disrupting the conventional models of business and have created an unprecedented impact on the society.

The creation of a digital economy, especially in a developing country like India which is predominantly a cash economy with 98% of all its economic transactions done in cash (MasterCard Advisors, 2013; and Business Today, 2016), is easier said than done. However, the environment can best be described as just favorable as the chief drivers—increased smartphone penetration, booming e-commerce and expanding banking facilities—which are in place, are all positive indicators for the creation of a digital economy. Many Indian digital payment companies like Pay Through Mobile (Paytm) have ramped up their operations by adopting Quick Response (QR) codes in place of Point of Sale (PoS) machines that take longer time for completing a transaction and are pumping in heavy investments (Economic Times, 2016) to meet the surge in digital payments triggered by the government’s demonetization decision.

According to MasterCard Advisors (2013), 85% of consumer transactions globally happen in cash. The leading payment consulting firm identifies access to financial services, macroeconomic and cultural factors, merchant scale and competition, and finally technology and infrastructure as prerequisites for an economy going cashless. MasterCard Advisors has classified various countries into four stages according to their digital capacities—Advanced stage, Tipping Point stage, Transitioning stage and Inception stage (Figure 1). Singapore leads among the advanced countries at 61% of transactions done by non-cash methods, followed by the Netherlands at 60%. The USA is at 45% leading among the countries that are at the tipping point stage. Spain at 16% leads the countries that are in a transitioning stage, Japan is at 14% and China follows at 10%. Most developing countries are in the inception stage with India and Kenya at 2% each.

India’s cost of cash to GDP stands at 1.7% (Figure 2), way higher than developed countries and is a result of the country’s high share of coins and notes in circulation at 13.6% of GDP in 2015 (Visa, 2016), while the cost of shadow economy to GDP is 3.2% for the same period. The report also cites that compared with 70% of bank account holders in BRIC nations, in India, only 50% adults hold bank accounts. Reasons contributing to the growth of digital payments are classified as macro-level issues—informal labor market and large shadow economy, a high propensity to save in cash and gender imbalance in use of digital payments, and industry-specific issues—high cost of infrastructure, regulatory limitation, and financial illiteracy.

 
 
 

Business Model Innovation, Digital payments, Traditional Communication Domains, Literature and Business Applications,Mobile Commerce, Analyzing Digital Payment Industry in India , Threat of Substitute Products or Services