India’s digital payments in the age of Covid-19: a complex picture

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se of digital and contactless payments in India surged during the pandemic, as consumers opted for safer ways to transact. However, the downward impact of Covid-19 on the payment landscape has been profound and significant, but not irreparable.

Elements in the payment ecosystem that are most adaptable to disruption and least dependent on physical infrastructure have been able to withstand, mitigate and even capitalise the crisis, turning an imminent threat to their advantage.

The pandemic has compelled both individuals and organisations to re-evaluate their payment framework and infrastructure, and incorporate considerations of disruption mitigation and continuity planning.

Additionally, for many legacy industry players and individual consumers, the pandemic has highlighted inherent flaws caused by rigidity, inflexibility or being excessively reliant on cash as a sole method of payment.

The Covid-19 crisis questioned the assumption of cash being the ultimate liquid asset, causing payers to evaluate its status as a sacrosanct payment method with the most access and convenience. Operators have also displayed considerable apprehension to revert to cash once they have accepted digital modes of payment.

Cash withdrawals in the NFS network have displayed signs of rebounding to pre-Covid-19, levels indicating that the Indian populace has a propensity for cash. While Covid-19 may have given a sizeable push to the endeavour to marginalise cash, it has not yet eradicated it completely.

Nevertheless, Covid-19 has been a silver lining, in many ways, for acceptability of digital payments in India. A key barrier to the growth of digital was the impenetrability of the existing payment infrastructure.

However, the disruption caused by the pandemic allowed businesses the bandwidth to step back and reconsider payment protocols and the inclusion of digital from a streamlining and ease perspective. Also, individuals were inclined to consider digital payments as a means of preventing unauthorised physical access to funds.

As highlighted by various polls, apprehension towards digital payments, due to lack of awareness, infrastructure availability, technicality and costs involved, were key reasons for the non-adoption of digital payments by individual payers.

For business payments, however, the entire payments chain around a particular organisation, especially suppliers, needed to accept digital payments for the organisation to do so itself.

Covid-19 enabled many of the universal changes necessary for digital inclusion, as it acted as common motivation for entire business payment systems to consider going digital at the same time.

Furthermore, individuals overcame initial barriers to digital adoption as the epidemic and restrictions of movement came into effect in both urban and rural areas.

Rural economies were compelled to consider the AePS mechanism, which led to an unprecedented rise in transaction volumes during lockdown.

Considerations around digital fraud and cybersecurity have gained increased focus. Fraud security and vulnerability have been key themes in research to assess consumer apprehension towards rising contactless card transaction limits and wider use of other digital payments.

Also, as a rising proportion of Indian consumers transact digitally, spending behaviours and patterns are set to become more accessible, greatly highlighting the already increasing value of business analytics to assess and understand payer behaviour.

Banks and other payment agencies are expected to invest heavily in smart and efficient fraud-detection and prevention architecture such as data analytics and artificial intelligence.

The increased adoption in the short term is likely to accelerate the sustained shift toward digital payments.

Also, the pandemic has uncovered new perspectives and opportunities for Indian businesses and individuals, which can only be capitalised upon with agility and versatility towards the anticipated change.