Impacts of Digital Payments on the Cashless Economy: A Case Study of Karnataka

Background

The examination of digital finance traces back to the very first transactions of human history and human civilization. Historically, payments have been the core functionality of most banking and financial institutions. The surge in credit card use in the 1950s marked the breaking point that dramatically changed the financial sector. The infusion of mobile technology and developments in mobile phones, tablets, and a wealth of devices gave birth to digital finance and shifted the model of payments. This shift is what defines the cashless economy not only in India but globally. There is a great interest among academics, commercial enterprises, and policymakers to explore the many opportunities of digital finance. Moody (2013) studying the impacts of the credit card use on the general gross domestic income of 51 nations noted that cashless transactions added a whopping $1.1 trillion in real GDP. This study was consistent with studies pursued by Gautam Indu that establish that the demonetization of the Indian currency will propel Indian into a cashless economy. The study by Moody further noted that a 1% increase in credit card, wireless transactions shall increase consumption by 0.039% and the gross domestic product by 0.024% (Ravi, 2017). The benefits of digital transactions are widely noted and accepted in India particularly with the rise of digital platforms like RuPay, AEPS, IMPS, USSD, Electronic, or mobile wallets that provide convenient banking experiences.

Mobile wallets are considered a major leap towards a cashless economy in India. Leaps in Information Communication Technology as well as a rapid penetration of smartphone devices have shaped the Indian financial landscape. Mobile payments refer to the payment of services, goods, and bills with a mobile device or a personal digital assistant. It primarily involves taking advantage of wireless technology. Closely tied to mobile or digital wallets is the mobile ticketing which enables users to request, validate, activate, and pay using a mobile phone device. The contactless cards represent another type of mobile payments that is enabled by wireless communication; the contactless cards rely on devices like wearable devices, smartphones, key fobs, stickers, debit, and credit cards. An empirical investigation of the challenges and opportunities for mobile banking, it is noted that mobile payments are optimistically the next big thing in financial technology. In India, mobile payments have proved to offer a range of benefits to different stakeholders. For users, contactless and mobile banking provides an easier alternative to cash payments and deposits. The use of mobile payments services provides huge opportunities for merchants and the society that uses the services on a routine basis. Also, mobile payment services are cheaper, faster, convenient, and flexible for merchants and customers. Also, the interoperability of the mobile payments system provides room to integrate them with other crucial services like public transportation that provide unique value addition to consumers.

Problem Formulation

A rising body of scholarship published from 1999-2016 on digital payments focused on two main topics; technological aspects of digital finance and consumer adoption. The body of work and literature exploring the business aspects of mobile payments and the cashless economy in India remain rather limited in size and scope. The existing publications in the category of digital payments focus on the general ecosystem of mobile, digital payments, and business models developed to accommodate the many provisions of mobile banking. An investigation in the impacts of digital payments will broaden the understanding of what constitutes digital payments and key changes that have occurred on the traditional banking model.

There is a limited body of work that explores the dynamics of mobile payments and their ecosystem. However, it is important to note that competent scholars like Dahlberg (2008) note that the literature surrounding the impact of digital payments on the cashless economy is evolving which means that several problems relating to digital payments and the cashless economy require a better understanding. The existing research will delve into the changing digital payments landscape in India, particularly Karnataka, and examine its influence on the cashless economy. A publication by Forbes India notes that India saw a 38.5% leap into cashless transactions or non-cash payments between 2016 and 2017 (Ravikumar, Thangaraj, 2019). This growth is fundamentally linked to India's adoption of mobile wallets, rapid innovations in mobile wallets, and the success of the eCommerce sector. As a result, there is a need to understand how digital payments have accelerated India towards a cashless economy with a special outlook on the traditional brick-and-mortar banking model, the e-commerce model, and the infusion of digital payments through mobile phones and card transactions.

Research Motivation

Different types of actors are linked with the provision of digital payments and are broad categories into; banks, the independent financial providers that are non-bank actors, the direct operating billing providers, and the non-bank workers that mainly collaborate with network operators. The mobile payments offered by different actors differ in scale and scope; for instance, traditional brick-and-mortar banks that have branches in different geographical areas across India, Karnataka, Delhi, and Bengaluru have now adopted digital payments that allow for faster, easier, more transparent, and convenient model of savings, withdrawals, and deposits. This research is motivated by the fact that India has wholeheartedly committed itself towards the adoption of digital payments; this behavioral shift has a toll on the cashless economy (Gautam, Indu & Kavidayal, 2017). Understanding the impacts of digital payments on the cashless economy will bring forth a range of factors that are considered as the building blocks for digital finance in India. It is important to note that to offer a mobile payment each of the above-mentioned service providers has to consider a range of factors. These include; the unique value proposition to consumers, the available technology, and available market niche, and potential collaborations with trusted partners and its own internal and external resources (Shakir Ali, Wasim, and Safiuddin, 2017). This research is motivated to understand the digital payment ecosystem in Karnataka and how it has shaped the nation towards a cashless economy.

Research Objectives

1. To understand the benefits of the cashless economy and digital payments.

2. To assess the implementation of the cashless economy by the Indian Government.

3. To understand how digital payments in Karnataka have pushed Indians towards a cashless economy.

4. To examine the building blocks and factors for digital payments.

Research Questions

I. What are the building blocks for digital finance and digital payments in India?

II. How has digital finance impacted the India cashless economy?

III. What are the benefits of the cashless economy in India?

IV. How can the Indian government prepare the nation for digital finance and the cashless economy?

Research Scope and Delimitations

The payment systems play a central role in driving the social and economic development of the nations. The previous decade has experienced tremendous growth and ownership of mobile phone devices in India. The exponential growth in the use of digital payments is facilitated by a combination of factors like increased phone ownership, growth in digital infrastructure, and government incentivizing the digital payment transition through the Digital India program. The thesis focuses on the factors of digital payments, and how these payments have contributed towards the creation of a cashless economy in India. The research notes that digital payments in India are primarily offered or dispensed by a range of actors that include; banks, independent providers in the Information, Communication, and Technology sector, and non-bank actors linked to the direct billing providers. This thesis also examines a range of services that include mobile public transport, mobile payment services, and contactless cards. Geographically, this research and paper delve into digital payments in India and particularly in Karnataka located on the West Coast of India.

Research Significance

This thesis contributes to the STOF model, the business model concept, and the literature around digital finance in India. This study contributes to the academic research on digital payments in India by collecting a rich data set of mobile payments in India to determine how it contributes towards a cashless economy. A large data set and the analysis of findings on eCommerce, brick-and-mortar enterprises, and digital payments will provide insight on what to adapt to emerging changes. This scholarship will inform decision-making at a corporate level by enabling actors like government and stakeholders on expenditure and curtailing illegal activities. For instance, digital finance is linked to reductions in overall corruption rates, better transparency, and reductions in the black market. An analysis of digital payments and impacts on the cashless economy create knowledge on how to structure decision-making in the sensitive and complex financial services sector. Research pursued on the value of digital financial services in the business-to-business area has been rather limited and scarce. This thesis contributes to the existing literature by examining the building blocks of digital finance on consumer value proportion and the cashless economy.

Study Limitations

Study limitations reflect a range of factors, circumstances, or conditions that may inhibit the research from realizing its primary objectives. Digital finance is a relatively new concept in India's financial services sector; this means that most users are skeptical of releasing crucial information that pertains to their transactions, deposits, models of payments, and digital payment platforms. Research shows that there exist two fundamental payment models in India; paper pay and the non-cash or cashless transactions. The paper-based model entails the cash transaction which is the predominant model in India and the cheque which was historically a classic alternative to cash payments. The electronic payment model is the second category and captures cards, RuPay that stands for Rupee Pay, Interbank Mobile Payments IMPS, USSD Unstructured Supplementary Data, UPI United Payment Interface, and the mobile wallets used through smartphone applications or smartphone applications. As a result, consumers or users may fail to disclose crucial information about their financial services usage behavior as a result of the fear of losing crucial data, or information. This study notes that an arrangement with respondents and users of mobile phones will be required to establish trust and transparency required to pursue this study.

Theoretical Framework

The Technology Acceptance Model presents an appropriate framework to examine the acceptance of digital payments and the impact on the Indian cashless economy. The TAM is an information technology model that examines and strives to understand user acceptance and the use of technology and has been studied in older generations. This theory posits that a user's intention to use technology (technology acceptance) and their usage behavior (which denotes the actual use) is influenced by their perceived usefulness of the technology and its ease of use. This means that the TAM framework creates an understanding of the rapid infusion of digital payments in India and how they have fuelled the economy towards cashless. Essentially, the rapid adoption of digital financial services in India is a consequence of the widespread phone ownership and the availability of a suitable architecture (Sujith and Julie, 2017). Similarly, digital financial services acceptance is influenced by their perceived usefulness as highlighted by the ease of deposits, faster payments, and the overall reduction in transactional costs. This thesis identifies the biggest challenge bemoaning the India digital payments is the 'ease-of-use' factor; the complex, multi-step interfaces of digital payments continue to affect user adoption (Das, Ashish & Das, 2017). The Technology Acceptance Model affords the relevant model to examine the impact of digital payments on a cashless economy in India and globally.

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