The Government of India has recently started taking various measures to promote and encourage digital payments in the country. As part of the ‘Digital India’ campaign, the government aims to create a ‘digitally empowered’ economy that is ‘Faceless, Paperless, Cashless’. In a step forward, the government has notified that businesses with a turnover of Rs. 50 crore and more will have to pay a fine of Rs. 5,000 per day if they do not offer online payment facilities to customers.

There are various types and modes of digital payments. Some of these include the use of debit/credit cards, internet banking, mobile wallets, digital payment apps, Unified Payments Interface (UPI) service, Unstructured Supplementary Service Data (USSD), Bank prepaid cards, mobile banking, etc.

About Digital Payments

A digital payment occurs when goods or services are purchased through the use of various electronic mediums. There is no use of cash or cheques in this type of payment method. In a cashless economy, all transactions are carried out using different types of payment methods and this does not involve the physical use of money for the purchase of various goods and services.

Types of Digital Payments

  1. Banking cards – One of the most widely used payment methods is using banking cards and this comes with various features and benefits such as security of payments, convenience, etc. The key advantage of debit/credit or prepaid banking cards is that they can be used to make other types of digital payments. For example, customers can store card information in digital payment apps or mobile wallets to make a cashless payment. Some of the most well-known card payment systems include Visa, Rupay and MasterCard, among others. Banking cards can be used for online purchases, in digital payment apps, PoS machines, online transactions, etc.

  2. USSD - *99#, can be used to carry out mobile transactions without the requirement to download any app. These types of payments can also be made with no mobile data facility. This facility is backed by the USSD along with the National Payments Corporation of India (NPCI). The main aim of this type of digital payment service is to create an environment of inclusion among the underserved sections of society and integrate them into mainstream banking. It allows one to initiate fund transfers, get a look at bank statements and make balance queries. One of the advantages of this type of payment system is that it is also available in Hindi.

  3. Aadhaar Enabled Payment System (AEPS) - It is very easy to use AEPs since it only requires you to provide the accurate Aadhaar number and the payment will be successfully made to the concerned merchant

  4. UPI - UPI is a type of payment system through which any customer holding any bank account can send and receive money through a UPI-based app. This service allows a user to link more than one bank account on a UPI app on their smartphone to seamlessly initiate fund transfers and make collect requests on a 24/7 basis and on all 365 days a year. The main advantage of UPI is that it enables users to transfer money without a bank account or IFSC code. All you need is a Virtual Payment Address (VPA). There are many UPI apps in the market and it is available on both Android and iOS platforms. To use the service, one should have a valid bank account and a registered mobile number, which is linked to the same bank account. There are no transaction charges for using UPI. Through this, a customer can send and receive money and make balance enquiries.

  5. Mobile Wallets - A mobile wallet service can be used by downloading an app. The digital or mobile wallet stores bank account or debit/credit card information or bank account information in an encoded format to allow secure payments. One can also add money to a mobile wallet and use the same to make payments and purchase goods and services. This eliminates the need to use credit/debit cards or remember the CVV or 4-digit pin. Many banks in the country have launched e-wallet services and apart from banks. Some of the mobile wallet apps in the market are Paytm, Mobikwik, Freecharge, etc. The various services offered by mobile wallets include sending and receiving money, making payments to merchants, online purchases, etc. Some mobile wallets may charge a certain transaction fee for the services offered.

  6. Bank pre-paid cards - A prepaid card is a type of payment instrument on to which you load money to make purchases. The type of card may not be linked to the bank account of the customer. However, a debit card issued by the bank is linked with the bank account of the customer.

  7. Point of Sale (PoS) - PoS terminals are generally installed at all stores where purchases are made by customers using credit/debit cards. It is usually a handheld device that reads banking cards. However, with digitization, the scope of PoS is expanding and this service is also available on mobile platforms and through internet browsers. There are different types of PoS terminals such as Physical PoS, Mobile PoS and Virtual PoS. Physical PoS terminals are the ones that are kept at shops and stores. On the other hand, mobile PoS terminals work through a tablet or smartphone. This is advantageous for small-time business owners as they do not have to invest in expensive electronic registers. Virtual PoS systems use web-based applications to process payments.

  8. Internet Banking - Internet banking refers to the process of carrying out banking transactions online. These include many services such as transferring funds, opening a new fixed or recurring deposit, closing an account, etc. Internet banking is also referred to as e-banking or virtual banking. Internet banking is usually used to make online fund transfers via NEFT, RTGS or IMPS. Banks offer customers all types of banking services through their website and a customer can log into his/her account by using a username and password. Unlike visiting a physical bank, there are no time restrictions for internet banking services and they can be availed at any time and on all 365 days in a year. There is a wide scope for internet banking services.

  9. Mobile Banking - Mobile banking is the process of carrying out financial transactions/banking transactions through a smartphone. The scope of mobile banking is only expanding with the introduction of many mobile wallets, digital payment apps and other services like the UPI. Many banks have their own apps and customers can download the same to carry out banking transactions at the click of a button. 

  10. Bharat Interface for Money (BHIM) app - The BHIM app allows users to make payments using the UPI application. It works in collaboration with UPI and transactions can be carried out using a VPA. One can link his/her bank account with the BHIM interface easily. It allows linking multiple bank accounts. The BHIM app can be used by anyone who has a mobile number, debit card and a valid bank account. Money can be sent to different bank accounts, virtual addresses or to an Aadhaar number. There are also many banks that have collaborated with the NPCI and BHIM to allow customers to use this interface.


  1. What is Digital Payment Transaction?

Digital payment transaction means a transaction in which the customer authorizes the transfer of money through electronic means, and the funds flow directly from one account to another.

  1. What are the methods of Digital Payments?

Digital Payment transactions can be done through several means. Some of them are Bharat Interface for money (BHIM), BHIM Aadhaar, Bharat QR Code, Unified Payments Interface (UPI), Unstructured Supplementary Service Data (USSD), Immediate Payment Service (IMPS), Debit / Credit Cards, National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS) etc.

  1. What are the benefits of adopting digital payments?

Digital payment methods offer many benefits, such as: 

  • Convenience

  • Record of Transactions for tracking expenditure

  • Lower risk of theft, damage etc.

  1. How fast is a transaction over BHIM?

All payments over BHIM are linked to a bank account and the transaction can be completed within a few seconds.

  1. What is UPI?

Unified Payment Interface (UPI) is an instant payment system developed by the National Payments Corporation of India (NPCI), an RBI regulated entity. UPI is built over the IMPS infrastructure and enables instant money transfer between any two parties' bank accounts.

Additioanal reading: Why You Should Run A Cashless Business

End Note

Digital payments speed up the payment process for any business. With the move to digital payment platforms, banking services will be available to customers on a 24/7 basis and on all days of a year, including bank holidays. This benefits the businesses as well as the consumers.