Gone are the days when the traditional method of cash payments was the sole modus operandi of the exchange of products and services in the economy. In this 21st century, digitization of money and payment services has brought a revolution in the way markets operate and it has become imperative to understand how this digitization works regarding making payments. In recent years, after the proclamation of demonetization, India has taken a revolutionary turn towards “becoming a cashless economy” which has shoved the country onto the road of becoming a developed nation. The initiative for the Digital India movement has led to a gigantic shift in the way individuals deal with money, purchases, and payments. Digital payments involve transactions that occur via a digital or online platform where the concept of physical cash diminishes. In other words, both parties that are involved, the giver and the receiver, operate on electronic mediums to exchange funds. The government of India has undertaken numerous measures to promote and encourage digital systems, for instance, their aim is to build an economy that is “Faceless, Paperless and Cashless”.

Benefits of Digital Payment Services

Since bank accounts are linked with the respective smartphones of an individual, one can directly process payments from their banks. Digital payment services permit merchants to sell their products or services to customers belonging to different nations.
It provides the user with the ease of carrying out transactions on a daily basis by providing them with an option that is safe, secure, and convenient. Therefore, customers feel unrestrained from carrying physical cash.
Added is the benefit of paying from any place without having to be physically present for the process of payment to the merchant. Digital payments have an option of Digital wallets, which assists the user in paying in a seamless and convenient way.
Going Digital is advantageous to the customers as they can avail of discounts provided to them on various purchases. For instance, the government declared a waiver of service tax on credit and debit card transactions up to 2,000. Such schemes by the government aid people in becoming more digital-friendly.
As the traditional system of cash transactions had a few disadvantages, one of them is the fear of losing cash or receiving fake notes. The system of digital payments has erased them from the user’s mind.

Micro-loans for small businesses

Small-scale businesses which are fueling the growth of our country have to be financed by the micro-credit system. Now, what is a micro-credit/micro-loan system in India? Micro credit is the finance that includes providing an individual with a low-margin loan in order to help them become entrepreneurs and establish small-scale businesses. The individuals who can benefit from the ambit of micro-credit belong to low-income families. This loan scheme is based on the idea that skilled persons, living in developing nations who have been cast aside and not included in their respective banking systems, can be given a chance. They might be able to seize the opportunity of obtaining access to the mainstream economy.

Micro enterprise financing has played a pivotal role in the conduct and expansion of financial services to the underserved and unbanked sector of the population. According to the World Bank, a third of the world’s poor exists in India surviving on meager resources. It has contributed to a significant eradication of poverty and has enhanced the standard of living of people with limited resources. A large portion of the country’s population still lacks access to financial and banking services. Micro-credit institutions supplement the banking sector by not only giving loans but providing other financial services such as savings.

How digital payments help the micro enterprises

Approximately, ninety percent of formal and informal enterprises are small and medium scaled businesses. They include shops and small stores providing services to populations in the remotest corners of the nation and they drive the growth of employment creation, service delivery, income generation, and poverty eradication.

The government is trying to initiate ways to increase digital penetration by planning to offer retailers subsidies to digitalize their operations and assist small businesses to go digital. Some of the small-scale businesses are hesitant to adopt card-swiping machines because they are afraid that the banks would charge them some percent of the profit.

Roles of digital payments in helping small businesses

They can benefit as more customers are preferring online payment options rather than the traditional method of cash transfer.
Online presence of small businesses is becoming critical for increasing their customer and revenue base. Client experience is an essential part of businesses and hence digital businesses are trying to focus on digitalizing their payment systems.
Many small businesses are local in nature but thanks to the boom of the internet they are able to expand their reach on a global platform.
Accepting digital payments can effectively reduce expenses like bank charges, and maintenance of physical payment devices and enhance the seamless checkout experience.

Final words

The digitization of small-scale businesses has improved their growth. The digital payment system has enhanced their growth by providing them with a global outreach. This has led to improving their standard of living and breaking the cycle of poverty. Micro credit financing has led to the enormous growth of small-scale businesses through a modest lending scheme covering individuals with low income and zero collateral. The digital payment gateway in micro credit financing has led to improved timely payments and spread the ambit of lending as more and more people with a digital connection can avail of its benefit.