What are the Different Modes of Payment System in India?


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What mode of payment do you normally prefer? Do you deal in cash, like to go digital or use both? There are different payment modes in India and most of them can be categorised under digital modes of payment. In this article, we will be talking about the different payment methods that people use to carry out their transactions. We will also be discussing both the advantages and disadvantages of using cashless initiatives in India or preferring an online payment medium.

So, without any further delay let us start our reading adventure!

What is a Payment System?

A payment system is a medium of payment or transaction that is carried out by individuals or companies for purchasing different products, utilities and services.

What are the Different Types of Payment Modes in India?

Credit or Debit cards

Using credit or debit cards is one of the different and common modes of digital payment in India. While using credit or debit cards you need verification details like entering an OTP or PIN. These verification methods are one way of ensuring security in transactional payment.

Customers can use online credit or debit cards at zero transaction fees. Through digital payments as these, you can also regulate recurring payments like EMIs. Other banking transactional services that can be carried out through credit cards and debits cards include cash withdrawal, Balance inquiry and Cash Deposit.


Cash is the common and oldest form of payment that is non-digital. The unbanked masses is heavily reliant on cash mode of payment in India. Although majority of people are opting for cashless payments because of its numerous advantages, the cash mode of payment continues to remain significant as the most valid form of currency.

One can find people handling cash specially in the absence of a digital payment structure. Also, the population that doesn’t know how to handle or operate a digital payment system, uses cash to pay off their dues. During the pandemic when people preferred cashless payments, there was a rise in digital payments. However, as the pandemic becomes a thing of the past, the cash mode of payment has made its comeback once again.

Digital or Mobile Wallet

Digital wallets are money wallets within a mobile device. Some of the popular mobile wallets include Google Pay, PhonePe, MobiKwik Amazon Pay etc. There is an option with an e-wallet to add balance which you can use to carry out transactions. Using certain mobile applications have added advantages for those making payments with digital wallets. For example, if you make transactions through Google Pay, you may receive upto INR1000 as cashback.

There are other lottery-based rewards as well. For Paytm, if you recharge above INR 99, you maybe surprised with discounts. Amazon Pay is integrated within the e-commerce platform Amazon to offer you the facilities of a mobile wallet.

There are set-limits regarding how much you can pay through a digital wallet. With premium facilities in certain mobile wallets, you can unlock features like access to QR-based payments.

COD or Cash on Delivery

Cash on Delivery refers to the payment in cash that you provide when a product or a service has been delivered to you at your preferred location.

As per statistics, 90% of rural India chooses to pay through COD or Cash on Delivery mode of payment. This makes us conclude that unlike metropolitans, digital payments still require a more invasive market dominance to project in such areas.

COD got its breakthrough in the Indian market in 2010 but its actual proliferance was witnessed between the years 2015 and 2020. There are various e-commerce platforms that provide COD services with no or minimal cost. One such example of an e-commerce vendor is Amazon.

Direct Debit

Direct Debit works on pre-authorized payment where a third party is allowed to withdraw funds from the bank account of an individual with due permission and provide it to another account.

Direct Debit can be used for paying recurring payments like utility bills.

Direct debit is an alternative to handling physical cash. All you need to set up the payment mode is to enter some debit card details with necessary identification and KYC information.

This mode of payment grew in prominence during the pandemic when people were in search of faster transaction and easy documentation process.

Its two disadvantages are that it demands transaction fees and vendors must have POS machines to facilitate payments.

Mobile Contactless Payments

Some examples of mobile contactless Payments include mobile wallets, QR scans, micro ATMs etc. You can use mobile contactless Payments through physical, mobile and virtual POS terminals. These payment modes seamlessly integrates with different banking service providers. The mandatory thing about a mobile contactless payment mode is the availability of a device to accept payments. In case you make regular retail payments, there are available facilities like one-touch payments.

Buy Now Pay Later/BNPL

Buy Now Pay Later is a payment mode where you can pay the due amount at a later date.

With BNPL, you can pay to over 10,000-75000 retail vendors. BNPL options are present in finance applications like ePaylater, PostPe, Zest money, FreeCharge etc.

ZestMoney provides credit limit of upto two lakh which attracts the unbanked population. The amount may remain unpaid for 3-4 months for some platforms. With FreeCharge, you can use one-touch payments that come with incentives for vendor partners.

Regarding PostPe, you can easily register with your WhatsApp number. MobiKwik ZIP provides you BNPL service by allowing you to set up a monthly wallet with minimum documentation.

Thus, BNPL services are rising in prominence in the FinTech of Indian market.


UPI is one of the modes of payment done online.

With UPI ID services, you can easily transfer money from your account to that of your receiver’s. There is no hassle involved when you are using UPI as your payment mode. The best thing about UPI services is that different payment gateways provides this feature. As a result, there is no need of shifting between platforms to pay for your products and services.

Bank Transfers

Bank Transfers is one of the different modes of payment in India. It involves RTGS, NEFT and IMPS payment transfer methods. UPI methods function on PCI-DSS compliant secure system. The speed of the transaction is dependent on the banking server. If your credit card/address is invalid or your card has expired, the payment applications can safeguard you against that.

What are the Advantages of Digital Payments?

The advantages of digital payments are as follows:

  • Digital payments are comparatively secure because of payment tokenization, encryption, SSL etc. There are also data experts and engineers endeavouring to keep our banking details safe.
  • Paying up digitally saves a lot of time and resources. You can use the saved-up time for carrying out other value-added tasks. Also, since digital payments replace manual labour through automation, it is a highly useful mode of payment for the majority.
  • The process involved in digital mode of payments is quicker than traditional methods. You can access the features of an online payment mode right from the comfort of your home. No matter where you reside, you can easily transfer money through digital systems of payment.
  • When there is complete transparency in a transaction process, there is less scope for fraudulent activity in an electronic mode of payment. Digital payment processes work with transparency and visibility.

What are the Disadvantages of Digital Payments?

The disadvantages of digital payments are as follows:

  • Downtime can cause some serious inconvenience for users trying to use a mode of payment online. Although technology maintenance operations are made aware of in advance, it can still be the cause of frustration for most customers and businesses who experience heavy bounce rates.
  • Although dealing with digital payments is comparatively safe, still it faces security threats. We need to enter our financial details in digital payments which is one reason the system is susceptible to security attacks. Despite using OTPs, password protection becomes necessary.
  • Particularly, if you have to deal with multiple bank accounts or you are a user who uses online payments frequently, you might face security issues. To save themselves from security breaches, businesses install different softwares that acts as a defence against such malwares that demands some additional expenses
  • There are still many people who lack the basic knowledge of using an online mode of payment. This is a huge drawback as such individuals refrain from digital payment procedures because they are apprehensive about the complexities of technology. Despite there being different digital mode of payment in India, people are unwilling to shift from traditional payment methods.
  • There are even set limits of transaction by banks on a particular day. As a result, you may not get to transfer the desired sum because of such limitations.
  • The costs which a digital payment user needs to bear may include set-up, processing and internet expenses.
  • There is a greater risk associated if you lose your credit or debit card. Fraudsters may use the time before blocking the cards to transact the entire amount present in your bank account.
  • Since there is greater anonimity in online transaction processes, there maybe cases of forgery and identity theft.

What are the advantages of the Cash Mode of Payment?

  • Cash mode of payment can be used when digital modes of payment are unavailable. It can be used freely without the involvement of third parties like internet, electricity, equipment etc. There are no chances of losing your credit or debit card.
  • Cash is the oldest and the common method of payment for most buyers or sellers. It is an alternative mode of payment to digital transaction processes. Generally, it is the first choice of most individuals while paying out at a shop or restaurant. Moreover, those who are not comfortable in using digital services, like the elderly or low-income groups, can easily carry out the transaction with liquid cash.
  • In digital payments, different issues may arise but when you pay cash to someone directly, there are barely any chances of mistake or flaws.
  • Paying cash is more secure than opting for digital mode of payment. Your privacy is also maintained during cash payments.
  • Digital payment is faster with respect to sending money anywhere in the world. Paying out cash to someone is also quicker when you are purchasing something vis-a-vis. In other words, with cash, transactions get settled instantly.
  • Transaction through cash helps you keep a check on your expenditure habit. Sometimes tend to overspend in case of digital payments.
  • When people have to send gifts to children, acquaintance or a friend, they hand over cash to them instead of sharing money digitally. This is the reason why still many people heavily rely on cash payments.

What are the Disadvantages of the Cash Mode of Payment?

  • If you lose your wallet, you lose your cash. So, you have to persistently stay conscious about the whereabouts of your wallet.
  • With cash, you can’t keep a track of the details of your purchase. Although you may have a receipt, it may not always be possible to store such details safely. With digital payments, you get to see your list of expenditure on items and so tracking is easier.
  • Relying completely on cash will cause you much inconvenience as more and more people are opting for electronic payments.
  • Liquid cash cannot be transferred anywhere in the world unlike digital payments.
  • With cashless initiatives in any country including India, you can have different perks and rewards, whereas with cash mode of payment, you do not have added benefits.

Final Thought!

After going through the advantages and disadvantages of both cashless and cash mode of payment, what can you conclude? You might have found that the two modes of payment in India have their own perks and rewards. As digital mode of payments are witnessing a rise, people are becoming less-reliant on cash. We could particularly witness the influence of digital payments during the pandemic when even the unwilling generation were compelled to use the online services. Thus, we can safely conclude that the demographics are gradually becoming more financially inclusive.

Are you willing to opt for some new mode among the different modes of payment available in India? Have you helped anyone facing difficulty operating in FinTech? Share with us in the comment section below.

Frequently Asked Questions (FAQs)

How is Digital Payment better than cash?

Digital payment is more secure, speedy, efficient, and transparent mode of payment than cash.

How many modes of payment are there?

There are top ten modes of payment in India.

Credit/debit cards, cash, mobile wallet, COD, mobile contactless payments, direct debit, BNPL, bank transfers, UPI.

How does a Digital Payment System work?

In a digital payment system, a payment request is sent from the seller’s website to the payment gateway. The latter then takes care of authorization and accepts the amount from the purchaser’s account. The gateway also checks the credit limit to ensure that the due amount can be withdrawn.

How are Digital Payments Important?

Digital payments are important because it helps in economic growth because of its speed, enhanced reliability, convenience, and ease of usage.

Is Electronic Payment safe to use?

Electronic payments are highly safe to use as it involves OTPs, two-factor authentication and PIN. Despite this fact, security systems may get hacked and important credentials might get stolen.

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