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Remember a decade ago, when people used to physically hand over money or use their cards. But if you look at the current scenario, you will notice a vegetable seller using UPI QR to receive payments, and at a high-end store, customers are using cards or wallets without uttering a word. The digital payment revolution in India has not only expanded but has also changed the way businesses engage with all types of customers.
Whether it’s kirana shops or SaaS companies, the flow of money has changed to something quicker, more agile, and even more integrated into operations. But not every e-payment system fits every use case. Choosing what works best starts with understanding what each system actually does and doesn’t.
What is an E-Payment System?
An e-payment system (electronic payment system) enables digital money transfer between parties without physical cash or cheques. These systems facilitate financial transactions through electronic channels such as mobile apps, websites, POS terminals, or USSD codes, connecting payers, payees, and banking infrastructure.
E-Payment Evolution in India
Government programs such as Digital India, demonetization in 2016, and zero, MDR policies stimulated the rapid growth of e-payments. The National Payments Corporation of India (NPCI) developed UPI, transforming small-value transactions. Infrastructure expansion deployed 568 million UPI QR codes to approximately 65 million merchants by 2025, making digital acceptance ubiquitous from metropolitan retailers to rural kirana stores.
Types of Electronic Payment Systems in India
India’s e-payment landscape has expanded rapidly, offering businesses and consumers a wide range of digital transaction options tailored to different needs, devices, and use cases. The following are the major types of e-payment systems widely used today:
Unified Payments Interface (UPI)
UPI, launched by NPCI in 2016, is India’s main instant payment system that allows banking transactions anytime, even outside banking hours by using virtual payment addresses (VPAs) such as yourname@bank. It keeps the account details confidential while transferring money between two people or making payments to merchants.
The volume of UPI transactions surged from 920 million in the financial year 2017-18 to more than 13.116 billion in FY2023, 24 alone, which amounts to about 70% of all the digital payments made that year. The UPI based e-payment system has handled a total of around 129.3 billion transactions in FY2024-25 which is almost half of the global total of real, time payment transactions.
| Advantages | Disadvantages |
| Instant 24×7 transfers with real-time settlement | Transaction limits (typically ₹1 lakh per transaction) |
| No need to share bank account details; uses VPA | Requires smartphone and internet connectivity |
| Zero or minimal transaction fees for customers | Dependent on bank server uptime and network stability |
| Wide merchant acceptance through QR codes | Limited dispute resolution compared to cards |
| Supports multiple bank accounts in single app | Privacy concerns with transaction data tracking |
| Simple integration for businesses via APIs | Fraud risks through social engineering or phishing |
Debit and Credit Cards
Payment plastic cards (Visa, Mastercard, RuPay) issued by banks allow for transactions at physical stores and online platforms. Customers use cards for transactions from grocery shopping to flight bookings, with contactless NFC payments becoming popular in urban India. RBI notes steady expansion in card usage and acceptance infrastructure, supported by the domestic RuPay network offering low-cost transactions.
| Advantages | Disadvantages |
| Wide acceptance domestically and internationally | Merchant Discount Rate (MDR) charges reduce margins |
| Credit cards provide spending power beyond bank balance | Charge backs and disputes favor cardholders over merchants |
| Contactless NFC enables quick tap-and-pay transactions | Requires secure PoS terminals or PCI-compliant gateways |
| Fraud protection and purchase insurance for cardholders | Higher setup and maintenance costs for card infrastructure |
| Enables EMI and installment payment options | Card data breaches pose security risks |
| Strong for high-value transactions with verification | Processing time longer than instant methods like UPI |
Mobile Wallets (Digital Wallets)
Mobile wallets are prepaid accounts in the form of apps (Paytm Wallet, Amazon Pay, PhonePe Wallet) that are topped up with funds by users and used for payments.
Essentially, mobile wallets are virtual cash boxes in the users’ smartphones, which are recharged through bank transfers, UPI, or cards, and payments are made by scanning codes or in-app transactions.
The payments made using mobile wallets in India has increased at a CAGR of 72% from 2019 to 2023, and the total amount reached around ₹208.2 lakh crore.
| Advantages | Disadvantages |
| Quick app-based payments with stored balance | Requires pre-loading funds; money locked in wallet |
| Offers cashback, rewards, and loyalty programs | Limited acceptance compared to UPI or cards |
| Works seamlessly for small-value transactions | KYC requirements limit transaction amounts for non-KYC wallets |
| Integrates gift cards, tickets, and passes | Funds cannot always be transferred back to bank easily |
| Simplified checkout without entering card details | Multiple wallets fragment user experience |
| UPI interoperability mandated by RBI | Wallet company closure risks user fund loss |
Internet and Mobile Banking (NEFT/RTGS/IMPS)
Traditional bank internet banking and mobile banking apps enable money transfers via NEFT (National Electronic Funds Transfer), RTGS (Real Time Gross Settlement), and IMPS (Immediate Payment Service). NEFT and RTGS, launched in the mid-2000s, handle scheduled or large-value transfers like:
- NEFT for bulk low/medium amounts,
- RTGS for high-value transfers (typically ₹2 lakh minimum),
- IMPS allows 24×7 immediate transfer services for various payments (with a daily limit of ₹2 lakh at present).
The auto-debit mandate is created by the enterprises through eNACH (electronic National Automated Clearing House) or netbanking portals for recurring payments such as loan EMIs, insurance premiums, or subscription fees.
| Advantages | Disadvantages |
| High transaction limits suitable for bulk/large payments | Slower processing compared to instant methods like UPI/IMPS |
| Secure with multi-factor authentication and audit trails | Requires internet access and login credentials |
| Supports scheduled and recurring payment automation | Complex interface less convenient for small daily transactions |
| RTGS enables same-day large-value settlement | RTGS minimum amount typically ₹2 lakh |
| Corporate banking allows bulk file uploads for payroll | NEFT operates in hourly batches, not instant |
| No wallet or app intermediaries—direct bank-to-bank | Password/OTP fatigue with repeated logins |
Also read: IMPS, NEFT, RTGS: Meaning, Full Form, Benefits and Difference
Prepaid Instruments and Emerging Modes
Prepaid Payment Instruments (PPIs) are preloaded instruments such as gift cards, meal cards, travel cards, and metro cards that are used for controlled spending. Companies also provide prepaid expense cards to their employees.
| Advantages | Disadvantages |
| Pre-loaded value enables budgeting and expense control | Funds locked in instrument—limited flexibility |
| Gift cards facilitate corporate rewards and incentives | Expiry dates may result in value loss |
| Travel cards simplify transit payments without cash | Limited acceptance outside specific use cases |
| BNPL expands purchasing power for consumers | BNPL credit risk and repayment obligations |
| e-Rupee pilots explore programmable money possibilities | Emerging modes lack widespread infrastructure |
| No bank account required for basic PPIs | Refund processes complicated for prepaid instruments |
Aadhaar-Enabled Payment System (AePS)
AePS is a bank transaction system at point-of-service which works with Aadhaar biometric authentication only. People who have bank accounts linked with Aadhaar are able to go to AePS kiosks or micro, ATMs there, authenticate themselves by fingerprint/iris scan and carry out banking transactions such as cash withdrawals, deposits, or fund transfers.
The system aims at financial inclusion and gives access to bank accounts for those who have Aadhaar but do not have ATM cards or smartphones.
| Advantages | Disadvantages |
| Enables transactions without cards, phones, or PINs | Biometric authentication can fail due to worn fingerprints or injuries |
| Serves remote/rural populations with poor banking access | Transaction limits (typically ₹10,000) restrict larger payments |
| Secure authentication through unique biometrics | Requires specialized biometric devices and trained agents |
| Government subsidy and benefit distribution | Privacy concerns around Aadhaar data usage |
| Cash withdrawal available at micro-ATMs in villages | Limited merchant acceptance infrastructure |
| No need to remember passwords or carry physical cards | Dependent on Aadhaar-bank account linkage accuracy |
Point-of-Sale (PoS) Terminals
PoS (Point-of-Sale) terminals are physical payment acceptance systems that are used by retailers, restaurants, and service providers to accept payments from customers. These payment acceptance systems support card swipe transactions, chip and pin transactions, contactless NFC transactions, and UPI QR code transactions.
This allows the business to support different customer preferences. The latest PoS systems also support billing, reporting, and payment services.
| Advantages | Disadvantages |
| Accepts cards, UPI, and wallets via single device | Requires upfront hardware investment |
| Supports NFC, chip, and magnetic swipe methods | Depends on internet/power uptime |
| Enables faster checkouts with real-time confirmations | May incur maintenance and service costs |
| Simplifies reconciliation with digital tracking | Limited utility outside physical storefronts |
USSD Banking (*99#)
USSD banking (Unstructured Supplementary Service Data), which is accessible by dialing *99# on the mobile phone, offers text-based menu systems that work on any mobile phone without internet connectivity. The service was launched to enable feature phone users to make digital payments, and it enables customers to check their balances and make instant IMPS transfers using either MMID or Aadhaar numbers.
The service aims at financially undeserved customers, bridging key accessibility gaps. Although USSD services are limited (no merchant QR acceptance), they facilitate cashless transactions for customers who rely on cash.
| Advantages | Disadvantages |
| Works on basic feature phones without internet | Limited functionality; no merchant scanning or apps |
| Enables financial inclusion for non-smartphone users | Session timeouts require re-dialing for long transactions |
| No app download or data charges required | Security depends on SIM card, risk if SIM stolen |
| Available in remote areas with only telecom coverage | Transaction limits typically lower than other methods |
| Simple menu-driven interface for basic literacy | Slower than app-based payments due to menu navigation |
| Direct bank account access via registered mobile number | Cannot handle complex transactions or bill payments easily |
Cashfree’s Role in India’s E-Payment Systems
Digital payments may look simple on the surface, but scaling them across channels, customers, and compliance frameworks takes more than just a checkout button. That’s where Cashfree steps in to streamline enterprise-grade payment operations.
Here’s how Cashfree makes it easier and more secure for Indian businesses to manage their e-payment workflows:
- Unified Multi-Mode Acceptance: Cashfree empowers businesses to accept payments via UPI, cards, netbanking, wallets, BNPL, and EMI modes, all through a single platform. This not only makes the integration process easier, but also allows payment management from a single dashboard.
- Recurring & Auto-Debit Capabilities: Leveraging tools such as eNACH and AutoPay, businesses can establish automated collections for EMIs, subscriptions, or bills. This helps reduce the use of manual reminders and enables a more predictable cash flow.
- Real-Time Settlements and Refunds: Instant settlements and quick refund APIs ensure that transactions happen rapidly. It is a good way to enhance the trust of the customers and maintain a lean receivables cycle.
- Built for Compliance and Scale: The platform is PCI-DSS compliant and supports UPI and Aadhaar-linked flows. It’s designed to ensures enterprises stay compliant while staying in step with evolving regulations.
Conclusion
India’s e-payment system landscape has become integral to how businesses transact and grow. From the instantaneous comfort of UPI to card-based payments, wallets, net banking, and Aadhaar-linked options, each method caters to the different customer behaviors and operational needs. Enterprises that embrace multi-mode e-payment systems not only increase collection efficiency but also raise customer trust and accessibility.
With more than 99% of retail purchases being made online, the provision of digital payment methods that are smooth, safe, and diverse is now a bare minimum requirement. As technologies such as BNPL continue to influence the future of digital payments, companies that implement flexible and scalable payment infrastructure will be the ones to gain an advantage.
Get started with Cashfree today to unify your e-payment system across acceptance and disbursal workflows effortlessly.
FAQs about E-Payment System
What is an e-payment system?
An e-payment system enables digital financial transactions between businesses and customers using platforms like UPI, cards, wallets, or netbanking. This reduces manual cash handling and delays.
Which e-payment method is best for businesses in India?
UPI leads for speed and reach, while cards and netbanking work well for high-value or B2B payments. Ideal systems depend on transaction type, audience, and operational needs.
How secure are electronic payment systems?
Modern e-payment systems follow strict security protocols like PCI-DSS, tokenization, and two-factor authentication. These payment systems prevent fraud and ensure safe, compliant transactions across channels.
What’s the difference between UPI and digital wallets?
UPI directly links to bank accounts for instant transfers, while wallets store prepaid value within apps. Both serve different user preferences but differ in fund source and flow.
Can small businesses integrate multiple payment options easily?
Yes. Platforms like Cashfree allow single integration for UPI, cards, wallets, and netbanking. It helps small enterprises offer diverse checkout options without heavy tech investment.
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