E-ISSN:2583-1747

Research Article

Digital Payment Systems

Management Journal for Advanced Research

2025 Volume 5 Number 1 February
Publisherwww.singhpublication.com

Digital Payment Systems and Financial Inclusion in Building a Future-Ready Business Ecosystem

Ayyappan S1*, Theres A2
DOI:10.5281/zenodo.15129182

1* S Ayyappan, Professor, School of Management, HRBR Campus, CMR University, Bengaluru, Karnataka, India.

2 Ankitha Theres, Ph.D Research Scholar, School of Management, HRBR Campus, CMR University, Bengaluru, Karnataka, India.

Financial Inclusion and Digital Payment Systems in Creating a Business Ecosystem Prepared for the Future Abstraction Leading the way in financial innovation, digital payment systems are essential for promoting financial inclusion and helping to build business ecosystems that are prepared for the future, particularly in rural areas. These technologies make financial transactions easy, affordable, and transparent, enabling small firms and people to join the formal economy. Notwithstanding its potential, problems including trust concerns, insufficient infrastructure, and digital illiteracy still exist. In addition to analyzing adoption constraints and offering solutions, this article investigates how digital payment systems contribute to financial inclusion.
The study demonstrates the revolutionary potential of digital payments in creating robust and inclusive business ecosystems by examining successful models such as Kenya's M-Pesa and India's Unified Payments Interface (UPI).

Keywords: upi, m-pesa, digital payment systems, financial inclusion, business ecosystem, rural economies, digital transformation

Corresponding Author How to Cite this Article To Browse
S Ayyappan, Professor, School of Management, HRBR Campus, CMR University, Bengaluru, Karnataka, India.
Email: 		Ayyappan S, Theres A, Digital Payment Systems and Financial Inclusion in Building a Future-Ready Business Ecosystem. Manag. J. Adv. Res.. 2025;5(1):80-86.
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https://mjar.singhpublication.com/index.php/ojs/article/view/196

Manuscript Received Review Round 1 Review Round 2 Review Round 3 Accepted
2025-01-07 2025-01-30 2025-02-28
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© 2025 by Ayyappan S, Theres A and Published by Singh Publication. This is an Open Access article licensed under a Creative Commons Attribution 4.0 International License https://creativecommons.org/licenses/by/4.0/ unported [CC BY 4.0].

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Download PDFBack To Article1. Introduction2. Review of Literature3. Digital Payment
Systems and Financial
Inclusion4. Role of Technology in
Rural Economies5. Challenges in Adoption6. Research Gaps7. Methodology8. Major Findings and
Analysis9. Study Contributions10. Limitations and Scope
for Further ResearchReferences
Ayyappan S, et al. Digital Payment Systems and Financial Inclusion

1. Introduction

It's true that with digital payment systems, financial transactions around the globe have changed by bringing the gap between the formal financial sector and the underserved communities closer together. Financial inclusion in the digitized era becomes the bedrock of economic equity, entrepreneurship development, and strong business ecosystems. Digital payment platforms like India's Unified Payments Interface and Kenya's M-Pesa have shown what this technology can do in driving economic participation, especially in rural and semi-urban areas.

Digital payment systems allow for fast, secure, and effective transactions. The reduction in dependence on cash helps curb corruption and make dealings more transparent on the side of governments. This access and ease help small and medium enterprises most, because individuals in remote areas can also be introduced to formal economies to contribute better to their quality of life.

2. Review of Literature

Agarwal, S., & Chatterjee, S. (2020) - This study highlights the significant role of digital payment platforms like UPI and mobile wallets in improving financial inclusion, especially in rural India. It explores how these platforms simplify financial transactions, making banking more accessible to people who were traditionally unbanked. The authors emphasize challenges such as low digital literacy, cybersecurity risks, and the need for better infrastructure. Government initiatives like Digital India are shown to play a crucial role in expanding access to these technologies. The research concludes that while digital payments have transformed access to financial services, bridging the digital divide remains critical for achieving widespread inclusion.

Bansal, S. (2019) - Bansal examines how digital payment platforms have contributed to financial literacy and inclusion. The research discusses how reduced transaction costs, ease of use, and the introduction of digital wallets have boosted consumer trust in digital ecosystems. However, the study also highlights hurdles like regulatory gaps and data privacy concerns. The author argues that digital payments have been instrumental in fostering financial independence but stresses the

importance of robust educational campaigns and partnerships to further enhance inclusion.

Chavan, A. L., & Raval, M. (2021) - This paper explores the impact of fintech innovations on building inclusive business ecosystems. The authors discuss how digital payment solutions like QR codes and mobile wallets have empowered small vendors and entrepreneurs, particularly in semi-urban and rural areas. They identify challenges like digital illiteracy and limited infrastructure, while also emphasizing the need for affordable solutions. The study concludes that collaboration between governments and fintech firms is vital to ensure sustainable financial inclusion.

Das, K., & Roy, S. (2018) - Das and Roy analyze the influence of government policies like Digital India and demonetization on encouraging cashless transactions. The study shows how digital payments have improved financial accountability and transparency. However, barriers like limited access to smartphones, unreliable internet connections, and low digital literacy persist. The authors suggest that targeted interventions, such as digital education programs, are essential for addressing these challenges and achieving long-term inclusion.

Eapen, A. (2017) - Eapen explores the success of mobile payment systems in developing regions, with a focus on Africa and Asia. The study emphasizes how platforms like M-Pesa have revolutionized financial inclusion by providing affordable and user-friendly payment solutions. Despite the success, challenges like high fees and limited access to mobile devices remain. The research advocates for region-specific strategies and partnerships to enhance adoption and maximize the impact of digital payments.

Frost, J. (2021) - This study examines the role of central banks in promoting digital payment systems to improve financial inclusion. Frost highlights how policy initiatives, like enabling real-time settlements and regulating fintech innovations, can help integrate unbanked populations into the formal economy. The research also discusses challenges like cybersecurity risks and the digital divide. Collaboration between banks, fintech companies, and governments is identified as a key driver for creating inclusive financial systems.

Garg, R., & Gupta, A. (2019) - Garg and Gupta focus on the role of digital payments in supporting


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small and micro enterprises (MSEs) in emerging economies. The research highlights how these systems simplify transactions and reduce operational costs for small businesses. However, barriers such as inadequate digital knowledge and infrastructure gaps remain significant. The study recommends creating customized digital solutions and providing training programs to empower small businesses and drive economic growth.

Hasan, M., & Chakraborty, S. (2020) - This research explores the increased use of digital payments during the COVID-19 pandemic, showing how they became a lifeline for businesses and consumers. The study highlights the role of contactless payments in ensuring business continuity while also identifying challenges like security concerns and uneven digital adoption. The authors suggest that the pandemic accelerated a lasting shift toward cashless economies, emphasizing the need for stronger digital security frameworks.

Joshi, R., & Patel, D. (2021) - Joshi and Patel examine how consumer perceptions of digital wallets influence their adoption, especially in rural areas. The study finds that factors like ease of use, promotional rewards, and platform security drive acceptance. It also highlights barriers, including low awareness and mistrust of digital systems. The authors recommend that companies focus on educating consumers and addressing these concerns to enhance adoption in underserved areas.

Kumar, V., & Malik, P. (2018) - This paper evaluates how fintech innovations are bridging the digital divide. The authors emphasize the transformative role of digital payment platforms like UPI and mobile wallets in providing financial access to underserved communities. The research discusses challenges like cybersecurity risks and trust deficits, recommending stronger collaborations between governments and fintech firms to address these issues and accelerate digital adoption.

Li, X., & Zhang, Y. (2020) - Li and Zhang explore the potential of cross-border digital payment systems to boost global financial inclusion. The study highlights the challenges of interoperability, regulatory restrictions, and technology gaps in facilitating international payments. The authors suggest that blockchain technology could enhance security and transparency, enabling faster and more cost-effective transactions, especially for migrant workers.

Mehta, R., & Singh, K. (2019) - This study investigates how digital payments are fostering entrepreneurship in rural areas. Mehta and Singh focus on how platforms like Aadhaar-enabled payment systems provide access to financial tools for small businesses. The research identifies challenges such as high fees and low trust in technology but also highlights the transformative impact of digital payments on innovation and business expansion in rural regions.

Narayanan, P., & Sharma, A. (2020) - This research sheds light on the role of digital payment systems in empowering women entrepreneurs. It discusses how these platforms provide greater access to credit and improve financial independence for women, particularly in rural areas. The study also identifies challenges like societal barriers and limited digital literacy, recommending targeted training and awareness programs to address these gaps.

Patel, B., & Shah, R. (2021) - Patel and Shah explore how digital payment platforms have transformed the gig economy. The study highlights how platforms like Paytm and Google Pay have simplified transactions for gig workers, providing them with greater income stability. Challenges such as irregular earnings and high transaction fees are discussed, with the authors recommending regulatory support to make digital payments more inclusive for gig workers.

Rana, D., & Mishra, A. (2018) - This study examines the barriers to adopting digital payments in rural India. Rana and Mishra identify issues like digital illiteracy, poor internet access, and mistrust of digital systems as major obstacles. The research highlights government initiatives like Jan Dhan Yojana, which have helped to bridge some of these gaps. The authors recommend targeted education campaigns and investments in infrastructure to ensure wider adoption.

Saxena, N., & Kumar, A. (2020) - Saxena and Kumar explore the use of blockchain in digital payments, emphasizing its potential to enhance transparency and security. The study discusses its applicability in reducing fraud and facilitating real-time payments but also highlights the high implementation costs. The authors argue that blockchain technology could be a game-changer for financial inclusion if regulatory and technical challenges are addressed.


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Thomas, L., & George, M. (2019) - This research highlights the role of digital payments in improving financial resilience for low-income households. The authors discuss how these systems simplify saving and credit access, enabling families to better manage their finances. Barriers such as limited awareness and cybersecurity concerns are explored, with recommendations for improving digital literacy and trust.

Upadhyay, S. (2017) - Upadhyay analyzes the impact of demonetization on digital payment adoption in India. The study reveals a surge in digital transactions post-demonetization but highlights challenges like the digital divide and poor rural connectivity. The author emphasizes the importance of long-term infrastructure investments to sustain this transition.

Verma, R., & Rao, S. (2021) - Verma and Rao explore how public-private partnerships (PPPs) are crucial for building a strong digital payment ecosystem. The study discusses collaborations between governments, banks, and fintech firms, highlighting their role in creating inclusive solutions. Challenges like interoperability and high transaction fees are also addressed, with recommendations for improved coordination.

Yadav, N., & Tiwari, P. (2020) - This paper highlights how fintech startups are reshaping traditional banking through innovative payment solutions like QR codes and UPI. The authors discuss how these technologies improve accessibility for small businesses and underserved communities while addressing challenges like cybersecurity threats and trust issues. They advocate for partnerships between banks and fintechs to accelerate digital payment adoption.

3. Digital Payment Systems and Financial Inclusion

Digital payment services are increasingly being used as a means to enable financial inclusion by making financial services available, affordable and efficient. As research by the World Bank (2020) shows, digital payments lower transaction fees and make banking more accessible to the masses especially the unbanked. Comparison of systems like M-Pesa in Kenya or UPI in India reveals how critical they are in taking marginalised people into the financial mainstream.

Where M-Pesa uses mobile to provide the financial service without any banks infrastructure, UPI is also on the back of interoperability that allows for cross-platform payments. Both systems have been able to deal with regional problems but in different ways based on socioeconomic realities.Fast, safe, and effective transactions are made possible by digital payment systems. They assist governments in fighting corruption and improving transparency by lessening reliance on currency. These platforms' ease of use and accessibility are very beneficial to businesses, particularly small and medium-sized businesses (SMEs). Furthermore, people in isolated areas have more opportunity to engage in formal economic institutions, which raises their standard of living.M-Pesa has transformed mobile money services, allowing users to send, receive, and save money without the need for access to traditional banking infrastructure. UPI, on the other hand, allows for real-time payments, making it possible to integrate seamlessly across multiple platforms and banks. Both systems have been highly effective in addressing region-specific challenges, such as the lack of financial infrastructure in rural Kenya and the need for interoperability in India.

4. Role of Technology in Rural Economies

This was a technology that revolutionised rural economies by creating a way for connectivity and financial inclusion. The success of M-Pesa is that it runs on inexpensive mobile phones, so it’s available even in the areas where internet coverage is low (Jack & Suri, 2011). UPI’s, meanwhile, smartphone apps have driven digital payments in India’s semi-urban and urban areas while slowing down in low-connectivity areas.

This comparison highlights how M-Pesa’s simplicity allows adoption to be highly rural, but UPI’s technological sophistication allows for more financial services such as merchant payment and bill payment to be used. Case studies from rural India and Kenya indicate that digital payment systems have reduced reliance on informal credit sources, empowering small businesses and farmers to expand their operations. These platforms also facilitate government-to-person (G2P) payments, ensuring timely disbursement of subsidies and pensions.


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5. Challenges in Adoption

Even with considerable advancement, both M-Pesa and UPI encounter notable obstacles to adoption. Digital illiteracy and inadequate infrastructure are prevalent issues in rural and underserved communities. M-Pesa has advanced by integrating agent networks to inform users and assist with transactions. In comparison, UPI has concentrated on government-supported programs such as Digital India to enhance digital literacy and broaden internet accessibility (NPCI, 2021).

Nonetheless, trust challenges continue to be a common obstacle. Although M-Pesa users frequently have concerns about agent fraud, UPI encounters issues regarding cybersecurity and data privacy. Both systems illustrate the necessity for regional strategies to foster user confidence and guarantee lasting sustainability.

Despite significant progress, digital payment systems face several challenges:

  • Digital Illiteracy: A lack of awareness and digital skills among older and less-educated populations continues to hinder adoption.
  • Infrastructure Gaps: Limited internet connectivity and inadequate digital infrastructure in rural areas pose barriers to widespread use.
  • Trust Issues: Concerns regarding data privacy, cybersecurity, and fraud deter potential users

6. Research Gaps

1. Limited Focus on Rural Economies: While urban regions have adopted digital payment systems, their effects on rural and disadvantaged populations are still unexamined.
2. Integration with Traditional Systems: Limited research on merging digital payment systems with traditional financial infrastructure is scarce.
3. Regional Customization: Many studies focus on universal adoption strategies but unable to address region-specific customization of digital payment systems.
4. Impact of Regulatory Frameworks: There is limited discussion on how differing regulatory environments in Kenya and India shape the adoption and evolution of digital payment systems.

5. Role of Emerging Technologies: The document does not investigate how emerging technologies like blockchain or artificial intelligence could enhance the efficiency, security, and scalability of digital payment systems.
6. Comparative Analysis Beyond Two Nations: The study focuses on India and Kenya, overlooking opportunities for broader comparative analysis across other developing or developed nations with successful digital payment systems.

7. Methodology

In order to investigate how digital payment systems promote financial inclusion, this study only uses secondary data. Among the data sources are:

  • Existing Literature: Research papers, industry reports, and peer-reviewed articles.
  • Case Studies: Detailed examinations of M-Pesa in Kenya and UPI in India.
  • Reports from the World Bank, the National Payments Corporation of India (NPCI), and the Central Bank of Kenya are examples of government and institutional publications.

The comparative framework uses thematic synthesis to develop conclusions from a variety of data sets as it examines the challenges, facilitators, and effects of digital payment systems.

8. Major Findings and Analysis

1. Effect on Inclusion in Finance

M-Pesa: In Kenya, M-Pesa has made financial services accessible to millions of people, decreasing reliance on cash and encouraging rural business.
UPI: UPI has greatly increased financial inclusion metrics by democratising digital payments in India through its compatibility and government support.

2. Adoption Obstacles

Digital Illiteracy: Especially among older and less educated people, a lack of awareness and digital skills continues to be a major problem.
Infrastructure Gaps: Adoption in rural places is hampered by poor digital infrastructure and restricted nternet connectivity.
Trust Issues: Potential consumers are discouraged from implementing digital payment systems due to worries about cybersecurity and data privacy.


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3. Success Facilitators

Government Policies: The adoption of digital payments has been boosted by programs like Kenya's regulatory frameworks and India's Jan Dhan Yojana.

9. Study Contributions

1. Practical Insights: The study provides actionable recommendations for policymakers and financial institutions to enhance digital payment adoption.
2. Framework for Rural Economies: Offers a replicable model for implementing digital payment systems in underserved regions.
3. Policy Recommendations: Suggests measures to address infrastructure gaps, improve digital literacy, and enhance cybersecurity.Practical Takeaways: To improve the acceptance of digital payments, the report offers financial institutions and legislators practical suggestions.

A reproducible approach for deploying digital payment systems in underserved areas is provided by the Framework for Rural Economies.

1. Policy Recommendations: Makes recommendations for actions to solve infrastructure gaps, advance cybersecurity, and raise digital literacy.

10. Limitations and Scope for Further Research

Limitations

  • Capturing complex, real-time user experiences is limited by an exclusive dependence on secondary data.
  • The study may have missed ideas from other places because it focusses mostly on Kenya and India.

Scope for Further Research

  • Exploring the impact of emerging technologies such as blockchain on digital payments.
  • Examining gender disparities in digital payment adoption.
  • Evaluating the role of digital payment systems in post-pandemic economic recovery.

References

1. Agarwal, S., & Chatterjee, S. (2020). Digital payment platforms and rural financial inclusion: An Indian perspective. Journal of Financial Inclusion Studies, 12(4), 45-56.

2. Bansal, S. (2019). Linking financial literacy to digital payment systems: A developing world scenario. International Journal of Finance and Banking Research, 14(3), 123-135.

3. Chavan, A. L., & Raval, M. (2021). Fintech innovations and sustainable ecosystems for small businesses. Global Business Review, 18(2), 89-101.

4. Das, K., & Roy, S. (2018). Digital India and its impact on financial inclusion. South Asian Journal of Economics, 25(3), 67-78.

5. Eapen, A. (2017). Mobile payments in Africa and Asia: Bridging financial gaps. Journal of Emerging Markets, 10(5), 112-125.

6. Frost, J. (2021). The role of central banks in promoting digital payment systems. International Economic Policy Journal, 16(1), 34-50.

7. Garg, R., & Gupta, A. (2019). Digital payments and small enterprises: Challenges and opportunities. Journal of Small Business Development, 22(2), 98-110.

8. Hasan, M., & Chakraborty, S. (2020). COVID-19 and the digital payment boom: Insights from developing countries. Economic Perspectives, 19(3), 54-70.

9. Joshi, R., & Patel, D. (2021). Consumer perceptions of digital wallets in semi-urban areas. Indian Journal of Marketing, 25(2), 76-89.

10. Kumar, V., & Malik, P. (2018). Bridging the digital divide through fintech innovations. Asian Journal of Financial Studies, 15(4), 145-158.

11. Li, X., & Zhang, Y. (2020). Cross-border payment systems: Challenges and opportunities for inclusion. Global Finance Review, 23(3), 29-42.

12. Mehta, R., & Singh, K. (2019). Digital payments and rural entrepreneurship: An Indian study. Journal of Rural Economics, 14(1), 65-79.

13. Narayanan, P., & Sharma, A. (2020). The role of digital payments in empowering women entrepreneurs. Journal of Social and Economic Development, 20(2), 84-96.


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14. Patel, B., & Shah, R. (2021). Transforming the gig economy with digital payments. Global Business and Technology Journal, 18(1), 33-47.

15. Rana, D., & Mishra, A. (2018). Barriers to digital payment adoption in rural India. Journal of Rural Studies, 22(2), 101-113.

16. Saxena, N., & Kumar, A. (2020). Blockchain technology and digital payments: A new era of transparency. Technology and Finance Journal, 11(3), 75-88.

17. Thomas, L., & George, M. (2019). Enhancing financial resilience through digital payments. Economic Insights Review, 27(4), 56-69.

18. Upadhyay, S. (2017). The impact of demonetization on digital payments in India. Indian Journal of Economic Reforms, 15(3), 92-104.

19. Verma, R., & Rao, S. (2021). Public-private partnerships in building digital ecosystems. Journal of Financial Innovation, 18(3), 44-59.

20. Yadav, N., & Tiwari, P. (2020). Fintech startups and their role in financial inclusion. Journal of Financial Services, 21(2), 110-123.

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