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Recent Trends in cashless economy in India

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THINK INDIA JOURNAL
ISSN: 0971-1260
Vol-22-Issue-10-November-2019

Recent Trends in cashless economy in India

Dr.S.Sivakumar
Associate Professor
Department of Commerce
St.Joseph’s College of Commerce (Autonomous)
163, Brigade Road, Bengaluru -560025.
E-mail: [email protected]

Dr.G.Vincent
Associate Professor
Department of Commerce
Christ (Deemed to be University)
Bengaluru –560029
E-mail: [email protected]

Abstract:
Cash based economies often pose serious challenges to any country in terms of tracking all
unaccountable transactions perpetrated by consumers, business entities or even the
Government. To tackle these issues, many developed countries have switched to cashless
economy. This paper seeks to examine the possibility of converting India from a cash-based
to a cashless economy. Due to constant level of technological infrastructure and policy
changes, there has been an increase in the number of modes of payments. Cashless economy
is the future of Indian economy where there will be no physical flow of cash. All the
payments will be made and received in the virtual world. Cashless economy got popular after
demonetization where plastic money was widely used. Electronic banking will be made
banking transaction to be easier by bringing services closer to its customers hence improving
banking industry performance. The financial safety over the digital payment channel is
important for pushing the cashless economy idea. A major obstacle for the quick adoption of
alternate mode of payment is mobile internet penetration, which is crucial because point of
sale terminal works over mobile internet connection, while banks have been charging money
on card-based transaction which is seen in hurdle. The study is aimed towards studying the
level of awareness among the citizens about cashless economy. The study recommends that
more people should start using digital payment methods which will serve a cashless economy
or less cash economy.
Key words: Cashless Transactions, Electronic-payment, Demonetization, Economic policy.

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Introduction
Over the past several decades, financial markets and institutions underwent radical
transformation and a sudden expansion, induced by general trends in deregulation,
liberalisation, globalisation, as well as computer technologies advances. International capital
flows intensified; markets have developed new and sophisticated instruments, with the drastic
improvement in the speed of financial transactions execution significantly lowering financial
transaction costs (Fabris, 2018). The manner of payment has changed in parallel with the
aforesaid changes. Credit and debit cards have become widespread and started squeezing out
cash, whereas the emergence of contactless technologies has further enhanced the use of
these payment instruments. Smart phones also revolutionized payments. This has led to
changes in numerous other areas such as education, innovations, change in consumer habits,
commerce demand for new products and services, but also in product life cycles
(Tomljanović and Grubišić, 2016).
The future of cash has become an ongoing debate, but mostly among economists. For the
average person, it’s a moot point—since we have access to a variety of forms of payment,
there’s no conflict (Mercadante, 2018). Today`s money is based on a set of mutual beliefs.
This means that money has value only because the society has assigned it certain value. Some
are of the opinion that money is the most important abstraction human beings have ever
devised (Zorpete, 2018). Cashless societies have existed from the time when human society
came into existence, based on barter and other methods of exchange, but real cashless society
should be understood in the sense of a move towards, and the implications of, a society where
cash is replaced by its digital equivalent.

Governments encourage a shift toward digital services because they see it as a way to address
money laundering, tax evasion and also to boost competition in financial services. Others
argue that digital payments protect consumers from being robbed or losing money, as well as
sparing them the hassle of constantly carrying a wallet (Cerulus and Contituglia, 2018). India
is looking to step away from traditional cash transactions. The government withdrew some
high denomination bank notes from circulation over a year ago. India’s prime minister
Narendra Modi created dozens of cashless townships where notes and coins are discouraged
(Jenkins, 2018). India also houses many street vendors whose livelihood depends on cash

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based selling. The main focus is that India is a country which still depends on cash payments
for most of the transactions (Ayash Yousuf Shah 2017). In Countries like Belgium, Canada,
etc. 90% of the consumers make cashless payments while in US, Australia 80% of
transactions are made through digital mode (SmrityBaiju, RadhaKumari 2017).

Statement of Problem
Traditionally, complying financial institutions in India, suffer from major issues like
overlapping regulatory requirements, changing mindset of the growing population of the
country, skill sets required for dynamically adapting to the newer technology, data privacy
and cyber security, lack of stringent intellectual property rights, lack of awareness about
norms and technological innovations across the globe that could help in widening the
horizons of innovative practices in the country.
Literature of review:
Cashless economy is not the complete absence of cash, it is an economic setting in which
goods and services are bought and paid for through electronic media.
(1) According to Alvares, Cliford (2009) in their reports ―The problem regarding fake
currency in India. It is said that the country's battle against fake currency is not getting easier
and many fakes go undetected. It is also stated that counterfeiters hitherto had restricted
printing facilities which made it easier to discover fakes.

(2) Zandi et al. (2013) studied whether the long-term shift to credit and debit cards stimulates
economic growth of 56 countries worldwide. They discovered that electronic card payments
can increase efficiency and boost consumption of the economy.

(3) A report published by IIM Bangalore (2017) mentions that 63% retailers all over India are
inclined to cashless transactions. A huge chunk of shop keepers (94%) have mobile phones,
out of which 41% are smart phone users, which presents a great opportunity for cashless
transactions. Also, 45% retailers are inclined to use POS machines. The study also revealed
that 38% retailers were willing to pay a transaction charge in excess of 1%. About 76%
consumers preferred using cash, but this number appeared to be reducing. Young consumers
(up to age 30 years) had high access to smart phones and were displaying more inclination
towards cashless transactions.

(4) Dr. Tushar Chaudhari (2017): Cashless transaction systems are not possible without
adequate internet facilities, so government must investigate in infrastructure availing internet.

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Especially free wi-fi zones should be made available at local market .All the major banks
must have separate counter which will be particularly used for assistance and guidance for
cashless transaction system. Extra charges on Cashless transaction must be stopped. It should
be made compulsory to all cooperative societies to make Cashless transaction specially
cheque or demand draft. Some advantages must be given to the people who are using
Cashless transaction. The vast advertisement campaign must be launched which will not only
develop Cashless transaction but also will provide valuable assistance in using it.

(5) Dr. Budheshwar Prasad SinghraulV(2018) : The major findings of the study show that
India in terms of using digital payment methods is still very poor in comparison to other
developed countries in the world. As many countries are already turned up with their
electronic payment system, India is in its beginning stage and all most of all population are
mainly dependent on paper cash based transaction because of unavailability of proper internet
connectivity, lack of awareness and knowledge of financial transaction, charges on card
payments and un operational bank accounts

Objectives of the Study

 To elucidate the concept of cashless economy.

 To study the current position of cashless India.
 To identify the prospects and challenges of cashless transaction system in India.

Methodology

The study is based on the literature review from various sources.

Cashless Transactions in Indian Economy

Money is becoming much more of a concept from a physical entity. (O.S. Akinola 2012).
Cashless Economy is defined as situation in which almost all transactions are performed
through digital methods with minimal use of cash. Cashless economy does not mean
complete absence of cash. In this economy transactions are mostly done through credit or
debit cards, online fund transfers and using e-wallets. The new policy of demonetisation has
inclined the use of digital methods by customers. It has reduced the risk of theft and loss of
money leading to risk free transactions.

Achieving cashless in rural economy:

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(i) Worldwide there is a tremendous interest among policymakers to explore the possibility of
moving towards a cashless economy. Digitisation of transactions is the best way to move
towards cashless economy.

(ii) Rural areas are home to two thirds of the country's population of some 870 million people
where much of the challenge lies in achieving cashless transactions for the rest of the decade.

(iii) It is estimated that rural users will constitute almost half of all Internet users in 2020.
Number of connected rural consumers is expected to increase from 120 million in 2015 to
almost 315 in 2020.

(iv) Over 93% of people in rural India have not done any digital transactions. So the real
problem lies there. The government has taken steps including announcing zero balance
accounts for people, but growth of Bank branches has been low.

Types of Cashless Modes and Payments

(i) Cheques and Demand Drafts

A cheque is one of the safest and oldest methods of cashless payment. A cheque is issued to a
person or business for a specific amount. This cheque is deposited in the receiver’s bank, and
the money is received through a payment processed by a clearinghouse. A demand draft is
safer than a cheque because it cannot be defaulted or dishonoured, unlike a cheque. The DD
is signed by a banker to ensure that sufficient funds are available for a successful transaction.
(ii) Debit and Credit Cards
Debit and credit cards have caught on as a method of cashless trading. A debit card is
considered by many to be safer because you are transacting with money in your account. The
risk with a credit card is overspending. Debit and credit cards can be used to make purchases
online as well as over-the-counter at a store.
(iii) UPI Applications
UPI stands for Unified Payment Interface. UPI has changed the way we transact. At the core
of a UPIs functionality is the fact that our mobile numbers are registered with our respective
banks and linked to our accounts. A virtual payment address helps to send or receive money
without entering any bank related information. Merchants would need to have a current
account to receive UPI payments.
(iv) Mobile Wallets

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Mobile wallets have become a convenient way of making payments without cash. Once you
load money into your mobile wallet, you can use it wherever it is accepted. The most popular
mobile wallet that is trending is Paytm. The disadvantage with mobile wallets is that it isn’t
linked to your account.
(v) NEFT and RTGS
National Electronic Fund Transfer and Real Time Gross Settlement are electronic payment
systems that allow convenient fund transfer between bank accounts. Both facilities are
maintained by the RBI (Reserve Bank of India). The facilities can be used to transfer money
only within India.
(vi) IMPS
IMPS, which stand for Immediate Payment Service, are a service that was initiated by the
National Payment Corporation of India. The pre-condition to avail IMPS services is that a
user needs to also register for mobile banking. Once registered, the user may avail of the
IMPS service even through internet banking. Money can be sent or received 27*7, and there
is no cut-off time for transactions.
(vii) USSD
Unstructured Supplementary Service Data is a cashless option for those who do not carry a
smart phone or tablet. It works without an internet connection as opposed to most of the other
digital payment services. It is a form of mobile banking where you must dial *99# to use the
service. The service mirrors the IMPS service and uses MMID with a mobile number or IFSC
code with the account number for the transaction to be successful.
(viii) ECS
ECS stands for Electronic Clearance Service. It is a convenient method to make bulk
payments, especially to pay off your utility services, equated monthly instalments, and for
financial institutions to disburse payments like pensions, salaries, or dividend interest.
(ix) Net Banking
Net banking is an alternative to using your debit or credit card. The user needs to login to
their net banking account to approve a payment. Net banking gives you the flexibility of
transacting even if you have misplaced your debit card or lost it.
Challenges in Making India Cashless Economy
(i) Lack of Digital Literacy
Since more than 60% population of India does not know how to use the computer and rural
Indian does not know about the smart phone. There is need of high speed internet connection

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but in India, there are various rural and urban area where the access of internet is very
difficult. The areas which have internet connection also have problems in continuous
connection. The costs of internet facilities are very high in comparison to developed
countries.
(ii) Lack of Infrastructure in India
There are various areas in the rural where banks are still a distant dream because these areas
are still having the banks at their door step. There is lack of ATMs in such areas and the areas
which have ATMs are not fully back up with the electricity and other IT facilities. So it is
necessary to have basic infrastructure for banking services.

(iii) Cyber Security Issues

Another mounting challenge in digital payments is cyber security issues, with the magnitude
with which digital transaction-taking place after demonetization the risk of online fraud,
leakage of confidential information, cyber-crimes, malware and virus attacks has been
raising. This is the biggest concern to deal with in order to popularize digital payments.
(iv) Unwillingness of Indian to Make Cashless Transactions
Mostly Indian does not prefer to deal with cashless transaction because seller does not accept
the cards and cheques at the point of sales and they demand for transaction fees that makes
the things costly. This problem may be solved to lower the transaction fees by the banks or
service provider if large no of Indian use the debit and credit cards for making the cashless
transactions.
(v) Lack of Customer Awareness
There is lack of awareness about different aspects of cashless transactions. It is the need of
the hour to stress upon the matter relation to the service tax, transaction fees, security of
accounts etc to make the consumer aware and effective party of the mission.
Analysis:
Digital Payments
 Total transaction value in the Digital Payments segment amounts to US$64,787m in
2019.
 Total transaction value is expected to show an annual growth rate (CAGR 2019-2023)
of 20.1% resulting in the total amount of US$134,588m by 2023.

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 The market's largest segment is Digital Commerce with a total transaction value of
US$58,812m in 2019.

(1) Total Transaction Value in the Digital Payments segment amounts to US$64,787m in
2019 and 134.588 in 2023.

(2) In the Mobile POS Payments segment, the number of users is expected to amount to
697.8m by 2023.

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3. The average transaction value per user in the Mobile POS Payments segment
amounts to US$14.8 in 2019 and 153.2 in 2023.

4. With a total transaction value of US$1,570,194m in 2019, the highest value worldwide
is reached in China.

Findings:

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The findings of the study show that India in terms of using digital payment methods is still
very poor in comparison to other developed countries in the world. As many countries are
already turned up with their electronic payment system, India is in its initial stage and most of
the population are dependent on cash based transaction. India needs to come up with the new
policies of digital transactions. It is recommended that government should promote their
agencies and private sector service providers to spread financial literacy at a great extend
especially in rural areas. Government should provide extra benefits on digital transaction
payments and offer extra incentives or interest rate on cash saving in bank accounts. At the
same time reduction in charges of digital transaction or exemption completely on digital
banking should be offered for few initial years which can be more helpful for speeding up the
process of digitalisation of payments in India.
Suggestions:
Developed economies have implemented a cashless payment infrastructure based primarily
on credit cards several decades ago, but in the recent years the legacy structures suddenly
became a burden. The "Western" markets are now much slower to adopt new payment
solutions than growing economies like China, India or Eastern Europe. The large share of
population in the developing economies of Asia, Africa and Latin America have also been
under banked until the rise of mobile payment and wallet innovations that rely completely on
accessible mobile technology.
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1. Alvares, Cliford,(2009) ―The problem regarding fake currency in India.ǁ Business Today;
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3. Dr. Tushar Chaudhari, The Critical Analysis of Cashless Transaction. International Journal
of Commerce and Management Research, ISSN: 2455-1627, Volume 3; Issue 3; March 2017;
Page No. 92-94.
4. Dr. Budheshwar Prasad Singhraul, Cashless Economy – Challenges and Opportunities in
India. Pacific Business Review International, Volume 10 Issue 9, March 2018.
5. Achord, S., et al. (2017). A Cashless Society - Benefits, Risks and Issues. London: Institute
and Faculty of Actuaries.

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6. Aguir, A. (2018). Central Bank Credibility, Independence, and Monetary Policy. Journal
of Central Banking Theory and Practice, 7 (3), 91-110.
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