Introduction

In Cashless economy most of the transactions are done via cards or digital means such as National Electronic Fund Transfer (NEFT),
Immediate Payment Service (IMPS), and Real Time Gross Settlement (RTGS) or by mobile wallets thus making the flow of cash nonexistent.
There is swift increase in the number of cashless transactions all over world as people are more and more moving towards faster payment
options to save time and effort.
Even Governments across countries are inclined to turn the countries to cashless economies as burden of cash usage on governments is
substantial .It accounts for as much as 1.5 percent on GDP.
The industry worldwide is presently going through a wave of infrastructure modernization that is required to compete effectively to cater
the growing customer needs. As of now, more than 15 countries have modernized their all payments gateways and infrastructures in the
previous few years, and many others are in the planning stage.
Sweden is steadily moving towards cashless economy with majority of its public willing to do digital transactions. In the year 2015 85
percent of the transactions are cashless .Similarly in Hong Kong the octopus card which was launched as electronic purse for public
transportation which is now processing over 13 million transactions a day of value 169 million HK$ with the presence over 17000 retail
outlets from 7700 service providers .
While in India, there is too much use of cash for day to day transactions .It is the one of the countries with one of the highest Cash to GDP
ratio standing at 12.42 percent. Less than 5 percent of all payments happen electronically in India

A system where no physical cash is in circulation is a cashless system. Payments are made through credit and debit cards, bank electronic
fund transfers or virtual wallets.

What is a Cashless Economy?

Cashless Economy can be defined as a situation in which the flow of cash within an economy is non-existent and all transactions must be
through electronic channels such as direct debit, credit cards, debit cards, electronic clearing, and payment systems such as Immediate
Payment Service (IMPS), National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) in India.
• Cashless economy
• It can be defined as a situation in which the flow of cash within an
economy is non-existent and all transactions have to be through electronic
channels such as direct debit, credit and debit cards, electronic clearing,
payment systems such as Immediate Payment Service (IMPS), National
Electronic Funds Transfer and Real Time Gross Settlement in India.
• Why have a Cashless Economy?
• In November 2016, an idea of cutting down the black money in the nation
was given by Prime Minister of India Mr. Narendra Modi. He blocked the
utilization of currency notes of Rs. 500 and Rs. 1000 and presented the new
notes of Rs. 2000 notes to the public. With this drastic step, he also
introduced the scheme of Cashless economy in the country.
ntroduction:
‘Cashless Economy’ is a great initiative in India undertaken by the Narendra Modi government. Cashless
Economy means reduction in cash transactions and increased use of digital transactions. The Government
of India introduced the method of Cashless transactions in November 2016. It started with the
demonetization of Rs.500 and Rs.1000 currency notes. This was considered to be a great move to reduce
the dependency of cash in India. The sudden announcement of moving into Cashless Economy brought
mixed responses from the citizens as well as financial experts.
• The Government’s Initiatives for Digitizing the Economy
• The first move taken was the demonetisation in November 2016. At the time of demonetisation, India’s cash to GDP ratio was around
12%. After demonetisation, that ratio came down to around 9% of the GDP. But after that, it grew at a lower pace but steadily. The latest
2019 end figure shows that the ratio presently is around 11% of the GDP.
• The proponents of the demonetisation argue that if it had not happened, further quick measures to encourage digital transactions
like increase in the number of point of sale machines, introduction of mobile wallets like Paytm and PhonePe had not happened.
• There were 18 trillion rupees approximately in circulation before the demonetisation, at the end of that fiscal it was around 13.5
million and presently, 20-21.5 trillion, less by 4.5 around trillion.
• In the year 2013, the value of digital transactions was around 0.7 trillion, it is now 5 times i.e. 3.5 trillion. This can be the result of
the 4.5 trillion rupees being less in circulation now.
• Some see the growth of digital transactions during demonetisation as a bit of compulsion as there was not enough cash in the
economy.
• The National Payments Corporation of India (NPCI) created the Unified Payments Interface (UPI) which is a payment platform in which
funds can be transferred between the banks effortlessly. It created the digital infrastructure for private players to come and offer apps for
payment services to the citizens. PhonePe, Paytms, mobiquicks are examples. The private players also helped in popularising the
digitisation in the economy.
• The government and the private sector have also started using Big Data techniques for improving the financial services provided by them.
Credit offerings are now being based on the transaction history of the consumers.
• Way Forward
• The number of smartphones in the country is going to increase manyfold, now it is around 30%. As the percentage increases, the number
of people using digital payments would also multiply.
• Presently, 10% of the internet users in the world are in India and per month use of data in India is 9GB, that means that people are
moving towards digitization.
• Also, India needs to have a consistent broadband network and power connection in order to include the rural consumers. The
government has already launched Bharatnet in this direction and background infrastructure for rural area is expanding slowly.
• Government and RBI Efforts
• Government on its part is working at various levels to reduce the dependence on cash.
• Opening bank accounts for the unbanked under Pradhan Mantri Jan-Dhan Yojana.
• Adoption of direct benefit transfer.
• The Unified Payments Interface by National Payments Corporation of India makes digital transactions as simple as sending a text
message.
• From nothing to 754 million monthly transactions in less than three years, UPI has taken off.
• Implementation of the goods and services tax, for example, should encourage businesses to go cashless.
• The RBI and finance ministry have made Financial Literacy Centres (FLCs) a cornerstone of the PMJDY.
• These centres provide tailored financial education programmes to introduce adults to banking products and setting financial goals.
• Major social-media effort to promote cashless transactions, which include e-banking, debit and credit cards, card-swipe or point-
of-sales (PoS) machines and digital wallets.
• RBI has also issued licences to open new-age small finance banks and payments banks which are expected to give a push to
financial inclusion and bring innovative banking solutions.
•
• Types of Cashless Modes and Payments
• Mobile wallet: It is basically a virtual wallet available on your mobile phone. You can store cash in your mobile to make online or offline
payments. Various service providers offer these wallets via mobile apps, which is to be downloaded on the phone. You can transfer the
money into these wallets online using credit/debit card or Net banking. This means that every time you pay a bill or make a purchase
online via the wallet, you won’t have to furnish your card details. You can use these to pay bills and make online purchases.
• Plastic money: It includes credit, debit and prepaid cards. The latter can be issued by banks or non-banks and it can be physical or virtual.
These can be bought and recharged online via Net banking and can be used to make online or point-of-sale (PoS) purchases, even given
as gift cards. Cards are used for three primary purposes – for withdrawing money from ATMs, making online payments and swiping for
purchases or payments at PoS terminals at merchant outlets like shops, restaurants, fuel pumps etc.
• Net banking: It does not involve any wallet and is simply a method of online transfer of funds from one bank account to another bank
account, credit card, or a third party. You can do it through a computer or mobile phone. Log in to your bank account on the internet and
transfer money via national electronic funds transfer (NEFT), real-time gross settlement (RTGS) or immediate payment service (IMPS), all
of which come at a nominal transaction cost.
• The RBI classifies every mode of cashless fund transfer using cards or mobile phones as ‘prepaid payment instrument’. They can be
issued as smart cards, magnetic stripe cards, Net accounts, Net wallets, mobile accounts, mobile wallets or paper vouchers. They are
classified into four types:
• Open Wallets: These allow you to buy goods and services, withdraw cash at ATMs or banks and transfer funds. These services can only be
jointly launched in association with a bank. Apart from the usual merchant payments, it also allows you to send money to any mobile
number linked with a bank account. M-Pesa by Vodafone is an example.
• Semi-Open Wallets: You cannot withdraw cash or get it back from these wallets. In this case, a customer has to spend what he loads. For
example, Airtel Money/Ola Money is a semi-open wallet, which allows you to transact with merchants having a contract with Airtel/Ola.
• Closed Wallets: This is quite popular with e-commerce companies; where in a certain amount of money is locked with the merchant in
case of a cancellation or return of the product, or gift cards. Flipkart and Book My Show wallets are an example.
• Semi-Closed Wallets: These wallets do not permit cash withdrawals or redemption, but it allows you to buy goods and services from
listed vendors and perform financial services at listed locations. Paytm is an example.
• Bank payments[edit]
• This is a system that does not involve any sort of physical card. It is used by customers who have accounts enabled with Internet banking. Instead of entering
card details on the purchaser's site, in this system the payment gateway allows one to specify which bank they wish to pay from. Then the user is redirected
to the bank's website, where one can authenticate oneself and then approve the payment. Typically there will also be some form of two-factor
authentication. Some services, like Trustly and Smartpay, let merchants embed its iframe on their website so consumers can pay without being redirected
away from the original site.
• It is typically seen as being safer than using credit cards, as it is much more difficult for hackers to gain login credentials compared to credit card numbers.
For many eCommerce merchants, offering an option for customers to pay with the cash in their bank account reduces cart abandonment as it enables a way
to complete a transaction without credit cards.
• PayPal[edit]
• PayPal is a global e-commerce business allowing payments and money transfers to be made through the Internet. Online money transfers serve as electronic
alternatives to paying with traditional paper methods, such as cheques and money orders. It is subject to the US economic sanction list and other rules and
interventions required by US laws or government. PayPal is an acquirer, a performing payment processing for online vendors, auction sites, and other
commercial users, for which it charges a fee. It may also charge a fee for receiving money, proportional to the amount received. The fees depend on the
currency used, the payment option used, the country of the sender, the country of the recipient, the amount sent and the recipient's account type. In
addition, eBay purchases made by credit card through PayPal may incur extra fees if the buyer and seller use different currencies. On October 3, 2002, PayPal
became a wholly owned subsidiary of eBay. Its corporate headquarters are in San Jose, California, United States at eBay's North First Street satellite office
campus. The company also has significant operations in Omaha, Scottsdale, Charlotte and Austin in the United States; Chennai in India; Dublin in Ireland;
Berlin in Germany; and Tel Aviv in Israel. From July 2007, PayPal has operated across the European Union as a Luxembourg-based bank.
• Paytm[edit]
• Paytm is an Indian e-commerce payment system and digital wallet company, based out of NOIDA SEZ, India.
• Paytm is available in 11 Indian languages and offers online use-cases like mobile recharges, utility bill payments, travel, movies, and events bookings as well
as in-store payments at grocery stores, fruits and vegetable shops, restaurants, parking, tolls, pharmacies and education institutions with the Paytm QR code.
• MovoCash[edit]
• MovoCash is a digital payments company that offers a multi-featured e-wallet app.[4] MovoCoin enables customers to conduct a one-time purchase with a
digital card number. MovoChain is a web-based service that allows bitcoin and Bitcoin Cash holders to convert their crypto-currency into a prepaid
account.[5] MovoCash accounts are FDIC insured in the United States.[6]
• Paymentwall[edit]
• PaymentWall, an e-commerce solutions providing company launched in 2010, offers a wide range of online payment methods that its clients can integrate on
their website the seller integrates it on the website such that you will need use it to perform payment. [7]
• Google Wallet[edit]
• Google Wallet was launched in 2011, serving a similar function as PayPal to facilitate payments and transfer money online. It also features a security that has
not been cracked to date[when?], and the ability to send payments as attachments via email.[8]
• The different types of e-commerce payments in use today are:
Credit Card The most popular form of payment for e-commerce transactions is through credit cards. It is simple to use; the customer has to
just enter their credit card number and date of expiry in the appropriate area on the seller’s web page. To improve the security system,
increased security measures, such as the use of a card verification number (CVN), have been introduced to on-line credit card payments. The
CVN system helps detect fraud by comparing the CVN number with the cardholder's information.
Debit Card Debit cards are the second largest e-commerce payment medium in India. Customers who want to spend online within their
financial limits prefer to pay with their Debit cards. With the debit card, the customer can only pay for purchased goods with the money that
is already there in his/her bank account as opposed to the credit card where the amounts that the buyer spends are billed to him/her and
payments are made at the end of the billing period.
Smart Card It is a plastic card embedded with a microprocessor that has the customer’s personal information stored in it and can be loaded
with funds to make online transactions and instant payment of bills. The money that is loaded in the smart card reduces as per the usage by
the customer and has to be reloaded from his/her bank account.
E-Wallet E-Wallet is a prepaid account that allows the customer to store multiple credit cards, debit card and bank account numbers in a
secure environment. This eliminates the need to key in account information every time while making payments. Once the customer has
registered and created E-Wallet profile, he/she can make payments faster.
Netbanking This is another popular way of making e-commerce payments. It is a simple way of paying for online purchases directly from the
customer’s bank. It uses a similar method to the debit card of paying money that is already there in the customer’s bank. Net banking does
not require the user to have a card for payment purposes but the user needs to register with his/her bank for the net banking facility. While
completing the purchase the customer just needs to put in their net banking id and pin.
Mobile Payment One of the latest ways of making online payments are through mobile phones. Instead of using a credit card or cash, all the
customer has to do is send a payment request to his/her service provider via text message; the customer’s mobile account or credit card is
charged for the purchase. To set up the mobile payment system, the customer just has to download a software from his/her service provider’s
website and then link the credit card or mobile billing information to the software.
Amazon Pay Another convenient, secure and quick way to pay for online purchases is through Amazon Pay. Use your information which is
already stored in your Amazon account credentials to log in and pay at leading merchant websites and apps. Your payment information is
safely stored with Amazon and accessible on thousands of websites and apps where you love to shop.
• Benefits:
• Cost Reduction: cashless system brings down the cost associated with printing, storing and transporting of cash.
• Risk Reduction: The risk of money getting stolen or lost is minimal. Even if the card is stolen or lost it is easy to
block a credit/debit card or a mobile wallet remotely. It is also a safer and easier spending option while travelling.
• Convenient: The ease of conducting financial transactions is probably the biggest motivator to go digital. With the
advent of digital modes, one can avoid queue for ATMs, transact 24*7 and save time. Additionally for service
providers, with the emergence of e-KYC, it is no longer necessary to know your customer physically as the
payments model has overcome limitations related to physical presence.
• Tracking spends: Spending done via mobile or computer applications can be easily tracked with a simple click. This
allows users to keep a track of all their spending and manage their budget effectively.
• Increase in tax base: Traders, small businesses, shopkeepers, and consumers regularly use cash as a means to avoid
paying service tax, sales tax, etc. However, in a cashless economy where all transactions will be done through
organized channel, through banks and financial institutions, they can be monitored by the government and proper
actions could be taken against the evaders. This will result in more transparent transactions which in turn lead to
fall in corruption in the economy of the country.
• Containment of parallel economy: In a cashless economy it is easier to track the black money and illicit
transactions unlike cash based economy in which money does not come into the banking system. In case of digital
transactions it is easy to track and monitor suspicious transactions as all the records are available with the banks.
• Financial Inclusion: At present, India’s low-income households access credit through informal systems, through
relatives or private lenders. Forcing them to shift to cashless payment platforms instantly formalizes this world of
informality and include them in formal economy.
• Discounts: A lot of ecommerce websites offer huge incentives in terms of discounts, cash back, loyalty points to the
customers for making digital transactions for shopping online.
• Advantages of Cashless Economy
• The first and foremost advantage of cashless economy is that an individual does not need to carry cash with him or
her everywhere which in turn reduces the chances of theft from wallet, reduces inconvenience due to carrying
cash, give freedom from problem of change when transaction is of odd amount, no risk of receiving counterfeit
currency and so on.
• Another benefit of cashless economy is that it is easier to track the black money and illegal transactions because if
cash is used directly for doing transactions than it is not easy to track the transactions as the money does not come
into the banking system however in case of digital transactions it is easy to track the transaction as all records are
there with the banks which result in more transparent transactions which in turn leads to fall in corruption in the
economy of the country.
• Another advantage of cashless economy is that since all transactions will be done through organized channel that is
through banks and financial institutions it results in increase in tax revenue for the government as all cash
transactions which were done illegally come into banking system which in turn helps the government in tracking all
transactions and levying tax on them which in turn can be used by the government for betterment of economy of
the country.
• Disadvantages of Cashless Economy
• The biggest disadvantage of the cashless economy is that not everybody has the knowledge of doing digital
transactions and hence its reach is limited to urban and semi-urban centers only and therefore it is very difficult to
implement cashless economy in the big country where many sections of the society in rural areas is illiterate and
poor. Hence the lack of proper infrastructure and education among citizens is disadvantageous as far as the cashless
economy is concerned.
• Another disadvantage of the cashless economy is that although it easy to do digital transactions but at the same
time it is very risky as compared to cash related transactions. Hence people having half knowledge of digital
payments are exposed to cyber fraud and losing their hard earned money to online scam and hacking of bank
• Hurdles in making India a cashless economy
• More than 60% of Indian population belongs to rural region. Almost a quarter of the rural populace
doesn’t have mobile phones and a large percentage of them are computer illiterate. They are not
comfortable using computers or mobile phones for transactions and rely on other people for help. This
sometimes leads to misuse of the accounts and siphoning of funds, so majority of rural mass prefer
cash over digital modes.
• About 90% of the Indian labor market is informal. Majority being employed in agriculture and
manufacturing sector where daily wage is prevalent. Under such circumstances the informal labor
market is heavily cash dependant.
• India is a country where 90% of transactions are paid for in cash because cash facilitates making
transactions anonymous, helping conceal activities from the government in a way that might help
agents avoid laws, regulations and taxes. Transition from a 90% cash based economy to a
• Security is another big concern regarding cashless transactions. The Indian Computer Emergency
Response Team (CERT-In) has reported a surge in the number of incidents till October 2016 with close
to 39,730 security incidents. Indians are wary of digital modes due to cyber security incidents such as
phishing, scanning, website intrusions, defacements and virus code.
• Though several companies have come up with inexpensive smart phones still they are not affordable
for most of the people in the country. Unless Indian government provides necessary subsidy or
affordable solutions cashless economy would be a farfetched dream.
• Digital India suffers from the threat of thefts and hacking of digital money instruments. The ATM cards,
Debit/Credit cards, Net Banking solutions and even the transaction websites of the financial
institutions and banks are hacked by the mischievous people who withdraw money by making clones
and changing the passwords. This has to be taken care of before proceeding on digital India mission..
• Why Shift towards a Cashless Economy?
• India is one of the highest cash to gross domestic product ratios in the
world, and lubricating economic activity with paper has costs.
• According to a 2014 study by Tufts University, The Cost Of Cash In India,
cash operations cost the Reserve Bank of India (RBI) and commercial banks
about Rs21,000 crore annually.
• A shift away from cash will make it more difficult for tax evaders to hide
their income, a substantial benefit in a country that is fiscally constrai
• Nandan Nilekani, termed demonetisation as “a defining point in India
moving to cashless”
•
• Factors that determine transition to a cashless economy
• A meaningful transition will depend on a number of things such as awareness, technological
developments and government intervention.
• Mobile wallets have seen notable traction, and it is possible that a large number of Indians will move
straight from cash to mobile wallets.
• The availability and quality of telecom network will play an important role.
• Banks and related service providers will have to constantly invest in technology in order to improve
security and ease of transaction.
• The government will have to find ways to incentivize cashless transactions and discourage cash
payments.
• Government should revamp the tax administration, as more than taxes, small businesses fear tax
inspectors.
• India’s current economic moment constitutes a crucial inflection point; if handled correctly, there is a
real chance that the unbanked will adopt digital p
• A sharp increase in the use of mobile phones with internet connectivity will help drive the move to
digital payments.
• Till the time the penetration for online payments doesn’t reach local stores, the transition will never
be truly effective.
• Financial security over the digital payment channels is imperative for pushing the cashless economy
idea
•
• Hurdles in making India a cashless economy
• A large part of the population is still outside the banking net and not in a position to reduce its
dependence on cash.
• Even for people with access to banking, the ability to use their debit or credit card is limited.
• It will not be easy for the informal sector to become cashless.
• There is a general preference for cash transactions in India.
• Merchants prefer not to keep records in order to avoid paying taxes and buyers find cash
payments more convenient.
• People face difficulties in making electronic payments even in metro cities because of poor
network
• Low literacy rates in rural areas along with lack of internet access or even basic utilities in many
places
•
• Conclusion:
• While India has progressed in terms of promoting digital transactions and
cashless economy, the Cashless economy dream is still miles away and it
can be achieved only by the adoption of proper methods of digital
payments. The realisation of this target requires full proof of new financial
policies, centralised administrative control, regular monetary attention on
the bankers, government agencies and other private services. Safe and
secured services such as immediate certification of payments, a clear
statement of accounts, no hidden charges, full control on money, shorten
the process of transaction etc are also major requisites. Aside from this,
incentivising digital transactions is extremely important because, without
psychological and behavioural change, the cashless economy dream might
remain a dream.
• The future is a cashless society.
• Here is my prediction for the future: While I believe going cashless is the future, it
will take some time. A journal published by Eric de Putter said it perfectly. “A less-
cash society is more likely and is likely to exist for quite some time (Putter, 2016,
p. 251).” It is going to be very difficult to completely get rid of cash. There is a lot
of it in circulation and still some people rely on it.
• I expect card and cash apps use to increase significantly and for the use of
physical cash to decrease over the next 5 years. More and more people will use
credit/debit cards, apps like Venmo, cash app, Dig in, and paying services such as
Paypal, Visa, and Apple Pay.
• I see electronic currency having a bright future. Many of the people I know
including myself barely use cash anymore. When I do have cash on hand, I often
spend it right away or put it in the bank so I don’t have to carry it around. It can
be a burden and I always feel there is a risk of losing it.
• Having a card or using an app is much easier and safer. I can easily see how much
money I have available. Also, if for some reason my card gets stolen, I can easily
cancel the card and get a new one quickly. Overall, it is just easier.
• I hope you have enjoyed and learned something new from my blog series about
becoming a cashless society.