CASHLESS INDIA- A FUTURE

PERSPECTIVE

Abstract

Background:- This paper determines the background and essential features of India’s
progressive evolution towards a cashless economy and also about future prospects and
challenges before India to become cashless economy. In this paper, we also focus on some of
the benefits of going cashless in India.

India is going cashless…and here’s why. Over the last decade internet and mobile technology
has flourished throughout the developing world much faster than any other technology. The
latest offspring of mobile technology is mobile money. Mobile money is allowing millions,
the ‘unbanked population’ (especially in the developing countries) to safely transfer money
and pay bills without the hassles of handling cash. India will attract 65 million new mobile
internet users coming onboard during the period of six months, ending June 2016.

Method:- We present a theoretical model that evaluates benefits and challenges to adopt
cashless transaction. Here we analyze instruments (cards versus point-of-sale versus mobile).

Keywords:- Cashless, Demonetization, cashless transaction

I BACKGROUND

India continues to be driven by the use of cash; less than 5% of all payments happen
electronically however the finance minister, in 2016 budget speech, talked about the idea of
making India a cashless society, with the aim of curbing the flow of black money. Even the
RBI has also recently unveiled a document — “Payments and Settlement Systems in
India: Vision 2018” — setting out a plan to encourage electronic payments and to enable
India to move towards a cashless society or economy in the medium and long term. Reducing
Indian economy’s dependence on cash is desirable for a variety of reasons. India has one of
the highest cash to gross domestic product ratios in the word, 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 Rs 21,000 crore annually. Also, 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 constrained.
To be sure, the government on its part is working at various levels to reduce the dependence
on cash. Opening bank accounts for the unbanked under the and adoption of direct benefit
transfer is part of the overall idea to reduce usage of cash and increase transparency.RBI has
also issued licenses 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. Things
are also falling in place in terms of technology for India (kumar, 2015). The recently
launched Unified Payments Interface by National Payments Corporation of India makes
digital transactions as simple as sending a text message.

Switching from cash based economy to a cashless economy would require a concerted effort
to develop a network of critical mass that deals with cashless transactions. Network effects
are in place when an addition of one more individual to an existing network of individuals
increases the value of all the members in the current network. This makes it costlier for the
existing members to switch from the current network (Mukhopadhyay 2016). With each
additional cashless transaction, the value to all the members currently using cash increases. In
simple words, users find it more attractive to switch to cashless transactions if more users are
using them. Therefore, it is important that policy initiatives are in place to develop a critical
mass of this network of non-cash users. Based on the evolution of card payments in India, an
appropriate framework must address the following issues. It must model:

– Cashless payments as a two-sided matching market;

– Explicitly state the costs of joining the network as well as the cost per transaction; and

– The possibility of paying higher taxes if one uses cashless payments.

II BENEFITS OF CASHLESS ECONOMY FOR INDIA

It is very positive move as, in the longer term; it will formalize the economy further and
change deep-rooted behavior.
1) Cost effective to Banks:- Normally, if a bank transactions is done manually, it costs
nearly Rs.40 to 45 and the same is done through internet it costs 7 to 8 . Simultaneously, it
same transactions is done through either U Mobile or ATM it hardly costs Rs. 12 to 14 and
Rs.3.to 4 respectively.
2) Less time consumed:- Definitely the level of customer service will go very high and this
will help in minimizing customer complaint. Presently banking are required good number of
staff to attend and redress the complaints at different stages.
3) Safe and Secure:- Both it is safer for bank and customer as well, it keeps high degree of
secrecy.
4) Up-gradation of technology:- No doubt the focus should shift to encourage cashless
transactions with the framework of using different technology available in the present market.
Banking are increasing their ATMs, PoS machines, Banking Correspondence and E- Lobby
which is ultimately upgrade the technology..
5) Control of Black Money and check for Anti money laundry :– Even transactions can be
done through e-banking but same can be traced while it is very difficult to trace the
transactions in cash. There are certain check also in depositing and withdrawing money
through bank accounts. Hence, it will definitely control over black money and money
laundering in the days to come.

III CHALLENGES IN MAKING INDIA A CASHLESS ECONOMY

 Number of citizens on mobile:- Not all Indians are mobile, leave alone connected.
The latest figures from the Indian telecom regulator TRAI show that, as of 31st July
2016 (pdf): India had a tele-density of 83%, with Bihar, Assam, Madhya Pradesh and
Uttar Pradesh with tele-density of less than 70%. While state-wise data for wireless
tele-density is not available, it won’t be very different, since most connections in
India are wireless.
 Number of mobile users who are connected to the Internet:- There were 342.65
million Internet connections by the end of March 2016, of which 20.44 million were
wired connections. In total, 149.75 million were on broadband (3G + 4G + wireline
broadband) and 192.9 million on “Narrowband”. Narrowband Internet subscriber base
was 192.90 million (2G and wireline broadband). Click here for statewise broadband
and narrowband data.
 Daily people online:- According to Facebook India MD Umang Bedi, 165 million
log on to Facebook on a monthly basis. How many go online daily? Only the telecom
operators know.
 Availability of reliable connectivity:- “When we were doing Aadhaar,” TRAI
Chairman RS Sharma said at an event WiFi in India, around two months ago, “and we
said it will be an online infrastructure and identity. The future is online. The future is
a connected world.”But the future isn’t now, and RS Sharma knows that: “Today with
Aadhaar,” he added, “I keep getting complaints that there isn’t a tower in a place and
therefore we weren’t able to authenticate. Therefore, connectivity is a very very
serious problem.”
 Availability of user devices:- According to Idea Cellular CEO Himanshu Kapania,
there are currently over a billion mobile phones in India: around 850 million
feature/smartphones, and 150 million LTE enabled phones. That number of people
with a smart phone using data is probably around 60% to 70%.
 Merchant acceptance:- India had 712.5 million debit cards, and 130.53 million
transactions, as of August 2016. That’s around 18 transactions for every 100 cards.
Credit Cards? Only 26.38 million in India as of August 2016, accounting for 83.95
million transactions.
 Payment and mobile network capacity:- With the increase in usage of cards and
online payments is that somewhere in the value chain, banks and/or payment
gateways were not in a position handle the load. Transactions failed.. At present, there
isn’t sufficient capacity for the escalation in usage if everyone
 For digital transactions, you need to get a user to scan a merchant QR code,
authenticate with a PIN (ideally). Or, you need the merchant to send a payment link to
a customer, for the customer to receive it, open a page, type in details and complete a
transaction. Then wait for the merchant to receive a confirmation of the transaction
before you can leave.
 Security issues:- The weakest security link in any transaction is not the technology
system, but the user, and their lack of understanding of security issues. To get a sense
of this, to withdraw money from ATM’s, some people were giving others their card
and PIN numbers.
 No privacy with cashless:- A switch to cashless means that each and every
transaction is tracked and documented. This is great for governance, with taxation, but
there is no protection for citizens, as to who owns that data, whom they can share it
with, and how it will be utilized.
 Language compatibility:- Paytm has recently updated their application with some
features mobile handsets don’t have an Indian language interface, as don’t most
 applications and services. Ola is available in Indian languages only for drivers, not
passengers. Apart from Snapdeal, no ecommerce company tried going the Indian
language way. There’s a part of the population in India which still isn’t able to read
and write, leave alone being able to read and write English, while we don’t have
phones that are are in Indian languages and apps that aren’t in Indian languages. The
digital divide here is massive. Physical notes are a visual medium of exchange.
 Interoperability issues (between payment systems):- Cash is interchangeable: you
don’t need a connection, an application or an account to exchange cash. Here, you
have a situation where State Bank of India doesn’t allow payment into a Paytm wallet
via netbanking, or wallet to wallet transfer isn’t allowed. There’s the Unified
Payments Interface, set up by the bank owned group NPCI, where the Reserve Bank
of India has not allowed wallet to wallet transfers.
 Merchant costs:- Merchants need a working Internet connection to accept digital
payments. They need to pay a monthly rental for a machine, or a Smartphone with an
application to accept payments. On Credit cards, merchants are charged a merchant
discount rate (MDR), an inter-bank exchange fee, of 2.5-1.7% per transaction. On
debit cards, they need to pay 0.75% per transaction below Rs 2000 and 1%for
transactions above Rs 2,000. For UPI, merchants are charged 0.75% per transaction
plus other costs (on par as debit cards.): You need a Smartphone, an Internet
connection and/or have to pay USSD charges (Rs 0.5 per session) and data charges
when applicable.

IV LITERATURE REVIEW

Das, and Agarwal, (2010) in their article “Cashless Payment System in India- A Roadmap”
Cash as a mode of payment is an expensive proposition for the Government. The country
needs to move away from cash-based towards a cashless (electronic) payment system. This
will help reduce currency management cost, track transactions, check tax avoidance / fraud
etc., enhance financial inclusion and integrate the parallel economy with main stream.

Barker (1992) in his study, Globalization of credit card usage: The case of a developing
economy” investigate the attitude of Turkish consumers towards credit cards, and the
approach of card issuers by surveying two samples of 200 card holders and non-holders. The
better educated, middle aged members of the upper middle class seem to be the prime target;
the most important reasons for using a credit card were “case of payment”, followed by “risk
of carrying cash”, Non holders do not carry credit cards because they do not know much
about it; informal sources of information appear to be more influential than mass media
advertising in penetrating the market; proposes that the usage and the administration of
credit car ds are influenced very much by the infrastructure of the country and hence, credit
card companies have to modify their marketing and administrative procedures rather than
following a standardized approach.

Jain, P.M (2006) in the article “E-payments and e-banking” opined that e- payments will be
able to check black ”An Analysis of Growth Pattern of Cashless Transaction System. Taking
fullest advantage of technology, quick payments and remittances will ensure optimal use of
available funds for banks, financial institutions, business houses and common citizen of
India. He also pointed out the need for e-payments and modes of e-payments and
communication networks.

Easwar and Kumar (2004) asserts in the studies titled,” Credit cards: on a growth
trajectory” that the perception of owning credit card has changed and they are viewed as
being convenient substitute to carrying cash and also availing credit for short period. But in
the context of home country, India ranks at the bottom in terms of usage of credit cards,
when compared to China, Taiwan and Malaysia.

V FIVE BEST CASHLESS PAYMENT OPTIONS IN INDIA

1) E Wallets – E Wallets have become very famous nowadays. After demonetisation, use of
e wallets has been implemented at a very large-scale. These e wallets allow users to make
payments using your mobile number or by scanning a QR code which takes place in a jiffy.
All you need to do is simply download a wallet like paytm.

2) UPI –UPI also known as Unified Payments Interface is another great way to go cashless.
Unified payments interface also called UPI is system of payments. Using unified payments
interface, people can transact using their smart phones. To pay using this system called
unified payments interface, you need 2 important things: Smartphone and a Bank Account.

3) Plastic Money – Plastic Money means debit cards and credit cards that are used at ATM‟s
for cash withdrawal and POS machines while shopping. Having a debit or credit cards make
you burden free from carrying cash.
4) Net Banking – Net Banking is another handy way to get cashless transactions done. All
you need is a bank account with e banking facility enabled on it. You can transfer funds to
others account from the comfort of your home. There is no need of going to your bank to get
transfers done. You can make all payments and transfers yourself. This is a very convenient
way to go cashless in India as well.

5) Aadhaar Card – Aadhaar Card enabled payment system allows a person to pay using his
aadhaar card if it is linked to his bank account. Once you link your aadhaar card to your bank,
you can make payments using your finger prints.

VI METHODOLOGY

The study is based on secondary sources of data/ information. Different books, journals,
newspapers and relevant websites have been consulted in order to make the study an effective
one. The study attempts to examine the Cashless Payment System in India.

Figure 1

http://www.worldbank.org/en/programs/globalfindex

This graph is shows the increasing trends of cashless payment in India. The graph shows
that in the year 2011 the transaction with card and other modes like mobile payment is
equal. From the year 2012 transaction through mobile is increasing high according to card.
After the implementation of honorable prime minister vision and mission of cashless
India. The cashless transactions are going very high.

VII CONCLUSION
The cashless transaction system is reaching its growth day by day , as soon as the market
become globalised and the growth of banking sector more and more the people moves from
cash to cashless system. The cashless system is not only requirement but also a need of today
society. All the online market basically depends on cashless transaction system. The cashless
transition is not only safer than the cash transaction but is less time consuming and not a
trouble of carrying and trouble of wear and tear like paper money. It also helps in record of
the all the transaction done. So, it is without doubt said that future transaction system is
cashless transaction system.

References:-

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 Law, C. M., Barker, D. J., Osmond, C., Fall, C. H., & Simmonds, S. J. (1992).
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 Mukhopadhyay, B. (2016). Understanding cashless payments in India. Financial
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Vol. 3, Issue 9, Sep 2015, 37-44 © Impact Journals

Web links:-

http://thetechpert.com/cashless-payment-india/

RBI Bulletin December 2016