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Cashless Economy – One Step of Digital India

Cashless economy is an economy where transaction can be done without physical cash as a means of exchange of transaction but rather with the use of credit or debit card payment for goods and services.

Before the emergence of modern banking system, banking operation was manually done which lead to a slowdown in settlement of transactions. This manual system involves posting transactions from one ledger to another with human hands. But the cashless transaction is functioning, operated, or performed without using coins or banknotes for money transactions but instead using credit cards or electronic transfer of funds and with no money handed from person to person. system where payments were less in cash. Circulation of a large amount of cash in the economy leads to many problems, including corruption. will solve transmission issues of monetary policy as well as cash management issues in the banking system. In a recently concluded study carried out by the India Development Foundation (IDF), it was argued that, in addition to these, the move towards a less cash-using economy will lead to an improvement in financial inclusion, more digital record-keeping of transactions, a reduction in the costs of transactions and encourage greater growth.

Cashless economy policy can enhance the growth of financial stability in the country.

Keywords Cashless Economy, Digital record, Electronic Payment, Economy, Financial Inclusion

1.   Introduction

With an aim to make payment and settlement system more safe in the country, the Reserve Bank today

proposed to proactively promote electronic transactions for ushering in a ‘less-cash’ economy.

Seeking public comments on the ‘Payments System Vision Document 2012-15’, RBI said the document envisages by ways and means of ensuring that “payment and settlement systems in the country are safe, efficient, interoperable, authorised, accessible, inclusive and compliant with international standards”.

With the Indian economy expanding rapidly at more than 7.5per cent per annum and the middle-class budding, several financial firms believe and predict that the use of plastic money in India will become very popular. However, according to the recent estimates by the Reserve Bank of India (RBI), the use of cashless transactions through credit card usage among Indians is actually falling .The Reserve Bank of India (RBI) has prepared a road map to provide card swipe machines to more than one crore retail businesses in the next three years to promote electronic transactions for ushering in a less-cash society in the country .According to the road map prepared by the central bank for cash-less transactions, all schools and colleges in the country will also be equipped to handle plastic transactions. According to an RBI estimate, only six lakh retail traders accept credit card in the country. Steps are being taken to make the facility available to at least one crore retailers by 2015.AThe government and its financial institutions will initially bear the cost of each card swap machine made available to retailers. Paper-less transactions are also expected to make household payments, including electricity, telephone, house tax and insurance bills, easy. On an average, each household pays over 50 types of bills per year in India, involving crores of rupees in cash payments The government mandated that all payments by the government departments above Rs 25,000 should to be made electronically.

1.   Direct Cost of Cash to Financial System

According to the Reserve Bank of India (RBI), the provisional estimate of the amount of currency in circulation






(as of June 2010) stands at Rs. 8,64,333 crore, out of which only five per cent of the currency is with the bank - implying that almost the entire volume of currency is transacted every day. Over the period April 2006 - June 2010, currency has shown a yearly growth rate of 17 per cent. It is estimated that for 2009- 10, the RBI incurred an annual cost of Rs. 2,800 crore to just print the currency notes. This is 0.4 per cent of the total currency in circulation. The need to move towards a cashless payment economy is perhaps more in India because of the cost of printing, distributing and processing cash. This cost does not include the cost of storage, transportation, security, detection of counterfeits, etc. To the printing cost, if we were to add the cost of storage and maintaining these currencies through ATMs alone, the cost of printing and disbursing currency comes to approximately Rs. 70 per person per year. However, the interchange costs are much lower than Rs. 70 per person. As of January 2010 estimates, there are around 60,000 ATMs in India. It costs around Rs. 7 lakh to install an ATM machine and an equivalent amount to maintain it for a year. Given that we plan to add 10,000 ATMs per year, the total cost of printing and distributing currency (through ATMs alone) amounts to Rs. 8,400 crore. In other words, the cost of printing and distributing cash constitutes about

0.2 per cent of India’s GDP. Alternately put, a moderate growth of cashless transactions by five per cent a year will save more than Rs. 500 crore annually. Therefore, there is a direct benefit (in terms of cost savings) of moving towards cashless transactions in India. However, it is the indirect benefits that are perhaps much more important for India, especially given the country’s objective of inclusive growth.

2.   Cashless Transactions only way to Curb Black Money

Recording financial transactions has many advantages. First, it aids the government in its effort to collect appropriate tax revenues; second, it can effectively detect, and help curtail, illegal transactions; third, it will give us a better estimate and understanding of the huge unorganised sector in India; and last, but not least, it will help plug the “leakages” in various government programmes. The Justice Wadhwa Committee Report on the public distribution system recommended the use of computerised platforms that will keep a record of all PDS transactions.

3.   Steps Towards Cashless Economy

India Heading towards Cashless Economy in 2015

Technology evolution is continuously and dramatically changing how banking and transactions are conducted. iKaaz, a mobile payments company providing innovative Tap & Pay solutions has unveiled its latest mobile application MOWA- a simple mobile payment enabler through smart phones. The app facilitates consumers and merchants to make and receive payments in an easy and convenient way based on the mobile number. It enables sending money through the mobile to any phone number or to a phonebook contact without sharing private bank account details of sender or receiver. The app supports all banks in India and is available free of cost.

MOWA is launched jointly by iKaaz and DCB Bank, this innovative mobile app helps you manage your cards to make payments as well as bank accounts to deposit money.

The most differentiating feature of this app is it requires no pre-payment of account like other wallets as consumers’ money resides in their own bank account until they do the transaction. The users can avail the app by registering with mobile number, name and date of birth. One must then attach the credit or the debit card as a payment medium and start making payments by entering mobile number of receiver.

The money is debited from the payer’s card only at the time of the transaction and deposited directly in to the receiver’s bank account. People can also request for money and if accepted & paid, the amount gets deposited into the bank seamlessly. One can pay using any of the cards linked to the MOWA account. The app also facilitates small business merchants to accept digital payments which include debit, credit and pre- paid card payments. They can save money by registering with MOWA for an absolutely free POS solution with no need of an additional hardware POS terminal. Millions of merchants who don’t have a point of sale (POS) terminal to accept digital payments can now use this innovative mobile app to accept digital payments. Consumers can use this for paying to the merchants, friends and family. It is a highly secure app with multi level security for authentication and transaction, compliant with RBI regulations.

SBI chota-ATM

To encourage cashless transactions, the State Bank of India has deployed mobile point of sale (m-POS) devices, which can be used to swipe and pay or as a chota-ATM to withdraw cash.

Nearly 4,000 of such chota-ATM devices have been installed in semi-urban and rural areas since October 2014. An average of 1.2 transactions are recorded by the bank on these machines every day.

5.   The move towards a cashless economy

The government wants India to be a cashless economy it is a move towards greater accountability towards the flow of money, reduction in black economy and bringing more people into the banking system

The retail electronic payment space in India is dominated by inter-bank money transfer modes like NEFT or National Electronic Fund transfer, Electronic clearing system, and credit and debit cards. Newer modes of payment like prepaid wallets along with mobile banking are becoming popular.59% of Indian households are banked while the mobile tele-density is around 74%. The fastest growth is coming from mobile payments. The interbank mobile payments service has increased from just 860 transactions in its first month in November 2010 to 4.4 million transactions in August 2014.In November 2010, six banks, including ICICI Bank, India’s largest private sector bank, and the State Bank of India, India’s largest public sector bank, launched the Interbank Mobile Payments Service, allowing customers to transfer money between bank accounts, on the basis of mobile money ID’s.

Money transfer between user bank accounts

From just 2182 transactions in January 2011, the number of IMPS transactions have increased 987 times to 2,153,883 in January 2014. The amount transacted has grown 1745 times, from Rs 7.9 million to Rs 4.6 billion.

Typically, as the number of active ID’s and the number of transactions increase, the average amount transacted declines. In case of mobile money transfers, the average amount per transaction has almost doubled (1.76 times) to Rs 6476 from Rs 3661 per transaction.

Mobile Banking – yearly transaction and value

The concept of mobile banking was virtually non-existent five years ago. But in just 3 years, number of transactions using mobile banking has increased 4 times to 95 million while the amount transacted has increased three times to 60 billion rupees.

1.Prospects of Cashless Economy

A variety of benefits are expected to be derived by various stakeholders from an increased utilization of

e-payment systems in any country. These include:

  • For Consumers: Increased convenience; more service options; reduced risk of cash-related crimes; cheaper access to (out-of-branch) banking services and access to
  • For Corporations: Faster access to capital; reduced revenue leakage; and reduced cash handling
  • For Government: Increased tax collections; greater financial inclusion; increased economic Increased tax collections; greater financial inclusion; increased economic development.

2.Challenges of Cashless Economy

  • One of the biggest challenges towards a less-cash society is that dependency on cash is a deep rooted habit in India
  • The level of customer protection available in paper transactions and electronic transactions in India
  • Hence before cashless system of payment can be widely accepted and used, consumers must trust and have full confidence in the system, which entails:
  • Clear and practical
  • High level of security in the system – difficult for scammers/fraudsters.
  • Simple and easy processes especially for low income
  • Accessible for
  • Minimal

3.Some of the possible indicators which would be used for reviewing the Cashless Economy

  1. Increase in value and volume of electronic transactions;
  2. Sharper reduction in use of cheques and their value;
  3. Reduction in the cash to GDP ratio;
  4. Increase in coverage of PoS terminals, ATMs and other acceptance infrastructure;
  5. Increase in card issuance including debit, credit cards and prepaid payment instruments;
  6. Growth in mobile payments;
  7. Use of innovative payment systems/products;
  8. Migration of government payments and receipts to electronic


Electronic payments including e-commerce could be given a fillip if the Government creates an incentive in terms of lower sales tax/service tax/GST for merchants and customers. This would encourage the merchant and the consumers to conduct payment transactions electronically. Several countries such as Argentina, South Korea, Uruguay, Columbia etc, provide tax rebate on spends by debit and credit card and other electronic payment products.

Similarly corporates and utility service providers may consider giving incentives in terms of discounts to customers for making payments electronically. The concept of convenience fees charged by some of the merchants for using online payments could also be done away with.

Entities in Government and public sector which accept cash receipts for payment of taxes, purchase of services, fees etc, may consider accepting payments through all electronic modes such as cards, internet payments etc. Similarly, colleges, schools and universities could also transition to electronic receipt of fees.


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Authored by:

Prof. Rupali Nivrutti Mahale

N.D.M.V.P’S K.B.T. College of Engineering

Tags: MET Institute of Management