Transformation

from cash based

4/2/2020

economy to
cashless
economy
SUBMITTED TO -DR.Anil Kumar

Chaitanya Namala-11715283-E
FIN213
Name Reg-No Section
Venkata mani 11712299 K
Bharanai Vamsi 11710850 K
Vamsi Krishna 11705955 E

ABSTRACT:

Cashless economy seems synonymous to Canada and Sweden as

manifested in study of Forex Bonuses 2017. Cashless economy is an
economic system where small amount of cash is used in transactions.
Cashless economy is based on transactions made by credit cards, debit
cards, wallets or digital modes.

India is majorly cash driven economy where people prefer to carry cash
instead of cards however India is moving towards “less cash economy”
-a phase of cultural-economic transition. It is important to curb shadow
economy, corruption, terror -financing, human and drug trafficking,
counterfeit-currency etc.

Cashless economy is cost effective, growth friendly, business friendly,

pro-financial inclusion, etc. Government is promoting it through BHIM
app, AEPS, Digishala etc. Cashless economy requires robust
digitalization. It has various challenges-escaping attitudes of people,
poor transaction security mechanism, insufficient infrastructure etc. it is
boon to industries like UBER and OLA. Further analysis will be done on
secondary data.
Keywords:
Cash, global payments, Indians, payment instruments, debit card,
hackers, financial institutions, electronic currency, etc
 INTRODUCTION:
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.
 A cashless economy is an essentially which all the transactions
are done by using cards or digital means. The movement of
physical currency is nominal.
 India uses too much cash for transactions. The ratio of cash to
gross domestic product is one of the highest in the world—
12.42% in 2014, compared with 9.47% in China or 4% in
Brazil.
 It‟s happen less than 5% of all electronically payments
 The number of currency notes in circulation is also far higher
than in other large economies. India had 76.47 billion currency
notes in circulation in 2012-13 compared with 34.5 billion in the
US.
 Cash dominates even in malls, which are visited by people who
are likely to have credit cards, so it is no surprise that cash
dominates in other markets as well.

A cashless society describes an economic state whereby

financial transactions are not conducted with money in the form of
physical banknotes or coins, but rather through the transfer of digital
information between the transacting parties. Cashless societies have
existed, based on barter and other methods of exchange, and cashless
transactions have also become possible using digital currencies such as
bit coin. However this article discusses and focuses on the term
"cashless society" in the sense of a move towards, and implications of, a
society where cash is replaced by its digital equivalent - in other words,
legal tender (money) exists, is recorded, and is exchanged only in
electronic digital form.
Amount of cash circulation: Even though cashless society is widely
discussed most countries are increasing their currency supply. The table
below is taken from the red books for members of the Bank for
International Settlements, which includes most of the major fiat
currencies of the world. Exceptions are South Africa whose supply of
banknotes fluctuates wildly compared to most nations and Sweden
which is drastically reducing its currency supply since 2007, the values in
the table are "per capita" so they already are scaled to population
changes. But even the smallest increases of 3% per year are much
higher than any possible GDP growth.
WHAT IS CASHLESS ECONOMY:
What is referred to as a cashless economy is basically one where
all the business transactions are carried out by the use of various digital
methods and using digital devices. A cashless economy is not one
where there is no use of cash at all but it is an economy where there is
minimal use of paper money. A cashless economy is one where third
parties like banks and the government carry out transactions on the
behalf of the individual. All over the world, countries are slowly adopting
cashless economies as it has been found to be more convenient and it is
also encouraging investment and business activities.

Challenges in making India a cashless economy:

Large part of the population is still outside the scope of

Net banking like use of credit or debit cards, making transactions using
mobile phones, and using the internet to pay bills they are not in a
position to reduce its dependence on cash. Second, about 90% of the
workforce, which produces nearly half of the output in the country, works
in rural sector It will not be easy for this 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.Although cashless transactions have
gone up in recent times, a meaningful transition will depend on a
number of things such as awareness, technological developments and
government
intervention. For instance, 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. People face difficulties in making electronic
payments even in metro cities because of poor network. Service
providers will have to constantly invest in technology in order to improve
security and ease of transactions. government will also need to play its
part. It will have to find ways to incentivize cashless transactions and
discourage cash payments. Difficulties in changing attitudes and
perception of people towards moving digital payments.
Methods of Cashless Transactions:
The Digital India programme is an important programme of the
Government of India with a vision to transform India into a digitally
empowered society and knowledge economy. “Faceless, Paperless,
Cashless” is one of professed role of Digital India. As part of promoting
cashless transactions systems and converting India into less-cash
society, various methods of digital payments are available. They are as
follows
1. The cheque is one of the oldest or conventional methods of cashless
payment mechanism. It is a well known method to everyone. In this
method, you issue a cheque for the specific amount to someone else.
The cheque gets deposited in the respective bank account. The bank
processes a payment through a clearing house. The whole transaction
done through cheque gets recorded and there is a document of
payment. However, but sometimes cheque payments get dishonored
due to signature mismatch or insufficient fund in bank accout. In order to
avoid such problem, you can use other cashless payment options.
2. Demand draft is another primary way of cashless transaction. It is a
very safest method to receive payment from anyone. Demand draft (DD)
never gets defaulted as it is signed by the banker. The drawbacks of DD
and cheque are you need to visit a bank in order to deposit cheque and
demand draft. The clearance of cheque or DD takes additional time.
3. Online Transfer- NEFT or RTGS The third simplest way for the
cashless transaction is online transfer using NEFT or RTGS. In order to
do online money transfer, you need internet banking facility. Online
transfer using NEFT or RTGS is comparatively faster than Cheque or
DD. Online transfer can be done from anywhere using internet facility.

4. Credit card or Debit card is another method of cashless payment.

The usage of credit card and debit card was limited in India compared to
other developed countries in the world. However, usage of credit card
and debit card is increasing now a day. The limitation of this payment
method is an availability of swipe card facility (PoS) at merchant end.

5. E-wallet means Electronic Wallet is another cashless payment

options are available for people. E-wallet can be used to purchase
products or services starting from grocery to airline tickets. In order to
use E-wallets customer and merchant, both require a smart phone with
active internet connection. The most popular example of E-wallet is
PayPal. Apart from PayPal, you can also use Payoneer, Transferwise,
Skrill, PayZa and others. After registering for E-wallet you need to link
your credit card or debit card with your E-wallet id. You can use E-wallet
for fund transfer from one account to another account or online
shopping. It is a simplest cashless method.
6. Mobile Wallets The next cashless payment option is a mobile wallet.
You do not required debit card, credit card or internet banking password
for making payment using a mobile wallet. Just load money in your
wallet via IMPS and use it on the move. You can download mobile wallet
app from play store in smart phone. Some examples of mobile wallets
are Paytm, PayUmoney, Oxigen, Lime, MobiKwik etc.

7. UPI Apps UPI is a mobile payment method which allows you to do

different financial transactions on your smart phone. UPI allows you to
send or receive money using virtual payment address without entering
bank information. Merchants can enroll with banks to accept payments
using UPI. Like in the case of a PoS machine, the merchant would
require a current account with a bank to accept UPI payments. The
examples of few UPI Apps are SBI Pay, ICICI Pocket, Axis Pay UPI
App, Union Bank UPI App, PNB UPI, PhonePe, TranZapp etc.
8. Gift Card The next cashless payment system is a gift card. Gift Card
is a readymade card and can be purchased from a merchant or from the
bank. The gift card is loaded with a fix cash amount you can purchase
any item from the specific vendor by using a gift card.
9. Aadhaar Enabled Payment System (AEPS) is one of the better and
transparent cashless payment methods. AEPS is like Micro ATM, it uses
smart phone and a finger-print scanner for the transaction. In order to
use this facility, it is compulsory to link your Aadhaar card number to
your bank account. You can use AEPS in order to perform transaction
like Aadhar to Aadhar fund transfer, Cash withdrawal, Cash deposit etc.
10. Unstructured Supplementary Service Data You can use USSD
cashless method if you don’t have a smart phone or internet connection.
Unstructured Supplementary Service Data is mobile banking service.
From any mobile phone, you can dial *99# and use this service. You can
do all these things which are available to a person with smart phone and
internet connection. Almost all banks including SBI, ICICI, BOB, Axis
Bank and PNB support USSD payment option.

Merits of Cashless Transactions :

1. Electronic payments will beneficial for business people to increase
their customer base even in far of geographic locations and hence will
result in increased business transactions.
2. The real estate prices will come down because of curb on black
money circulation, as most of the black money is invested in Real
estate’s business.
3. Electronic payments will enhance transparency and accountability.
Majority of the cashless societies are corrupt free as all the transactions
are being traced, are visible and are transparent.
4. Making online payments are handy and it will lead to slim wallets as
people need not carry hard cash.
5. Majority of election funding is done through black money. Cashless
transactions will make it impossible for political parties to spend
thousands of crores of unaccounted money on election purpose.
Purchasing votes by giving cash will also come to an end. True
democracy will come into picture.
6. Amount of tax collected will also maximize, and it can be spent for the
betterment of poor and under privileged people and infrastructure
development activities in economy.
7. Generation of counterfeit currency will be decreased and hence
terrorism can be prevented.
8. It will minimize pick pocketing and robbery of cash in crowded
locations and big cities.
9. Through online payment one can check history of their financial
transactions and plan their budget in a smart way.
10. Printing costs of paper notes, coins and maintenance itself is
accounting to 27 billion; this can be eliminated by electronic payments as
there would be no need of paper currency.
De-merits of Cashless Transactions :
1. Many of the rural people and even some urban people still do not
have a functional bank account in order to make online payments.
2. A large number of India’s population is in rural areas, and there are no
proper internet facilities available to make online payments.
3. People in rural locations are not well educated about the digital mode
of payment system.
4. Even today some places which take paper cash and do not accept
debit and credit cards. Making a purchase at such places with card
becomes very difficult to customers. Small retailers in India still deal only
in paper cash as they cannot afford to invest in digital infrastructure
facilities.
5. Cash is not under our control, people will spend excessive amount for
purchase of goods and services.
6. If you lose your debit/credit card, it takes some time to get a new one.
7. Hacking and cyber theft are major and challenging problems which
can be caused by online transactions. Cyber Security measures have to
be brought in place to avoid money going into wrong hands.
8. Even in big cities, sometimes online transactions cannot be made
because of poor internet facilities or network problems

FUTURE PROSPECTS OF CASHLESS PAYMENTS IN INDIA:

 Smooth, simple and secure payment processes will help to
bring about behavioural changes and faster adoption of digital
payments and banking among un-banked segments. When
new players enter the market, each with a slightly different take
on the market and with differing business models, the increased
 competition will help the environment and offer more options for
consumers to choose from. A larger pie with more players is
definitely good for the changing dynamics of the payments
industry, which is still nascent in India.
 Indian consumption is still dominated by cash, with cards
contributing only 5 per cent of the personal consumption
expenditure. In developed countries, 30-50 per cent of spends
happen through cards. So there is huge growth opportunity.
 The rapid growth of smartphones, Internet penetration and e-
commerce is complementing these; card payment volumes
have been growing in excess of 25 per cent y-o-y. We expect
this trend to continue, aided by the continued increase in debit
card activation and usage; debit card transactions have been
growing at 31 per cent each year.
 Intense competition and strategic collaboration among existing
and new market participants like the payments and small banks
and wallets will help scale up acceptance and foster more
creativity, innovation and consumer choice. According to him,
the future holds exciting times for the payments industry in
India, as all stakeholders and regulatory authorities come
together to achieve a “less-cash dependent” and eventually
“cashless” society.
 The credit card industry in India sees greater acceptance
among consumers this year. According to Worldline India Card
Payment Report 2014-15, the credit card base grew at 9.8 per
cent in the past year. Worldline India is a leader in the payment
and transactions services in the country. Alternative methods
like mobile wallets and prepaid cash cards accounted for 3 per
cent of digital transactions. This industry has been growing
steadily over the past few years. Card transactions, both by
debit and credit cards, are on an upward trajectory. There are
interesting dynamics at play in the Indian payments industry.
CASH USAGE IN INDIA GROWING :
Indians like using cash and are using it more than before
the November 2016 demonetisation. According to data from the Reserve
Bank of India analysed by the India Times, ATM withdrawals recorded a
22% increase in April 2018 from the previous year, reaching 2.6 lakh
crore. In comparison, cash withdrawals accounted for 2.2 lakh crore in
the months leading to demonetisation.
Debit card usage is also up, showing that Indian consumers are
comfortable with the flexibility of choosing whichever payment method
best applies to their needs. In fact, debit card usage at point-of-sale
(PoS) terminals grew by 24% compared to 2017. Contrary to cash
however, debit card usage was very low – almost 50% less – prior to
Modi’s demonetisation policy.
NCR Corporation’s Managing Director for India, Navroze Dastur
confirmed that there is a surge in ATM usage and that “the average
number of transactions per machine also significantly grew.
Analysts believe that this trend will continue – where cash and debit card
usage grow in parallel – thanks to positive economic forecasts.
Unfortunately, despite growing demand for cash and increase of ATM.

Digital payments in India - Statistics & Facts:

The demonetization of November 2016 was arguably the major
catalyst in digitizing the country. At the time, Indian Prime Minister
Narendra Modi announced an overnight demonetization of the 500- and
1,000-rupee banknotes, causing economic disruption across the country.
Even though the action was critiqued long after it happened and its
impact was debatable, what emerged was the rise of India’s digital
economy.

Just like the rest of the world, the Indian market was witnessing a
dramatic growth in digital markets, specifically in payments. The value of
digital payments in the south Asian country recorded a whopping 769
percent share of the GDP in fiscal year 2019. A collective leap in the
direction towards cashless payments has got all stakeholders on board.
From only 1.5 million locations where these were processed in fiscal
year 2017, the modes of online payment had reached over ten million by
2019.

India was estimated to see the fastest growth in the transactions of

mobile payments in terms of value, with a CAGR of over 20 percent
between 2019 and 2023. This figure includes reaching nearly 660 million
Indians. Incidentally, the country will contribute about 2.2 percent to the
world’s digital payment market.

The government’s efforts to support digitization led to discounts in the

use of mobile wallets and UPI transactions. Non-banking players like
Google Pay, Paytm and PhonePe benefitted from regulatory measures
that helped in their successful foothold in the market. In addition to new
players, existing ones diversified digitally to appeal to customers who
saw the value in cashless, time-saving transactions. To expand these
facilities to all Indians, Jan Dhan (directly translating to “people’s wealth”
in Hindi) accounts were created as part of the Pradhan Mantri’s Jan
Dhan Yojana . In cooperation with the NPCI and its many initiatives
including BHIM and RuPay, mobile payments for Indians, specifically in
rural areas, were made accessible. Aadhar-linked accounts were an
essential change in the policy framework of digitizing India.

Despite these positive steps and ambitious figures, the country lacks the
infrastructure to completely make the transition to a cashless society.
Embedded in these positive stories lay details of poverty, ignorance,
inaccessibility and many zero-balance bank accounts. India’s reliance on
cash in the unorganized sectors of various industries, along with daily
wageworkers left stranded by the demonetization, creates complex
challenges for this on-going digital revolution.
DIGITAL INDIA:
The journey of e-Governance initiatives in India took a broader
dimension in mid 90s for wider sectoral applications with emphasis on
citizen-centric services. Later on, many States/UTs started various e-
Governance projects. Though these e-Governance projects were citizen-
centric, they could make lesser than the desired impact. Government of
India launched National e-Governance Plan (NeGP) in 2006. 31 Mission
Mode Projects covering various domains were initiated. Despite the
successful implementation of many e-Governance projects across the
country, e-Governance as a whole has not been able to make the
desired impact and fulfil all its objectives. 
It has been felt that a lot more thrust is required to ensure e-Governance
in the country promote inclusive growth that covers electronic services,
products, devices and job opportunities. Moreover, electronic
manufacturing in the country needs to be strengthened. 
In order to transform the entire ecosystem of public services through the
use of information technology, the Government of India has launched
the Digital India programme with the vision to transform India into a
digitally empowered society and knowledge economy.
CONCLUSION:
A cashless economy is secure, it is clean. We have a leadership role to
play in taking India towards an increasingly “digital economy”.
Thus, as citizens and youths of India it is in our hands to promote this
magnificent India encouraged by our PM Mr. Narendra Modi who has a
bright vision towards the upcoming of future India. Big success and it will
help to attain vision of “DIGITAL INDIA”
The government needs to take the necessary steps and make some
policy considerations when they are preparing for a cashless economy.
The payment systems have to be protected from the cyber-attacks which
are the major threat for cashless transactions.
Also, the government should be able to serve the under banked as well.
Everyone from the society should have access to an electronic system
that they can use for such transactions.
Government should take measures to increase liquidity into the system
so that people face less inconvenience. Government should also try to
improve overall infrastructure so that more and more people can come
into banking net and internet.
Society has also to play its part. They have to understand the
importance of cashless economy and appreciate measures taken by the
government.
As a conclusion, it can be said that going cashless provides a lot more
benefits than just convenience to people, businesses and the
government in particular.

REFRENCES:
1. Ashish Das, Rakhi Agarwal

Cashless Payment System in India-A Roadmap

Posted: 2010
2. Bansi Patel, Urvi Amin

Plastic Money: Roadmap Towards Cash Less Society Paripex

Indian Journal of Research, volume 1, issue 11

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