The government’s demonetization initiative taken in 2016 paved the way for a cashless economy in India. Soon after, when the world was grappling with the pandemic, the government launched Unified Payment Interfaces (UPI) and rapidly established e-payment startups.
A cashless economy is where transactions occur via cards, payment wallets, and other digital modes, replacing traditional payment modes such as cash or coins. In other words, the concept of a cashless economy is where the flow of money is facilitated via digital means (mobile wallets, debit cards, credit cards, or net banking) without using cash. Thereby, the types of cashless economies in every country will be based on the dominant digital payment method used in the country.
As more Indians have shifted to mobile phones, the dire need for connectivity resulted in the vast adoption of data servers and an increase in internet penetration across cities and suburbs. A cashless type of economy is the result of these two changes. Today, smartphones in the economic range can provide quite decent access to the digital world as well.
Further, factors such as ever-changing, growing demand by customers for innovation, and the government’s initiatives to regulate and limit the flow of cash, are leading India’s path toward a cashless economy. Adding to this, dynamic growth in the number of customer service providers, across diverse channels such as manufacturing, and eCommerce, is also an important factor in increasing the adoption of a cashless economy.
- Transparency in the system
Digital transactions have one major benefit: they bring transparency and accountability to the monetary system. Digitizing monetary transactions helps banks recognize customers and track money flow. This helps to reduce financial fraud and crimes such as tax evasion and counterfeit money in the economy.
The entire process of cashless systems ensures easier payments anytime and anywhere. For instance, if you want to send money to your family residing in another city, you don’t have to go through the hassle of visiting the bank to initiate the transaction. A simple NEFT or IMPS from your phone does the job.
- Reduced cash-related crimes
One of the primary reasons the government decided on demonetization was to restrict the use of counterfeit money. Moreover, digital transactions always help curtail black money practices that negatively impact the country’s growth. The chances of flow of black money and illegal transactions are reduced when a transparent and rigid digital system is established.
- Cyber security
With increasing reliance on the internet, the ease of transactions has increased. However, digital payment methods have also opened avenues for online frauds. A recent report by Microsoft revealed that on an average, an Indian consumer lost Rs. 15,334 by falling prey to online scams in 2021. The most common payment channels for these consumers were bank transfers and credit cards.
As of now, there are no stringent laws or legal processes that can help eliminate online fraud. Add to this, the risk of data theft that banks can face, which can uncover financial information of thousands of users, and can lead to massive security breaches.
- Rise in public expenditure
The convenience that a cashless transaction system brings may become addictive. People and enterprises tend to overspend when making digital payments, which can lead to spending traps, especially for the younger population. Eventually, this may also increase public expenditure rates significantly.
- Identity thefts
Lack of financial knowledge is causing an increase in identity thefts in the country. Those who leverage cashless payment modes, but do not have enough knowledge in the segment, may lose confidential information along with hard-earned money.
Becoming a cashless economy may have certain challenges and concerns, but they do not outweigh the positive points. With the right strategies and implementation, India can easily pace up to becoming an efficient cashless economy.