In this computer and digital era, we are very fastly moving towards the digital platform in all fields of our life,the financial sector is not an exception. We all are using currency notes in almost all financial transactions since the beginning of the marketing era,but fromthe past few years, financial transactions are shifting to the digital platform very fastly. The use of the digital platform is promoted by users, regulators and Govt. An economic system where no/less physical cash is in circulation is known as a cashless economy. Payments are made through a digital platform such as credit and debit cards, bank electronic fund transfers, or virtual wallets instead of the cash payment system. Nowadays,in India, the payment system is rapidly transiting to a digital platform. In the past, the retail transaction was entirely dependent on cash, but now the retail transactions are very rapidly shifting from cash to digital platform. India has one of the highest Cashto GDP( Gross Domestic Product) ratios in the world, and lubricating economic activity with paper currency has costs. According to the study of Tufts University, the total cost of cash handling in India is Rs. 21000 crore annually.This is a huge amount for our economy. Apart from that, digital transactions have many benefits over cash transactions, So Govt. and RBI are tryingto moving to a cashless economy.
The tools of Digital Transaction :
Initially, the cash transactions at the branch are replaced by an ATM transaction. But it is only an alternate channel of branch banking services. As a result, a large number of cash transactions are shifted from branch banking to ATM, but it is not towards cashless transactions. The RBI introduced NACH (National Automated Clearing House), CTS (Cheque Truncation System), 24*7 availability of NEFT(National Electronic Funds Transfer) system for the customer. The POS(Point of Sale), Mobile wallet (PayTM, UPI Bhim, Google Pay) Pre Paid Instruments, Internet Banking are the effective tools towarda cashless economy. The Govt. of India and RBI made necessary changes in the Payment & Settlement Act 2007 & Negotiable Instrument Act 1881 for smooth and legally complied digital transactions.
The trend of Cashless Transaction in India
( In Lakhs)
|Total No. of ATMS||1.96||2.07||2.10|
|Total No of POS||13.37||30.62||49.47|
|Total No of Credit Card||237.82||362.38||561.20|
|Total No.of Debit Card||6533.63||8466.97||8167.26|
The number of ATMs is all most stable from 2016 to 2020,it indicates that the popularity of ATM is reducing, but the no. of POS increased by four times in a short span of four years. In the same way, the number of credit cards and debit cards is significantly increased within four years. The comparative analysis saw that the increase in POS is remarkable in the last four years.
|NFS Inter Bank ATM Cash Withdrawal||2,837.01||3,503.44||4311.59|
|NACH- National Automated Clearing House||1,392.79||2375.33||3401.77|
|CTS Cheque Clearing (Processed Volume)||919.80||1138.06||1035.89|
|RuPay Card usage at (POS/eCom)||35.65||667.66||1480.72|
|AEPS (Inter Bank) Txn over Micro ATM (Cash withdrawal/ Cash Deposit)||0.36||106.27||437.19|
|BBPS (Bill Payment passing through BBPCU)||0.00||10.6||145.69|
|UPI – Unified Payments Interface||0.00||915.23||12518.62|
|Total Financial Txn||5,406.41||9857.6||26493.23|
According to NPCI, digital data transactions in India increasing day by day. Within different transaction tools,the E-wallet (PPI) system is going to be more popular. The statistics in the report show that from Jan-2018 to Jan-2020, the UPI transaction increased by 13.50 times in a short span of two years. RuPay card usages at POS/e-com became more than double within two years (from2018 to 2020), but the cash withdrawal at ATM is not increased in such a manner. It indicates that the E-wallet payment system/usages of POS and online transaction is more preferred by customers than any other payment methods. According toa survey, 1%of users preferred cashasa payment method, 18% for debit/credit cards, 23% for Net banking, and 59%of users preferred E-wallet asa payment method. And in the future E-wallet payment system will be preferable. BI and Govt. both are also promoting the e-wallet/POS and online transactions. It will actually reduce the cash transaction in the economy. The total internet user upto March2019 is 636.73 million, and subscribers are 48.48% of the total population. Our 90% population is using a phone.
- Cost Reduction:– The cash handling has a high cost for printing, circulation, transporting, security, maintenance, etc. In an estimate, the cash handling cost in India is approx.0.25% of GDP. It is a high cost for a growing economy like India.The transaction cost of each transaction at the digital platform is minimal for both user and service provider.
- Risk Reduction:– In this case of digital transaction, the risk of cash getting lost or stolen is minimal. Even if the card is lost or stolen it is easy to block a credit/debit card or a mobile wallet remotely.
- Curbing the Black money in an economy:–In a digital transaction,it is easier to track the illicit transactions and black money,unlike a cash-based economy in which money does not come into the banking system. In the case of digital transactions, it is easy to monitor and track suspicious transactions as all the records are available with the system and also available to the regulator, service provider (Banks).It is easy to find out the origin and end-use of the fund in case of digital transactions.
- Tracking Transactions:–Transactions done via mobile or computer applications can be easily tracked with a simple click. The transaction details are available in the system and easily accessible by authorized agencies.
- Convenient: Cash carrying, handling, and security is abig issue, but the ease of conducting financial transactions on a digital platform is probably the biggest motivator to go digital. On this platform, the transaction gateway is available 24*7 & anywhere. User can do their transaction through his/her mobile from anywhere.The transaction is done on a real-time basis.
- Financial Inclusion: At present, India’s low-income households access to credit through informal systems, through private lendersand relatives. Forcing them to shift to cashless payment platforms instantly formalizes this world of informality and includes them informal economy.
- In the case of cash transactions, transaction tracking is challenging, but in the case of digital transactions, it is easy to track a transaction. Root and end-use of all transactions are on record and easily accessible to Tax Authority. It will increase the tax base and taxpayers.
Hurdles in making India a cashless economy:-
- In our country, more than 60% population are in the rural area where the mobile or internet infrastructure is not well developed. The mobile and internet network is not available, or the connection speed is not good.
- More than 80% of labours are working in the unorganized sector,which mostly depends on the cash-basedeconomy. So they are comfortable in cash transactions. Their transformation to a digital platform is a difficult task for service providers and regulators.
- People are less confident in digital transactions, they are comfortable in cash transactions.
- People are having significantly less knowledge of the use of digital gatewayand cybersecurity threats
- The threats of fraud are more in digital transactions.
- De-monetization in Nov-2016 is a big step to curb the cash transactions in the financial sector.
- enhance the mobile coverage and data speed in the remote rural area by the introduction of 4G,Govt open the business opportunity, and promoting new partner/vendor in those areas.
- has taken many initiatives to promote digital transactions by giving incentives on it likedecreasing the charges for the digital transaction on different platforms and reduction /exemption of MDR charges on low-value transactions/small traders/small business entity.
- Some state Govt. providing mobile handset free or ata subsidized rate.It will motivate the citizen to go on a digital platform.
- madethe decision to implement Direct Benefit Transfer (DBT) all types of Govt. benefits (all subsidy, donation, rebate, MGNREGA payment) through digitally in place of cash payment.
- allowed and grant license to private players for mobile wallet operation and digital payment operation.
- The Payment & Settlement Act was amended by Govt. of India to regulate the electronic payment gateway,
- Govt brought many mobile apps (UPI,BHIM AADHAR payment system) in the market and also promoted new participants in the marketlike PayTM,GooglePay,
- RBI appointed a panel headed by Nandan Nilekani for increasing the digital transaction in India. The committee recommended an increase in digital transactions ten folds (in number) in the next five years. The committee recommended the reduction of charges of digital transactions, i.e., MDR(Merchant Discount Rate).The committee recommended setting up a special risk-mitigating & complaint redressal system for digital transactions.
- setup the Digital Ombudsman scheme for redressal of digital transaction-related complaints (of non-Banking institution).
- of India’s Banking reform EASE (Enhance Access and Service Excellence)3.0 agenda for the year2020-21 is mainly based on the digitally enabled banking service.The govt. wants to enhance customer service through the digital delivery channels like Palm Banking
- Different banks levy cash handling charges on cash transactions to discourage the cash transaction at the banking channel.
- To discourage the cash transaction on the banking channel,Govt introduced Sec194N in Income Tax Act 1961 to collect TDS (Tax deducted at source) on cash withdrawal above a threshold limit.
During the present COVID19 crisis, the use of a digital transaction platform increased by many folds. After the spread of COVID19 each and every user avoid to use currency note inthe business transactions. Everyone wants to do their financial transactions without the use of currency notes to curb the spread of COVID19. Now a days, the most preferred channel/tool for day to day transactions are different payment wallets like PayTM, UPI, GooglePay, and online transactions.
As a result of the above initiatives, the digital transactions increased by many folds in comparison to 2016.The Govt. targeted to double the digital transaction by 2023 in comparison to 2019. The Govt. targeted around a 20% Y-o-Y increase in digital transactions between 2019 to 2023. The digital payment transactions between April-2019 to March-2020 was 4572 cr. and April-2020 to 12-07-2020 is Rs.1085cr. As of 28-02-2020, the number of POS in our country was 51.28 lakhs, and BHIM AADHAAR pay POS was 10.86 lakhs.All the facts and figures indicates that the financial transactions are shifting to digital platform.It also become popular in retail user and small traders, businessman etc.