INTRODUCTION -
Cashless India is a recently introduced phenomenon targeted to
bring a sea change in the country’s economy by the Indian government,
transforming the cash-based economy into cashless through digital means.
However, still there are various challenges to be addressed if we
want to make India cashless in true sense. India is a vast country and the
convenience of making transactions through the online mode is not available
across the country. In small cities and villages, the people are mostly suffering
due to acute cash crunch situation. To make India cashless in true sense,
investment is required to be made in enhancing the facility required on a mass
scale for cashless transactions across the country.
Handling the flow of cash with digital technology has a range of
advantages. Cashless transactions have made people keep all their cash into the
bank and hence liquidity in the banking system has increased. Also, it has
stopped the flow of black money, up to some extent. Now the banks and financial
institutions have more money to lend to the people to support the growth of
Indian economy. The other most important advantage is that this situation will
make people pay their taxes in a transparent manner; hence the government will
have more money to run various schemes meant for the welfare of the public.
The Union government’s demonetization initiative and the
subsequent drive towards developing a cashless India have invited its share of
both bricks and bouquets. There have been widespread protests organised by the
opposition parties across the country against the cash crunch in the wake of
ban on old currency notes of Rs 500 and Rs 1000.
However, the initial difficulties have subsided now and the people
are beginning to realise the safe and convenient modes of digital payment.
Moreover, to encourage the people to further go for cashless modes, the
Narendra Modi Government has provided a slew of incentives and measures.
As the country moves towards a cashlessenvironment after demonetisation, the initial awe and confusion have given way to a
flurry of concerns. Will the emphasis on online transactions provide
convenience and tangible benefits or just add to stress and additional
charges?
To incentivise the move towards a cashless
economy, the government has come up with a rash of discounts and freebies on
digital transactions. But will these be substantial enough and, along with
other benefits, counter the higher risk of identity theft once the currency
notes are back in circulation? What are the gains and drawbacks of financial
digitisation? Here’s a look at what may be in store for you.
ADVANTAGES OF GOING CASHLESS
Convenience
The ease of conducting financial transactions is
probably the biggest motivator to go digital. You will no longer need to carry
wads of cash, plastic cards, or even queue up for ATM withdrawals. It’s also a
safer and easier spending option when you are travelling. “The benefits are
enormous if you leave out the low-income group, which will face a huge
challenge,” says Kartik Jhaveri, Director, Transcend Consulting. “For the rest
of the country, it is constructive and simple.
It will be especially useful in case of
emergencies, say, in hospitals,” he says. Adds Jayant Pai, Head, Marketing,
PPFAS Mutual Fund: “You have the freedom to transact whenever and wherever you
want. You don’t have to be physically present to conduct a transaction or be
forced to do so only during office hours.”
The recent waiver of service tax on card
transactions up to Rs 2,000 is one of the incentives provided by the government
to promote digital transactions. This has been followed by a series of cuts and
freebies. It’s a good time to increase your savings if you take advantage of
these. For instance, 0.75% discount on digital purchase of fuel means that the
petrol price in Delhi at Rs 63.47 per litre can be brought down to Rs 62.99/l
with digital payment.
Similarly, saving on rail tickets, highway toll,
or purchase of insurance can help cut your costs. Add to these the cashback
offers and discounts offered by mobile wallets like Paytm, as well as the reward points
and loyalty benefits on existing credit and store cards, and it could help
improve your cash flow marginally.
Tracking spends
“If all transactions are on record, it will be
very easy for people to keep track of their spending. It will also help while
filing income tax returns and, in case of a scrutiny, people will find it easy
to explain their spends,” says Manoj Nagpal, CEO, Outlook Asia Capital.
“Besides the tax, it will have a good impact on budgeting,” says Pai.
Budget discipline
The written record will help you keep tabs on
your spending and this will result in better budgeting. “Various apps and tools
will help people analyse their spending patterns and throw up good insights
over a couple of years,” says Jhaveri. Controlled spending could also result in
higher investing. If the same amount of cash does not flow back into
circulation and people continue to use mobile wallets and cards, it is also
likely to bring down the latte factor. This means that the Rs 10 you spent on
candy or chips, or that regular cup of coffee office is likely to take a hit
since you will be short of loose change and smaller currency notes. There’s a
lesser chance of budgetary leaks and unaccounted for spends sneaking into your
budget at the end of the month.
Lower risk
If stolen, it is easy to block a credit card or
mobile wallet remotely, but it’s impossible to get your cash back. “In that
sense, the digital option offers limited security,” says Pai. This is
especially true while travelling, especially abroad, where loss of cash can
cause great inconvenience. Besides, if the futuristic cards evolve to use biometric ID (finger prints, eye scan, etc), it can be
extremely difficult to copy, making it a very safe option.
Small gains
It may not seem like much of an advantage, but
being cashless makes it easy to ward off borrowers. Another plus is that you
can pay the exact amount without worrying about not having change or getting it
back from shopkeepers.
DISADVANTAGES
Higher risk of identity theft
“The biggest fear is the risk of identity theft.
Since we are culturally not attuned to digital transactions, even well-educated
people run the risk of falling into phishing traps,” says Nagpal. With the
rising incidence of online fraud, the risk of hacking will only grow as more
people hop on to the digital platform.
Besides, the latest move by the government to
remove the two-factor authentication process for online transactions up to
`2,000, will not help. Irrespective of the size of transaction, the absence of
this additional layer of security will expose thousands to the risk of identity
theft. Another weak link is the inadequate redressal mechanism. “With the poor
redressal system in India, imagine what a poor rickshaw puller will do if he
has his Aadhaar ID stolen?” asks Mumbaibased financial trainer P.V.
Subramanyam.
“Given the tedious process and poor grievance
redressal, people will have no easy recourse if they lose money online,” adds
Nagpal. There is no stringent legal process to deal with this kind or scale of
fraud. Add to it the mass identity theft from banks’ or companies’ databases
and it can turn into a financial nightmare akin to the data breach in the
Indian banking system in October this year.
Losing
phone
Since you will be dependent on your phone for
all your transactions on the move, losing it can prove to be a double whammy.
It can not only make you susceptible to identity theft, but you could also be
rendered helpless in the absence of physical cash or any other payment option.
This can be especially problematic if you are travelling abroad or in smaller
towns or villages with lack of banking infrastructure or other payment options.
Another drawback is that you need to keep your phone constantly charged. If the
phone dies on you, you will be stranded, particularly if you are in the middle
of an important purchase or dealing with an emergency.
Difficult
for tech-unsavvy
India has a low Internet penetration of
34.8%(2016), according to the Internet Live Stats, and only 26.3% of all mobile
phone users have a smartphone (2015), as per Statista figures. Besides the
practical difficulty of going digital, “a bigger block is the psychological
shift. You are suddenly jumping three generations to the digital medium,” says
Pai. Adds Subramanyam: “It’s a problem for the older people, who may suddenly
find themselves locked out of their accounts if they can’t download an app or
don’t have cash.” The digital medium may prove a challenge for the
tech-unfriendly people, who will need more time to adapt or the availability of
other options to conduct transactions.
Overspending
While there is no denying the convenience of card
or mobile wallet transactions, it could open a spending trap for an
unsuspecting population. According to behavioural finance theorists, the pain
of parting with money is felt more acutely if you use physical cash instead of
a card. Hence, using cash instead of cards or mobile wallet acts as a natural
bulwark for people who find it difficult to control their spending. “This is
the reason that people could end up overspending, throwing their budgets into a
disarray,” says Pai.
Besides, a high penetration of the digital
payment system is contingent on the fact that the same amount of cash does not
come back into circulation. If it does, people are more likely to switch back
to the former ease of using cash as it is a habit that they may find difficult
to break.
Conclusion:
Post-demonetisation, the
people have finally started believing in the power of the plastic money in the
form of credit card/debit card, and other channels of electronic payment.
Online banking has gained prominence due to unavailability of enough cash in
the market. Moreover, E-commerce modes of making payments have also become
popular, as most of the people have now started making payments of even Rs 50
through the digital modes. All these developments are considered to be good for
the healthy growth of the economy.
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