The idea of cash in India was to reduce the weight of the gold and silver bar that our ancestors carried to execute a transaction. Cash was issued by an authority and everyone trusted them. They trusted that it will be equally valuable and valid tomorrow that it is today. What could be lighter than a banknote? And then someone from the crowd said 0s and 1s.
The same authority that issued banknotes can issue money in digital form that can be transferred at the speed of light. That's how the cashless transaction was born. Now instead of carrying bundles of papers and metal chunks, we walk up to a store and buy goods in exchange for digital data. Today it is estimated that less than 10% of the money in the world is cash (roughly $5 Trillion ) and the rest of the trillions are stored in the mind of the computers.
If there is any business that has skyrocketed during the pandemic, it is the digital payment platforms. People who did not even previously own a phone are now using apps like Paytm, Gpay, and PhonePay. The government is pushing the idea of a cashless economy through various campaigns.
They are trying to incorporate various government schemes with the bank account of the beneficiary so that even if someone does not have a bank account, they might consider opening one. One such example is when the government started sending subsidy money directly into the bank account of the kitchen gas customer. This was of course done to stop corruption but one of the hidden motives was that people will open a bank account to get the benefits.
Schemes like MGNREGA and Jan Dhan have forced the poor section of society to open a bank account. But can India truly become a cashless economy?
Advent of UPI
Fast forward to 2021. We have seen the internet boom brought by Jio in the year 2016. Millions of people came online after Jio launched its cheap 4G SIM. This was followed by Demonetization. Then came companies like Paytm which enabled people to send money easily, quickly, and securely.
Then the government launched UPI or Unique Payment Identification in 2016. This became the game-changer for the digital India Mission or at least has potential for the same. As if these weren't enough, the government launched UPI in 2016.
Unified Payments Interface (UPI) is a way to power multiple bank accounts into a separate mobile application (of any participating bank), consolidating several banking features, seamless fund routing & merchant payments into one hood. You must have seen a QR code hanging outside ration shops and even near a fruit vendor.
Just scan a QR code and send money instantly in his/her bank account with no minimum transaction limit and instant transfer. This is all possible because of the UPI services. UPI crossed 1 billion transactions for the first time in 2019.
According to the data from NPCI, providers of unified payments interfaces (UPI) in India recorded a total of 2.8 billion digital payment transactions worth over five trillion Indian rupees in June 2021. This was an increase compared to May 2021. Out of the 2.8 billion transactions, PhonePe managed to secure a share of 46 percent and GooglePay a share of 35 percent. The third big player in the UPI money transfer business is Paytm with a share of approximately 12 percent.
Benefits of Cashless economy
Let us now look at some of the benefits of a cashless economy:
- The most important feature of a cashless transaction is that it can be done round the clock 24*7 and 365 days without the need to carry bundles of cash in your pocket.
- It has high accountability as every transaction is recorded. You can always look into the money transfer you have made since the beginning.
- It improves productivity. People do not have to care about counting bills, change, and security.
- It is highly useful in today's time as cash is one of the biggest carriers of viruses and germs. You are prioritizing your health by reducing its use.
The truth is that still, a vast majority of people prefer the use of cash for a variety of reasons.
Why do people still prefer using cash?
These could be the probable reasons:
- First and foremost it is anonymous. You don't have to be a criminal or a drug dealer to become uncomfortable with the idea of government and corporates keeping track of each and every transaction of yours.
- The middle class in India prefers cash as a budgeting tool over cards and digital payments. Leave your cards at home and bring cash according to your budget so that you do not overspend. Studies have shown that using actual currency activates the pain center in the brain that the use of plastic money does not.
- We have over 500 million smartphone users in the country 77% of which are online. This number might seem overwhelming, but when comparing with the total population, the figure needs to improve.
- Another reason is that it is not 100% reliable. In 2018, a hardware failure in the Visa barred millions of users across Europe from making transactions for hours. Server failure is a common term used by banks.
- In countries like India which stills lacks digital infrastructure, there is still a huge demand for cash.
- According to the All India Rural Financial Inclusion Survey, 2016-’17, conducted by the National Bank for Agriculture and Rural Development, 52% of the respondents answered they prefer to keep their savings at home.
Despite all these problems, India has managed to double its banked population since 2011 to reach the mark of 80%. Government schemes are a major contributor to this change. 536 million accounts are alone because of the Jan Dhan scheme by the government.