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| Prospects of a cashless society in pandemic | | |
Dr. Rajkumar Singh
The ongoing pandemic Covid-19 is changing our day- today life abruptly in a amazing way we never imagined. In this emergency phase while some earlier activities have been stopped by force or dictates of the authority to save our own life and the others, some activities related to internet and other modern technologies have begun to run faster than ever. Now, for all practical purposes the use of internet has become almost double and, in the context, the concept of cashless society is no exception. Although, in pre-pandemic phase too the global economy was moving towards being cashless, the breakout of coronavirus across the world has compelled the people at large to think and act in this direction. The governments of several countries including India have encouraged the general public to transact in cashless mode as maximum as possible. Even they have provided many incentives and rebates if we do our business in digital form. Cashless society is a condition in any place where financial transactions are not conducted in the form of physical banknotes or coin, but through the transfer of digital information between the transacting parties. The concept of cashless society emerged with human history when barter system and other forms of exchange were in active practice. In today’s society it is becoming popular because most of the transactions are done in cashless forms and even digital currencies such as bitcoin has come in the market.
Global movements towards cashless society
In modern times, the decade 1990s was significant because from there onwards the frequent use of non-cash transaction in daily life started and in banking system it became a common practice. In twenty more years or by 2010, digital transaction became popular in many countries of the world. For example, PayPal, digital wallet system such as, Apple Pay contactless and NFC payments by electronic card or smartphone, and electronic bills and banking are in common use. All business firms, both government and non-government, began to demand payments through electronic transfers and cash transfer of heavy amounts are checked at various levels to discourage the trend. According to a research conducted in the US in 2016 by the United States User Consumer Survey Study more than 75% respondents preferred cash payments by a credit or debit card while only 11% favoured cash. In the same year the society of Sweden was more cashless in comparison to others where only 2% of value transaction and 20% of retail transaction were in cash. The measurement of a country moving towards the cashless economy is the number of transactions made in digital mode and in person to person. In many countries the legal status of digital mode transaction is also strong. For example, under a Massachusetts law made in 1978 no retailer can discriminate against a cash buyer and a credit/debit card buyer. As the cash transactions are related to many economic anomalies such as, money laundering, tax evasion, performing illegal transactions and funding illegal activities, several countries are encouraging the practice of digital transactions. However, the increasing practice of cashless society has a number of other problems such as, lack of privacy, digital fraud, centralised control and overspending. In addition, it’s a bigger problem for those who rely mostly on cash or have no bank account either.
Pandemic and our economic behaviour
Covid-19 is changing a lot of our latent behaviour. Hand-washing is quickly becoming second nature. Corporations have suddenly figured out in-person meetings might not all be that important. Strict no-contact policies have replaced the physical touch of good old salesmanship. And most importantly — a lot of people no longer like the touch of cold hard cash. Across the globe, people have become wary of handling physical currency. And although medical experts contend that cash is still safe to use so long as you keep washing hands, the advent of cashless economy has received a considerable boost. In India, citizens who absolutely adore cash are now suddenly using digital payments for grocery and online deliveries. In June, the value of transactions on UPI reached an all time high. Electronic Fund Transfers from banks have also rebounded since April. People absolutely do not want to touch cash and believe it or not, that might actually be a good thing. Because although we like to think there’s very little cost associated with carrying cash, it simply isn’t true. We pay to access cash all the time. We pay for it while we travel to banks, ATMs or other access points that disburse cash. We pay for it when these institutions charge a convenience fee. We pay for it when we queue at the salary office and wait for obscenely long hours. We pay for it when we experience accidental loss or theft and more importantly we pay for it by foregoing better opportunities. After all, cash held at home yields no interest. For instance, residents of Delhi together spend 60 lakh hours and 9.1 crores to obtain cash. That’s not an insignificant sum by any account (if you account for all the time wasted). And that’s not all. We haven’t yet attributed the cost to the government.
Other benefits of a cashless society
Consider the tax gap — the difference between total taxes owed and taxed paid on time. Due to unreported and under-reported cash transactions, the government often foregoes tax revenues that otherwise would have padded our coffers. Experts contest that the tax gap in India could be as high as two-thirds of overall taxes owed. It’s no wonder then that the government has pushed so hard for a cashless economy. If anything, transitioning to digital transactions could unlock considerable value for both consumers and the state. The horizontal axis measures the cost of cash for different countries. The position of India is on the extreme right suggesting we incur significant costs whilst transacting with cash. But then there’s the vertical axis pointing to the Digital Evolution Index score. It’s a proxy to gauge digital readiness — a measure to give you some idea of how prepared we are as a country to transition to a cashless economy.
And strictly based on the current state of digital infrastructure in this country, it’s safe to say that we still have a lot of work to do. However, there are still some fundamental challenges plaguing the country’s digital payment landscape. Around 20% Indians still don’t have a bank account. And although smartphone adoption has certainly increased in India, there’s a good proportion that still doesn’t own devices that support payment apps. Then there’s the trust issue. Despite what the government preaches, Indians still have a problem trusting digital payments and there's a lot of inertia here. However, COVID has offered us the perfect launchpad. If the government is really serious about reducing costs across the board and accelerating the advent of a cashless economy, now is the time to prioritise investments in digital readiness. |
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