CONTENT

SL No Topic Page No
1 Abstract 1
2 Introduction 2-3
3 Review of Literature 4-6
4 History 7
5 Research Methodology 8
6 Objectives of the study 9
7 Need for cashless Transactions 10-16
8 Types of Cashless modes & Payments 16-19
9 Benefits of Cashless Economy 19-21
10 Challenges of Cashless Economy 21-36
11 Findings 37-40
12 Suggestions 41
13 Conclusion 42
14 References 43

Abstract

1
Cashless economy is an economic system in which there is little or
very low cash flow in a society and goods and services are bought and
paid through electronic media. Cashless economy is the economy in
which transactions are made by debit cards, credit cards, cheques or
direct transfer from one account to another. The present research
highlights the conceptual background of cashless economy in India.
Besides, the study examines the benefits of cashless economy to the
general public by collecting data with the help of questionnaire
designed on a five point Likert scale. The sample size of the study is
112 respondents consist of students, teachers, and businessmen. One
sample t-test has been applied to test the hypothesis. The results
revealed that cashless economy is not beneficial to the general public.

Introduction

2
Cashless economy is an economic system in which transactions are
not done predominantly in exchange for actual cash. It does not refer
to an outright absence of cash transactions in the economic setting but
one in which the amount of cash-based transactions are kept to the
barest minimum. A cashless economy or an e-payment system is a
situation where there is little or very low cash flow in a given society,
meaning thereby, transactions will be made by electronic channels
like debit cards, electronic funds transfer, mobile payments,
multifunctional ATMs, and internet banking. It is the economy that
run mostly on plastic or digital money and thus with minimal cash or
money in paper form. In other words, it refers to the widespread
application of computer technology in the financial system. It is
designed to breakdown the traditional barriers hindering financial
inclusion of millions of Indians and bring low cost, secure and
convenient financial services to urban, semi-urban and rural areas
across the country. Nevertheless, cashless economy is defined as one
in which there are assumed to be no transactions frictions that can be
reduced through the use of money balances, and that accordingly
provide a reason for holding such balances even when they earn rate
of return. It is not the complete absence of cash but it is a payment
system that is secure, convenient, and affordable. It is an economic
system in which goods and services are bought and paid for through
electronic media.

When the transactions in an economy are not heavily based on the

money notes, coins or any other physical form of money but are aided

3
by the use of credit cards, debit cards and prepaid payment
instruments, such an economy is called cashless economy. In
a cashless society financial transactions are not conducted with
physical banknotes or coins, but instead with digital information
(usually an electronic representation of money). Cashless societies
have existed from the time when human society came into existence,
based on barter and other methods of exchange, and cashless
transactions have also become possible in modern times using credit
cards, debit cards, mobile payments, and digital currencies such
as bitcoin. However this article discusses and focuses on the term
"cashless society" in the sense of a move towards, and implications
of, a society where cash is replaced by its digital equivalent—in other
words, legal tender (money) exists, is recorded, and is exchanged only
in electronic digital form.

Review of Literature

4
It was in 1918 when the Federal Reserve Bank used telegraph to
move currency for the first time and with the set up of Automated
Clearing House (ACH) in 1972 provided the U.S treasury and
commercial banks an alternative to process cheque, which led to the
revolution of e-payment as Benjamin Graham (2003) noted in his
work “Evolution of Electronic Payment.” Many researchers over the
world have undertaken research, symposia, seminars, journal articles,
and lectures to evaluate the system of e-payment. Snorkel and Kwast
used the Federal Reserve’s 1995 survey of consumer finance and
analyzed the effect of demographic characteristics on the likelihood of
e-payment instrument usage by households. Carrow and Stanten
(1999) investigated the preferences of consumers among debit cards,
credit cards, and cash. In October 2005, Wondwossen & Tsegai and
G. Kidan (2005) completed their work on e-payment challenges and
opportunities in Ethiopia and found; Poor telecommunication
infrastructure, Frequent power disruption, People are resistant to new
payment mechanisms, Lack of skilled manpower, Unavailability of
payment laws, and regulations particularly for e-payment.
Balachandher., K.G., Santhan, V., & Norazlin, R (2000) studied
electronic banking in Malaysia and found that ATM was the most
widely accepted and highly utilized channel. Joshua Abor (2004)
researched technological innovation and banking systems in Ghana
and found a positive relationship between them. Studies by; Hunter,
W. C., & Timme, S.G. (1991) found that information technology has
an appreciable positive effect on banking productivity; cashier’s

5
work, banking transactions, bank patronage, bank services delivery
and customer services. Researches regarding the issues of the cashless
system are also done as Wondwosson T & Tsegai G. Kidan (2005)
found out that e-payment is surrounded by widespread challenges in
Africa. Poor telecommunications infrastructure, limited readiness by
banks, behavioral constraints, inadequate legal and regulated
framework, and credit card access at low level are among the
constraints that have hindered the progress of e-payments. Baraghani
(2007) examined factors influencing the adaption of Internet banking.
Bassey (2008), in his work “Digital Money in a Digitally Divided
World,” revealed the challenges perceived by Africans in the adoption
of e-payment systems. He categorized challenges into three categories
viz; the infrastructure, regulatory, cultural-cum human dimensions”.
In his view, the infrastructural challenges were the most important.
This comprises of accessibility, affordability, networks, connectivity,
and usage. According to Worku (2010), e-payment and e-banking
applications carry a security challenge due to high dependency on
critical ICT systems that may create vulnerabilities and can harm
customers. “It is imperative for banks to understand and address
security concerns to leverage the potentials of ICT’s in delivering e-
banking applications.” Akhalumeh and Ohioka (2011) found out some
challenges at the front of general people with the introduction of
cashless policy. Their findings show that 34.0% of the respondents
faced the problem of internetbased fraud, 15.5% of respondents
argued the problem of limited POS/ATM, 19.6% cited the problem of

6
illiteracy, and 30.9% stayed neutral - the respondent not been sure of
problem been expected or experienced. Okey. Ovat (2012) found
Fraud, Indiscriminate deductions from accounts, high rate of
illiteracy, inefficiency, epileptic public power supply as challenges in
Nigeria. Ajayi, L.B. (2014) found a lack of unique national identity
system, inadequate infrastructure, high rate of illiteracy and poor
sensitization, poor timing, and sequencing for both the policy as
challenges for cashless policy.

History

7
The trend towards the use of non-cash transactions and settlement in
daily life began during the 1990s when electronic banking became
common. By the 2010s digital payment methods were widespread in
many countries, with examples including intermediaries such
as PayPal, digital wallet systems such as Apple Pay, contactless
and NFC payments by electronic card or smartphone, and electronic
bills and banking, all in widespread use. At this point cash had
become actively disfavored in some kinds of transaction which would
historically have been very ordinary to pay with physical tender, and
larger cash amounts were in some situations treated with suspicion,
due to its versatility and ease of use in money
laundering and financing of terrorism. Additionally, payment with a
large amount of cash has been actively prohibited by some suppliers
and retailers, to the point of coining the expression of a "war on
cash".The 2016 United States User Consumer Survey Study claims
that 75% of respondents preferred a credit or debit card as their
payment method while only 11% of respondents preferred cash. Since
the founding of both companies in 2009, digital payments can now be
made by methods such as Venmo and Square. Venmo allows
individuals to make direct payments to other individuals without
having cash accessible. Square is an innovation that allows primarily
small businesses to receive payments from their clients.

Research Methodology
8
This study is based on the qualitative research method because

qualitative research is characterized by its aims, which relate to

understanding some aspects of social life, and its methods, which (in

general) generate words, rather than numbers, as data for analysis. It

also seeks to understand a particular research issue or subject from the

local population’s perspective. Qualitative research is especially

powerful in obtaining culturally specific information about the values,

opinions, behaviors, and social contexts of particular populations.

Some secondary data has been used in this research that was extracted

from various sources viz: journals, books, e-books, reports, etc. The

data for this study was collected through an interview session. The

research population for this study was all the residents of city Aligarh;

with a sample size of 70 respondents, convenient sampling was used

to determine our respondents from both urban and rural regions,

which include all sections of the society, i.e., students, businessmen,

academicians, and service class. Open-ended questions were asked

regarding the challenges they face while going cashless.

OBJECTIVES OF THE STUDY

1. To elucidate the concept of cashless economy.
9
2. To highlight the challenges before cashless economy in India.
3. To examine the benefits of cashless economy to the general public.
HYPOTHESES OF THE STUDY
H01: There are no significant benefits of cashless economy to the
general public.
Ha1: There are significant benefits of cashless economy to the general
public.
RESEARCH METHODOLOGY
The research used convenient sampling. The people which are easily
accessible have been chosen for the study. A total of 250
questionnaires were distributed to the respondents living in Aligarh in
the month of February, 2017. 88 (44%) questionnaires were rejected
and 112 (56%) were accepted for analysis. In this way, the sample
size of the study is 112 respondents (Table 1). Secondary data was
collected from websites, journals, articles, magazines, theses, reports
and other relevant documents. So far analysis is concerned; one
sample t-test has been used to test the hypothesis through SPSS_20
version.
Table 1: Sample Size of the Study

Questionnaires Frequency Percent

Distributed 200 100

Rejected 88 44

Accepted 112 56

Need for Cashless Transactions

10
According to the Indian government, the cashless policy creates more
empowerment in the industry, which will lead to an increase in
employment and a reduction in cash-related fraud. Now, more cash
will get saved in the bank accounts of customers. There will be less
hard money in their hands, which will lead them to divulge their exact
income so that income tax fraud can reduce significantly. It will also
reduce fraud toward cash transaction and lead to foreign investors’
participation in the country as this mode of payment is secure
(Grimes, 2003). When this step was introduced in other countries,
they were the right steps going in the right direction. The assumption
was that it pushed the modernization of the new payment system.
Increase in the number of banks leads to reduced transaction costs and
a reduction in the high security of carrying cash along. This bank
helps make a more manageable platform for interaction with
consumers to know about the industry. Financial risk is also an
essential point in pushing the digital channel to improve the idea of a
cashless economy. Indians have used the electronic modes of payment
for many years; however, the retail sector still relies predominantly on
cash transactions. They find it a more secure and convenient way of
physical operation in the retail market (Chundu Venkata Rao, 2014).

The constant innovation in the banking systems, products and services

helps it move toward a more coherent environment. The part
highlighted in this paper is MBPS (Mobile Banking & Payment
System), which is directly proportional to digitalization. The authors
tried to keep the analysis based on historical and contemporary

11
literature by highlighting essential gaps and discussing the challenges
and opportunities during e-banking implementation (Devlin, 1995).
The study clearly proposes a new mobile banking system, namely,
MBPS, a multitasking smartphone software that allows various
banking and payment transactions in a single click with artificial
intelligence. Similarly, it also determines different implications and
limitations that are making future steps difficult. The research is
entirely theoretical; hence, no viable hypothesis has been formulated.
The objective is to conceptualize and propose MBPS through various
digital banking channels, and enter into an aggressive digital market
full of innovation. In conclusion, MBPS will create tremendous
growth and potential that we can predict, which is not too into the
future, when mobile communication will outperform all digital
channels and products (Shaikh et al., 2017).

Impact of Demonetization on Cashless India

There is a need to investigate different reasons for the lack of

penetration of digital transactions in India and find the available
attributes that need alteration to fill the Indian economy gap. The
objective is to discover how the journey will continue on a successful
path and get deeper insights. The focus is on the people behind
acceptance and non acceptance of digital modes of payments, so a
comprehensive examination of the various reasons is undertaken
(Gupta et al., 2012). The trend toward non-cash transactions such as
e-wallets and other modes of online payments has a significant impact
on the Indian economy. Indeed, demonetization has played a
12
substantial role in introducing online payments, and day-by-day, there
is an influence on the growth rates in payment volumes. There are
various challenges faced to implement digital transactions in India
and how they can be overcome. It has been seen that there is progress
in the digitalization in the current scenario of the Indian economy.
The focus is primarily on the rural areas as there are people who need
to acquire the new facilities to move further and contribute toward the
Indian economy (Kumar & Puttanna, 2018).

The introduction of the word “cashless economy” happened after the

demonetization of 500- and 1000-rupee notes in India after November
2016. A quick review was carried out from media reports on the
history of demonetization in India compared with other emerging
countries. They recorded that around 80% of the money transactions
are based on physical flow, which opens the doors for problems like
corruption, black money, and terrorism funding. These are cashless
problems, which means minimal use of cash and the rest of operations
are through different electronic modes of transactions (Adil &
Hatekar, 2020).

The dream of a cashless India is embraced by all people. There is both

the perspective, i.e., benefits and challenges toward implementing it,
as in both cases, India might face difficulties. The rationale for
establishing a cashless economy started after India’s demonetization,
in terms of origin and impact over the following year after November
2016. There is a proper involvement required from every individual to
keep the desired objectives included in the plan. After that initiative,
13
tax payment collection increased as there was no way to escape from
it. The whole thing was focusing on promoting online modes of
payments for the Indian economy’s successful flow. The process has
started and there will be many more opportunities to achieve Digital
India’s goal (Khurana, 2017).

Recent Developments in the Indian Economy

In 2013, the Reserve Bank of India (RBI), Securities and Exchange

Board of India (SEBI), Insurance Regulatory and Development
Authority (IRDA) and Pension Fund Regulatory & Development
Authority (PFRDA) have promoted National Strategy for Financial
Education (NSFE) to create financial awareness and skills. As a step
forward, the Government of India has launched the Digital India
program on 1 July 2015. The government unveiled two schemes:
Lucky Grahak Yojana and Digi Dhan Vyapaar Yojana to implement
cashless transactions in 2016 by promoting gifts. In addition, mobile
banking, Rupay cards, UPI, USSD were also launched. But, only 5%
of transactions were made cashless. So, RBI and the government has
brought the “Payments and Settlement Systems in India: Vision
2018” in India in June 2016 aimed at making India cashless. The
government has also implemented an economic environment by
demonetizing the currency notes of Rs 500 and Rs 1000 from 8th
November 2016. The Union Budget of 2020 was focused on boosting
the Indian economy through short-term, medium-term and long-term
measures. The transaction value through UPI has reached Rs 2 lakh
crore at the end of 2019 since its implementation. According to the
14
National Statistical Office’s Second Advance Estimates (SAE) for
2020-21, India’s real gross domestic product (GDP) at current prices
stood at Rs. 195.86 lakh crore in the financial year 2020-2021.
Impact of COVID-19 on Indian Economy and Digital Transformation

The Covid Pandemic has hit the Indian economy very hard. But at the
same time, it also paved the way for a potential digital economy. The
silver linings of the harshest pandemic are that the Indian economy is
expected to get a V-shaped recovery from its downturn with a stable
macroeconomic situation during the Covid-19 pandemic in 2020. The
global data has also shown that the number of cashless transactions
was the highest in the last decade. In 2020 India encountered a boom
in a digital transaction. This scenario showcases the initial success of
the cashless transformation.

Now, the economic survey 2020 by the Union Government of India

has also shown the impacts of a cashless economy:
 It has shown 11.0% growth in a 7.7% contraction in the Indian
Economy.
 India’s real GDP is forecasted to an 11% growth in the FY
2021-22.
 India’s nominal GDP is expected to grow by 15.4%.
 The forex reserve of India estimates US$ 586.1 billion.

India’s position in the Global Economy

15
Many global surveys and reports on economic
development throughout the world have emerged India
as a growing economy with a very fast pace in the last
decade and forecasted an indispensable improvement in
the overall economy of India.

 India has emerged as the world’s fastest-growing

economy in 2022 by the United Nations Department
of Economic and Social Affairs (DESA) though India
has the characteristics of a middle-income
developing economy.
 India is growing as the 3rd largest country in the
world GDP by 2031, as per a Bank of America
Securities report.
 According to the Hurun Global Unicorn list 2020,
India has the fourth-largest unicorn base in the
world.
 The Progress, Harmony and Development Chamber
of Commerce and Industry (PHDCCI) stated on the
International Economic Resilience Rank that India
will emerge as the second most resilient economy in
2021.
 As per the UNCTAD’s Technology and Innovation
Report 2021, India topped among developing
countries in Frontier Tech.

16
  UNCTAD’s Trade and Development Report 2020
forecasted India’s economy, which was contracted
by 6.9% in 2020, to grow by 5% in 2021.
 Crisil has reported that the Indian Economy will grow
to 11% in the financial year 2022.
 OECD interim economic outlook forecasts the growth
of India’s GDP at 12.6% in the financial year 2022.
 India’s Forex Reserves emerged as the 4th largest
reserve in the world in 2021. It has surpassed
Russia.
 Fitch’s Global Economic Outlook (GEO) projected
India’s GDP growth by 12.8% for the fiscal year
2021-22.
 S&P Global Ratings has estimated the Indian
economy to grow at 11% for the FY 2021-22.

TYPES OF CASHLESS MODES AND PAYMENTS

Mobile wallet

It is basically a virtual wallet available on mobile phone. A mobile

wallet is a way to carry credit card or debit card information in a
digital form on mobile device. A user can pay with his/her
Smartphone, tablet, or smart watch instead of using your physical
plastic card to make purchases. A user needs to make an account with
a mobile wallet provider. After which money is added to the ‘mobile
wallet’ account using a debit, credit, online transaction from bank

17
account or via cash. An individual can store cash in his/her mobile to
make online or offline payments. Various service providers offer
these wallets via mobile apps, which is to be downloaded on the
phone. She/he can transfer the money into these wallets online by
using credit/debit card or net banking. This means that there is no
need to furnish the card details every time while paying a bill or make
a purchase online via the wallet. It can be used to pay bills and make
online purchases.

Plastic money

It includes credit, debit and prepaid cards. The latter can be issued by
banks or non-banks and it can be physical or virtual. These can be
bought and recharged online via net banking and can be used to make
online or pointof-sale (PoS) purchases. They can be given as gift
cards. These cards are used for three primary purposes – for
withdrawing money from ATMs, making online payments and
swiping for purchases or payments at PoS terminals at merchant
outlets like shops, restaurants, fuel pumps etc.

Net banking

It does not involve any wallet and is simply a method of online

transfer of funds from one bank account to another bank account,
credit card, or a third party. It can be used through a computer or
mobile phone. A person has to log in to her/his bank account on the
internet and transfer money via national electronic funds transfer

18
(NEFT), real-time gross settlement (RTGS) or immediate payment
service (IMPS), all of which come at a nominal transaction cost.

Different Types of Online Transaction

National Electronic Fund Transfer (NEFT): National Electronic

Funds Transfer (NEFT) is a nation-wide payment system facilitating
one-to-one funds transfer. Under this Scheme, individuals, firms and
corporates can electronically transfer funds from any bank branch to
any individual, firm or corporate having an account with any other
bank branch in the country participating in the Scheme. NEFT also
enables walk-in-customers to transfer money but options 50,000 only.
Presently, NEFT operates in hourly batches - there are twelve
settlements from 8 am to 7 pm on weekdays (Monday through
Friday), and six settlements from 8 am to 1 pm on Saturdays.

Real-Time Gross Settlement (RTGS): RTGS is the fastest possible

money transfer system through the banking channel as settlements are
made in realtime without any queue time. ‘Real Time’ means the
transaction is not subjected to any waiting lines, and it is settled as
soon as it is processed. ‘Gross Settlement’ means the settlement of
funds transfer instructions occurs individually or on a one-toone basis
without netting with other transactions. ‘Settlement’ means that once
processed transactions final and irrevocable. The RTGS system is
primarily intended for large value transactions. The minimum amount
to be remitted through RTGS is 2 lakh. There is no upper ceiling for
RTGS transactions.

19
Electronic Clearing Service (ECS): ECS is an alternative method
for effecting payment obviating the need for issuing and handling
paper instruments for periodic transactions (monthly/ quarterly/
halfyearly/ yearly) like payment of interest/ pension/ salary/ dividend
etc. from a single user source to a large number of destinations.

Immediate Payment Service (IMPS): IMPS is an instant, 24X7,

interbank electronic fund transfer service via mobile phones all over
India. It is managed by NPCI and is built upon National Financial
Switch network objected:

To enable bank customers to use portable instruments as a channel for

accessing their bank’s accounts and remit funds. I am making
payment simpler, just with the mobile number of the beneficiary. To
sub-serve the goal of Reserve Bank of India (RBI) in the
electronification of retail payments. To facilitate mobile payment
systems already introduced in India with the Reserve Bank of India
Mobile Payment Guidelines 2008 to be interoperable across banks
and mobile operators in a safe and secure manner. To build the
foundation for a full range of mobile based Banking services.
Capacity building and awareness program by the government of
India.

BENEFITS OF CASHLESS ECONOMY

Faster transactions

It has been proved that queuing at point of sale terminals and vending
machines is greatly reduced; typically three times more people can be

20
served using a cashless system than could have been if they were
paying cash. This leaves employees more time to enjoy their break.
Improving the speed of service may also offer the benefit of reducing
staff levels at off peak times.

Prompt settlement of transactions

E- banking speeds up the settlement of transactions both locally and

internationally, where the bank stands as paying bank to the
customers for settlement of transaction or as collecting bank for
collection of payment on transactions.

Convenience and Lower risk

The ease of conducting financial transactions is probably the biggest

motivator to go digital. There will be no need to carry cash, plastic
cards, or even queue up for ATM withdrawals. It is easy to block a
credit card or mobile wallet remotely if it has been stolen. But, it’s
impossible to get the stolen cash back.

Taxation

There is lesser scope of hiding income and evading taxation because

of lesser availability of hard cash at homes and more in banks. When
there are more tax payers, it ultimately leads to a lesser rate of
taxation for the whole country.

Transparency and accountability

Electronic transactions or plastic money always leaves a digital proof

beneficial for both the taxpayer (consumer) and the tax collector

21
(government) and hence makes the system much more transparent and
compliant.

Reduced Maintenance Costs

Digital transaction is a boon in terms of processing costs and waiting

time. If implemented properly, it will increase the consumption and
production rates, thereby improving the economy. Moreover, the
logistics and supply chain of cash is costing the exchequer a fortune.
The amount of money required in printing cash, its storage,
transportation, distribution and detecting counterfeit currency is huge.

CHALLENGES OF CASHLESS POLICY IN INDIA

Digital Literacy

More than half of the nation still does not know how to use a
computer. People in rural areas still don't know about smart phone.
Besides, there is lack of internet facilities and without it a country
cannot become cashless. There are still many rural and urban areas
where there the access of having 2G network is very difficult.
Moreover, the cost of Internet access is very high as compared to
developed countries.

Few Banks in villages

The capital city New Delhi alone has about 20 HDFC bank branches.
There are several villages and Tehsils that don’t even have one. More
the banks, more the cash deposits in accounts. Banks in villages
should be helpful in teaching the residents the process, usage and
benefits of plastic cards.
22
Low Literacy Rate

Low literacy rate hinders the accessibility of banking services.

Citizens should not only know how to read and write but also possess
basic ICT literacy to fully enjoy the benefits of e-payments.

Language Barrier

Internet is an English based platform. The details on the plastic card

are also in English. The message received on mobile regarding
transaction is also in English. Therefore, it is required to use multiple
languages regarding these processes or make everyone learn English.

Costly Swipe Machines

Swipe machines are also not subsidy free. It can only be afforded by
rich shopkeepers. It can't be expected from an auto driver or a normal
grocery seller to afford swipe card machines. Besides, many street
vendors, shopkeepers don't know how to use swipe machines.

Challenges to Consumers

Security concerns: This is probably the most critical factor that

influences negatively the prospective customers who make payment
electronically. Every channel of e-payment has its security problems,
but it may be argued that when somebody concerns about security in
e-payment, then the first that comes to his/her mind is the Internet.
This is substantiated by the numerous articles in the press concerning

23
Internet security breaches. People see and hear everywhere about
hackers, fraud, crackers, computer viruses, identity theft, phishing
attacks, spyware, malware, and many other terms that refer to security
issues regarding the Internet. Nevertheless, it is not only the Internet
that is fraught with security breaches. There are numerous incidents
regarding frauds through the use of fake ATM cards or cases of theft
of identity data through the infiltration of inadequately guarded
information systems. The incidence of ATM, credit, debit card and
net banking-related fraud has gone up by more than 35 percent
between 2012-13 and 2015- 16 in India, according to the country’s
federal bank Reserve Bank of India (RBI). According to RBI data,
8,765 cases were reported by banks in 2012- 13, and the
corresponding figures for the subsequent three years were 9,500
(2013-14), 13,083 (2014- 15), and 11,997 (in the first nine months of
2015- 16) respectively. India ranked third after Japan and the US as
countries most affected by online banking malware in 2014.

Non-familiarity and lack of required technological skills: A lot of

bank customers lack the required skills to operate technologically
advanced devices (personal computers and new generation mobile
phones, i.e., smartphones), and they are not familiar with browsing
the Internet. These people, therefore, cannot benefit from the digital
economy. In a move to digitally empower millions of Indians in rural
areas and educate them about how to do cashless transactions, the
Ministry of Electronics and Information Technology (MeitY)
launched a TV channel named ‘DigiShala.’ Ministry of Electronics

24
and IT (MeitY) has launched a new scheme entitled “Digital Finance
for Rural India: Creating Awareness and Access through Common
Service Centres (CSCs)” under Digital SakshartaAbhiyan (DISHA)
with objectives to enable the CSCs to become Digital Financial Hubs,
by hosting awareness sessions on government policies and digital
finance options available for rural citizens as well as enabling various
mechanism of digital financial services such as IMPS, UPI, Bank PoS
machines, etc.

Lack of specialized equipment and infrastructure: Although many

people possess personal computers and mobile devices nowadays,
there are many more that do not. Not only must the potential customer
have access to the required equipment, but the required
telecommunications networks must be available and accessible. Such
networks have to satisfy some minimum requirements regarding
security, capacity, and bandwidth. Because of inappropriate
connection, sometimes, bank charges double amount in case of delay
in confirmation and transaction failure.

Extra Charges: Many people do not want to make a cashless

transaction because they perceived the e-payment involve extra costs.
Before users can engage in electronic retail payments, they must
invest in devices that give access and then purchase that access to the
networks that constitute the Internet.

Lack of grievance body: Prospective customers perceived that no

grievance body is available in case of online fraud regarding their

25
amount. If available, they are not familiar with that so much.
Sometimes the consumer faces a delay in refund because of the
unavailability of appropriate grievance bodies

DEMOGRAPHIC PROFILE OF RESPONDENTS

Table 2 highlights the demographic profile of the selected

respondents. Table 2 shows that out of 112 respondents, 68 (61%)
were males and 44 (39%) were females. Moreover, 29 (26%) were
under the age of 25 years, 38 (34%) were belong to the age group of
25-35 years, 25 (22%) were in the age group of 36-45 years and 20
(18%) have the age of more than 45 years. So far education of
respondents is concerned, 34% were graduates, 37% were post
graduates, and 33 (29%) having other degrees like PhD or diploma.
Moreover, the sample includes 44% students, 30% teachers, and 26%
businessmen living in Aligarh city.

Will India Become a Cashless Economy

For the ordinary urban millennial in India, a smartphone is as

essential as clean air, but not nearly as hard to find! It is hardly a
surprise then, that so many of them routinely fall back on their nifty
devices to do much of their work for them: from ordering food
delivery to hailing a ride. With their ever expanding functionalities
available to us at the tip of our fingers, it was only a matter of time
before we switched to paying online as well.

26
2019 did not disappoint in that regard, becoming a defining year for
fintech and digital payments in India, with UPI (United Payments
Interface) and similar services taking the country by storm.
Accelerating the momentum it had gained from the hugely
controversial demonetisation policy of the government back in 2016,
digital payments found thousands of new takers across the country,
luring them in with the promise of convenience and cashbacks. The
surge in popularity of online payments, alongside the usual card-
based transactions, came as excellent news for the proponents of the
Digital India campaign, as they gleefully celebrated our bid to go
cashless. As we usher in a brand new decade, those at the helm of the
campaign and the National Payments Corporation of India (NPCI),
are determined to steer us towards a cashless future as quickly as they
can. In fact, today we are seeing more and more people fishing their
phones out to pay at restaurants and theatres, or to simply settle dues
with their friends. From all that we see around us, it is rather evident
that a substantial chunk of Indians are now stepping out of their

27
homes without stuffing their wallets with wads of cash; relying on a
plethora of payment apps on their phones instead.

Cash Still Wears the Crown

Even though the Indian government did try quite hard to upsell the
concept of digital payments in the wake of its heavily criticized
demonetisation policy, data from the Reserve Bank of India tells us
that we are still a long way off from those efforts bearing fruits.
In its Annual Report 2018-2019, the apex bank of the country noted
that the value of the currency in circulation had increased by as much
as 17 percent in March, reaching a total figure of 21.10 lakh crores.
The report also points out that people were most likely to opt for 500-
rupees notes, which is the second highest denomination currently
available in India. As is evident from these figures, cash is still king in
the Indian context. However, that does not necessarily mean that
digital payments aren't seeing success as well. In fact, the report also
notes that e-payments in retail jumped by a whopping 59% over the
same period, taking the total value of all such transactions to 23.3
billion. Moreover, in the period between October 2018 and
September, 2019, digital payments constituted 96% of all non-cash
payments made for retail purchases in India.

What's Keeping Us From Going Cashless?

Even though cashless payments have received a major boost from the
government's support and an expanding technology stack, they are far
from becoming the chief mode of payment for a majority of ordinary

28
Indians. Despite smartphone adoption rising steadily, even in remote
areas of rural India, massive chunks of the population still shy away
from relying on something that is so inherently intangible in nature.

However, the obstacles to going cashless are far graver than simply
the unwillingness of potential users. For starters, India has a very
large proportion of unbanked people, and even those that have been
brought under the purview of the Pradhan Mantri Jan Dhan
Yojana often leave their accounts dormant. For making digital or
electronic payments, having a bank account is a prerequisite. In fact,
for some of the online payment services, it is also compulsory to
complete a KYC verification process. Considering how so many
Indians are yet to have even a bank account, let alone the enthusiasm

29
to complete time consuming verifications, it is obvious that the
country is not yet poised to go cashless nationwide.
Moreover, even though smartphones are selling like hotcakes all over
the country, technology adoption has not advanced far enough to let
every demographic embrace the concept of safe and secure digital
payments. While more and more people may be signing up on social
media sites and watching YouTube videos on their phones, not even
half of them are comfortable enough to complete online transactions
without falling prey to scams and frauds.
With universal web access, robust cyber security and all-round
financial inclusion still being distant dreams, it seems understandable
why cash is still king despite the burgeoning popularity of digital
payments. Although digital payments are definitely having a moment,
they are far from taking over the entirety of India's variegated
economy. Even if India does go cashless someday, it will not be
anytime soon.
CONTROLLING OPERATIONAL COSTS MAKES IT ATTRACTIVE FOR
BUSINESSES TO GO CASHLESS

Cashless businesses no longer have cash handling costs

Small- and medium-sized businesses are reported to pay tens of

billions of dollars annually on cash handling expenses. Eliminating
cash payments eliminates the costs associated with handling and
transporting cash. Cashless businesses no longer need to pay banks
fees to deposit and process cash and coin, nor do they need to pay for
armored carriers to transport money to and from the bank.

30
Additionally, these businesses no longer need to pay for employees to
count and manage register balances throughout the day, enabling
employees to spend more time helping customers instead. Given the
fixed costs associated with accepting cash, it may be simpler and even
more cost-effective for some businesses to not accept cash at all.

There are fewer opportunities for theft

Not having cash on store premises also reduces opportunities for both
internal and external robberies. Internally, businesses face a constant
battle with employee theft, or “shrinkage.” The 2015 Retail Fraud
Survey estimates that U.S. retailers lose $60 billion per year to
shrinkage,3 though cash is just a portion of this loss, and the National
Retail Federation’s 2018 Security Survey estimates the average dollar
loss per dishonest employee to be $1,203.4 Externally, cash-intensive
businesses can be targets for robberies. Nearly a quarter of U.S.
robberies (26 percent) took place at some type of retailer—either a
gas station, convenience store, or other commercial residence When
businesses forego cash on their premises, there may be fewer
opportunities and incentives for internal and external theft.

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Transactions are faster

Counting cash can take time, both for the customer and the employee.
Several businesses that have gone cashless have cited benefits like
faster transactions and increased store throughput. Atlanta’s
Mercedes-Benz Stadium found that its transition to exclusively card
and mobile payment transactions not only reduced end-of-day
reconciliation time but also resulted in quicker transaction times and
lower wait times for customers.6 Salad chains Tender Greens and
Sweetgreen found similar benefits from going cashless: Tender
Greens estimates that cash transactions are four to five seconds slower
than card transactions,7 and Sweetgreen found that its cashless
locations processed 5 to 15 percent more transactions per
hour.8 Particularly in high-volume businesses, these faster transaction
times can translate to increased customer satisfaction, fewer
opportunities for error in making change, and increased revenue.

32
By going cashless, businesses can decrease costs, reduce
opportunities for theft, and offer customers a faster, more streamlined
transaction experience.

CASHLESS SAVINGS COME AT THE COST OF FINANCIAL EXCLUSION

While market forces and cost savings make it attractive to forego

cash, the reasons not to go cashless fall under different categories of
financial inclusion and consumer choice.

Some consumers are denied goods and services

Perhaps the strongest argument against going cashless is that the

practice denies access to goods and services for a segment of
consumers. While popular perception may be that no one uses cash
anymore, nearly 6.5 percent of U.S. households were unbanked and
did not have access to financial services in 2017. In other words, 6.5
percent of the U.S. population, or 8.4 million households, did not
have a bank-issued debit or credit card.9 Adding in ‘underbanked’
households—households that have a bank account but use other
financial services like money orders, payday loans, and check cashing
—these numbers increase to 24.2 million households and nearly 19
percent of the U.S. population. These consumers rely heavily on cash
to pay for their purchases. The 2019 Findings from the Diary of
Consumer Payment Choice found that more than half (56 percent) of
unbanked consumers’ transactions are made with cash.

33
Even if cash-using consumers had the option to use prepaid cards to
shop at cashless businesses, the switch is costly. Economist Oz Shy of
the Federal Reserve Bank of Atlanta estimated the cost of this switch
in a 2019 working paper that quantified the economic burden of
cashless stores on consumers who do not own credit or non-prepaid
debit cards. Shy found that only when the cost of using cash is two or
more times greater than the cost of using a card is the consumer
indifferent; at a lower cost differential, the consumer reports a loss of
economic utility.

Other consumers may trust or only have access to cash

Some Americans willingly choose to exclude themselves from the

banking sector and value anonymity at the point of sale. In its 2017
National Survey of Unbanked and Underbanked Households, the
FDIC found that one third of unbanked households don’t trust banks,
and other participants avoided banks because of privacy concerns or
unpredictable bank fees.

Furthermore, other consumers may be using cash because they may

momentarily only have access to cash. Non-cash payments, like cards
and electronic payments, rely on the availability of card networks.
Network disruptions, concerns about data integrity, and natural
disasters can all render non-cash payments unavailable or unreliable.

Whether consumers are willingly using cash (out of privacy or

distrust) or unwillingly using cash (due to network outages or lack of

34
access to their accounts), cashless businesses deny these customers
the opportunity to participate in a certain segment of the economy.

Businesses become vulnerable to card companies’ fees

While going cashless generally translates to cost savings for retailers,

these retailers could also be dropping their cheapest form of payment.
The Bank of Canada conducted a study of 500 businesses in 2008 and
found that, for these retailers, cash was cheaper to accept than credit
and debit cards. The study found cash to be cheaper than credit cards
even at the lowest quartile credit card rate of 1.75 percent, and cash to
be cheaper than debit cards for all transactions below $12.60 where
merchants paid debit card fees as low as 7 cents.13 A more recent
2011 study by economist Layne-Farrar estimates the transaction costs
associated with cash, check, and debit for five types of retailers,
including quick serve retailers, big box discount stores, supermarkets,
gas stations, and travel retail stores. The study found that even when
including costs like point-of-sale transaction time, back office costs,
counterfeit costs, and fraud prevention, cash was cheaper than debit in
terms of cost per $100 of sales. Cash cost retailers $0.53 per $100 of
sales, compared to $1.12 for signature debit and $0.81 for PIN debit.
Her study did not include credit cards.

In addition to narrowing down their tender types to potentially more

expensive forms of payment, cashless businesses also increase their
vulnerability to card companies’ fees. When retailers swipe a

35
customer’s credit card for payment, card companies charge them a
‘card-swipe’ or interchange fee for each debit and credit transaction.
This fee is usually around one to two percent of the transaction total,
and these interchange fees alone earned Visa and MasterCard a
combined $43 billion in 2018.14 When businesses shift from cash or
a blend of payment alternatives to card-only, they have little recourse
when card companies raise fees, especially in a relatively
concentrated card market. Regardless of where the ultimate incidence
of these costs falls, the costs necessarily will be borne by either the
retailer, in the form of lower margins, or by the consumer, in the form
of higher costs.

THE RISE OF CASHLESS BUSINESSES AND THEIR IMPACT ON CASH

If the current trend of cashless businesses continues to gain

momentum, the impact on consumer cash could be significant,
particularly if the shift occurs in certain key industries.

The Federal Reserve’s 2019 Findings from the Diary of Consumer

Payment Choice, an annual study tracking a nationally representative
group of U.S. consumers and their transactions over a three-day
period, found that cash transactions were primarily driven by a few
key categories (Figure 3). Nearly a quarter of cash transactions (23
percent) in 2018 were used for fast food-type purchases, such as
coffee and grab-and-go meals. Grocery and convenience store
purchases were the second leading driver of cash transactions, making
up 18 percent of cash purchases, followed by gas (13 percent), general

36
 merchandise (10 percent), person-to-person (P2P) payments (10
percent), and sit-down restaurants (7 percent). While there is no
comprehensive registry of cashless businesses and their industries,
many of the retailers making headlines fall under these same cash-
intensive categories: fast food, restaurants, and general merchandise
stores. The table in Figure 4A estimates the worst-case cash scenario
if all businesses in these categories were to forego cash. For the
categories mentioned earlier where there has been a rise in cashless
businesses (fast food, grocery, general merchandise, restaurants), the
table uses Diary data to calculate three columns:

1. The average number of “in-person” brick-and-mortar payments made

per consumer per month in this category,
2. The average number of cash payments made per consumer per month
in this category, and
3. The category’s share of total cash payments. The Diary found the
average consumer makes 11 cash transactions per month. This
column takes column B (average number of cash payments made for
this category) and divides it by 11.

37
Findings

In light of the study conducted by us, the significant challenges that

are faced by Indian consumers are:

Education & knowledge: One of the major challenges is the lack of

basic knowledge among the major population, it is a severe
obstruction for the adoption of a cashless society as it obstructs the
accessibility of banking services. For citizens to fully enjoy the
benefits of a cashless economy, they should be informed not only how
to read and write but also how to possess basic ICT literacy. The
government and its companion organization should acknowledge the
general people through general media sources.

Unawareness: Despite various awareness and capacity building

programs by the government, most of the areas are still unaware
regarding cashless mechanisms, especially the rural regions, where we
know that one-third of the country resides. About 50 percent of
respondents responses that they not aware of how to access ICT to do
the cashless transaction.

38
Lack of infrastructure: Villagers do not supply basic equipment
such as cell phones and computers. This study shows, only 70 percent
of respondents have mobiles and computers. Besides these challenges,
there is inadequate infrastructure ranges from network failure and
slow speed of internet, which leads to failure or dual payment for the
same transaction, incompatibility with modern banking techniques,
epileptic power supply which is precarious to efficient electronic
payment system will undoubtedly militate against the success of the
cashless policy.

Security & Privacy issues: Security and privacy issue seem to be one
of the major challenges in the development of cashless policy in
India; people are much concerned about leakage of personal
information, fraudsters, and hackers. Sixty-one percent of consumers
perceived that the cashless transaction is not secure as there is a high
chance of hacking and personal identity stolen. In spite of this, 10
percent of consumers perceived that the grievance body for settlement
of such type of cybercrimes is not available.

Behavioral constraints: Which could also be said as resistant to

change, many people we met fulfill all necessary obligations to be
cashless as they are educated, carry latest gadgets, knows how to use
online banking but also they don’t want to change the way of living
they are happy as they are. It may seem due to distrust in the cashless
transaction. About 11 percent of consumers do not trust the cashless
transaction.

39
Extra Charges: Online transactions incur extra charges that make a
pocket of general consumers to be tight. Forty-four percent of
consumers consider cost as a major challenge that keeps them away
from the cashless transaction.

India, Malaysia, the UAE and Indonesia are the countries most
likely to support a completely cashless society, according
to moneytransfers.com

Almost eight out of 10 people in India are in favour of the country’s

economy becoming cashless. Out of these, more than 20 per cent
said they would use digital mode of payment even on small
purchases like buying a pack of chewing gum.

Nearly 65 per cent of those polled in Malaysia expressed confidence

in a cashless economy while 63 per cent of consumers surveyed in
the UAE and Indonesia were open to using digital forms of money,
according to a report by the portal, which used the YouGov data
to rank 21 countries likely to accept a fully cashless economy.

More than half of respondents in Vietnam, Singapore, Italy, the

Philippines, and Thailand said they prefer to pay digitally when

40
making a “very expensive” purchase such as buying a new
electronic device.

Globally, Covid-19 is spurring faster adoption of digital payments

and particularly contactless payments due to heightened awareness
about infection spread through bank notes and plastic money .

With the “cashless movement” given a boost, more companies and

customers are starting to shun traditional cash payments, London-
based moneytransfers.com said.

It analysed the latest data from the YouGov, which interviewed

25,823 adults from 21 countries, to assess which countries in the
world would prefer a cashless society.

Participating countries included Canada, India, the UK, Germany,

France, Denmark, Sweden, the US, Italy, Spain, the UAE, Australia,
China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore,
Taiwan, Thailand and Vietnam.

Only 46 per cent of the respondents from China and Hong Kong said
they preferred going fully cashless.

Covid-19 pandemic has affected almost every area of our lives and
the money transfer industry is no different, moneytransfers.com said

“Due to the emergence of coronavirus, cashless payments are the

preferred payment option for businesses and individuals … as the

41
act of handing over banknotes could lead to an expedited spread of
the virus,” it added.

Some of the advantages of a cashless society include these payments

are eco-friendly, quicker, require zero human contact, boost users’
credit score and they would be cheaper to run for many countries,
the report found.

Suggestions

 From this study, we would like to suggest that: • Mere launching

of schemes and campaigns regarding cashless doesn’t seem to
be worthwhile. To make these schemes more impactful, some
marketing tools should be applied to make these schemes
fruitful.
 Online transactions should be made as cheap as possible,
eliminating all sorts of extra charges so that more and more
peoples switch from cash based to cashless economy.
 More emphasis should be laid on educating the people in rural
areas as a major part of the nation resides in rural areas only.
 All sorts of transactions dealing with huge investment must be
cashless to keep control over black-money.

42
Conclusion

From the above analysis, it has been found that cashless economy is
an economic system in which there is little or very low cash flow in a
society and goods and services are bought and paid through electronic
media. Cashless economy is the economy in which transactions are
made by debit cards, credit cards, cheques or direct transfer from one
account to another. There are many benefits of cashless economy like
faster transactions, increased sales, prompt settlement of transactions,
convenience and lower risk, transparency and accountability, and
reduced maintenance costs. Despite many benefits, there are several
challenges before cashless policy in India such as inadequate number
of ATMs, digital illiteracy, lack of internet facilities, few banks in
villages, costly swipe machines etc. Nonetheless, the present study
also conducted a survey of 112 respondents in Aligarh District
through questionnaires designed on five point likert scale to evaluate

43
the benefits of cashless economy to the general public. One sample t-
test has been applied as the statistical tool to test the hypothesis. The
findings revealed that there are no significant benefits of cashless
economy to the general public.

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