It is safe to state that cashless transactions have transformed India’s economic picture. Since demonetisation, the use of mobile phones to make payments as opposed to traditional payment methods has expanded dramatically. During demonetisation, when the majority of SME operations ceased, businesses that had transitioned to cashless transactions were able to limit losses.
Payments through these methods are easy and safe, which is one of the reasons for their popularity. With the recent introduction of a variety of digital payment methods in India, company owners are gradually adjusting to the change. As more and more individuals subscribe to the digital economy and cashless payments become the standard, it is crucial that businesses incorporate them into their systems.
This article explores the concept of cashless transactions, its various advantages, modes, functioning and more. So, continue reading to learn about a variety of cashless transactions that simplify day-to-day trading.
What is Cashless Transaction?
A cashless transaction is an automated or online exchange between two individuals, businesses, or organisations. A digital transaction is a cashless transaction in which no paper is used to carry out the transaction. Digital transactions include the purchase of goods through e-commerce websites, the signing of business contracts online, and the purchase of cinema tickets through a smartphone app. These operations are precise, expedient, convenient, and unquestionably simpler. Many are resistant to recognise that cashless transactions have advantages, either because they are unable to use digital devices or because they prefer to interact with cash.
What is a Cashless Economy in India?
Cashless Economy is a situation in which there is no cash flow within an economy and all transactions must be conducted through electronic channels, such as direct debit, credit cards, debit cards, electronic clearing, and payment systems like Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT), and Real-Time Gross Settlement (RTGS) in India.
The cashless economy in India: Key highlights
- After demonetisation, the government is putting a strong emphasis on online and card-based transactions to fulfil its goal of a cashless economy.
- The fast growth of e-payment startups in the country.
- Unified Payments Interface (UPI) was introduced to facilitate cashless transactions.
- According to data from the National Payments Corporation of India (NPCI), UPI payments in June 2020 reached an all-time volume high of 1.34 billion transactions worth roughly Rs 2.62 lakh crore.
Do we need Cashless Transactions?
Theft frequently leaves a large hole in one’s wallet. The risk of theft will persist as long as individuals carry cash, but it can be minimised by eliminating cash. This also has an effect on the government, as they are able to cut the expenditures associated with apprehending criminals. In countries such as the United States, burglary and assault have decreased by roughly 10% after the government switched to the electronic transmission for social welfare payments. However, the government must take efforts to prevent internet fraud and identity theft.
Modes of Cashless Transactions
The cheque is one of the oldest cashless payment options. It is a well-known technique. In this procedure, you give someone a cheque for the specified amount. The cheque is deposited at the appropriate bank. Payment is processed by the bank through a clearing house.
There is a record of every aspect of a cheque transaction and a receipt of payment. However, there are times when cheque payments are returned owing to a mismatching signature or insufficient funds. To circumvent this difficulty, you might utilise alternative cashless payment methods.
2. Demand Draft (DD)
A demand draft is an additional primitive kind of cashless transaction. It is the most secure method for receiving payment from anyone. Demand Draft (DD) does not get defaulted as it is signed by the banker. The downside of DD and cheques is that you must visit a bank to deposit a cheque or demand draft. The clearance of a cheque or money order requires additional time.
3. Online transfer- NEFT or RTGS
Online transfer with NEFT or RTGS is the third simplest way for cashless transactions. To conduct online money transfers, you require internet banking capabilities. Online transfers utilising NEFT or RTGS are considerably quicker than cheques or money orders. Internet-enabled devices can be used from anywhere to conduct online transfers.
4. Payment by credit card or debit card
The use of a credit card or debit card is another kind of cashless payment. In India, credit card and debit card usage were restricted. Now, though, credit card and debit card usage are expanding. However, the availability of a swipe card facility (PoS) at the merchant end is a limitation of this payment method.
The next cashless payment option is an electronic wallet. E-wallets can be used to buy everything from groceries to plane tickets. Customer and merchant must have a smartphone with an active internet connection in order to utilise E-wallets. You must link your credit card or debit card to your E-wallet account after enrolling for E-wallet.
E-wallets can be used for both money transfers and online purchases. It is the most basic cashless approach.
6. Mobile wallets
The next method of cashless payment is a mobile wallet. Using a mobile wallet to make a payment does not require a debit card, credit card, or online banking password. Simply add funds to your wallet using IMPS and utilise them on the go.
UPI is a mobile payment system that enables a variety of financial transactions on a smartphone. Additionally, UPI enables you to transfer or receive funds via a virtual payment address without entering your bank details. Merchants can register with banks to accept UPI payments. To take UPI payments, a merchant would need a bank account, just as they would for a PoS machine.
8. Gift card
The next cashless mode of payment is a gift card. Gift Cards are premade cards that can be purchased from retailers or banks. The gift card is loaded with a certain amount of cash, and it can be used to purchase any item from the designated merchant.
9. Aadhaar Enabled Payment System (AEPS)
AEPS is one of the most effective cashless payment systems. Like Micro ATM, AEPS employs a smartphone and a fingerprint sensor to conduct transactions. In order to utilise this service, you must link your Aadhaar card to your bank account. You can use AEPS to conduct transactions such as Aadhar-to-Aadhar financial transfers, cash withdrawals, and cash deposits, among others.
10. Unstructured Supplementary Service Data (USSD)
If you lack a smartphone or an internet connection, you can utilise the USSD cashless option. Unstructured Supplemental Service Data is a form of mobile banking. You can dial *99# from any mobile phone to access this service. You can accomplish everything that a person with a smartphone and an internet connection can do. The USSD payment mechanism is supported by the vast majority of institutions.
How does Cashless Transaction work?
The basic idea is always the same: a certain amount of money moves from the payer’s bank account to the recipient’s account when important payment information is sent from one account to the other.
This information includes:
- The sum of money to be transferred
- Target account
- Source account
- Time of transfer
Note: The way that payment data is sent is different between the different electronic payment methods.
Advantages of Cashless Transactions
1. Reduced expenses and business risks
Cashless payments remove multiple business hazards, including employee theft of cash, counterfeit currency, and robbery of cash. Additionally, it decreases the costs of security, cash withdrawal, transportation, and counting.
2. Transaction frequency
Cash transactions are time-consuming for both the customer and the merchant or employee. As a result, several firms have chosen to go cashless in order to facilitate speedier transactions and greater efficiency. Additionally, faster transactions result in greater client happiness, greater income, and fewer errors.
3. Efficient international payments
Whenever a person travels to a foreign country, they must purchase local money. However, with cashless payment solutions, they no longer need to do so because they can conduct transactions directly from their cashless payment apps based on the currency conversion rate.
4. Better compilation of economic data
The government and other organisations invest a great deal of money to perform periodic samplings and surveys to collect information on citizens’ actual transactions. These data aid in the formulation of various policies. Nonetheless, the procedure is expensive, time-consuming, and inefficient.
On the other hand, all cashless payments are documented financial transactions, making it simple for the government to follow the money transfer through these records. These records also allow them to track unlawful transactions and black money.
5. A useful tool for combating corruption
There are around 1.4 billion people who live on less than $1.25 each day. On the other side, around $1.26 trillion is expected to be stolen from underdeveloped nations through corruption, tax evasion, and bribery. If we can recover that sum, we can easily uplift those 1.4 billion people. Here, cashless payments play an essential role. Cashless transactions can become one of the most effective tools for combating global corruption and organised crime.
If everyone were connected via end-to-end payment infrastructure that creates a cashless environment, then the flow of money would be completely transparent. Whether it’s a private investment or an international charity, everyone in a cashless world would be able to see exactly where the money went and how it was spent.
Any amount of money discovered outside the framework is easily detectable and subject to investigation. Any amount arising outside of this framework could be flagged and investigated promptly. This would make it easier for law enforcement and forensic accountants to target and recover concealed funds.
6. Getting rid of the middleman
The concept of a cashless economy is expansive and encompasses more than just the transition from cash to electronic payments. The rationale for this is that the move will not have a significant impact because private enterprises are already involved in the transaction processing. Even if we accomplish the transformation, there will inevitably be a price to pay.
A fully cashless economy would be one in which there is complete value exchange with no loss (processing costs or any other cost). And to accomplish this, we would need the national government instead of banks or any other payment provider, thereby transforming it into a utility supported by the government.
Due to the lack of processing fees, the money saved in a cashless economy can be allocated to those in need. The money saved can subsequently be used to revitalise economically poor communities. In a society devoid of cash, everyone will have access to capital. Along with the final mile of money transfers, banking services, and payments, the cashless society will play a crucial part in achieving global financial inclusion.
It’s time to get rid of paper currency and switch to a new way to pay without cash. Still, it seems like a cashless economy is a long way off. But a big FinTech improvement could shorten this time a lot. With the help of new technologies and constant improvements to the ones we already have, cashless payments could become faster, more transparent, and safer than ever. Nonetheless, only time will tell when we will really no longer need cash.
1. How much is the amount of Cashless Transactions made in 2022 in India?
Ans: According to reports put out by the Statista Research Department, more than 72 billion digital transactions were made across the country in the financial year 2022.
2. What is the meaning of Cashless Transaction?
Ans: A cashless transaction is an automated or online exchange between two individuals, businesses, or organisations. A digital transaction is a cashless transaction in which no paper is used to carry out the transaction.
3. How can Cashless Transactions help the economy?
Ans: Digital transactions make things clearer, easier to scale up, and more accountable. With a cashless economy, less paper money and coins will be made. In the end, this will save a lot of money on production costs.
4. What does a “Cashless Economy” mean, and is India ready for it?
Ans: A cashless economy is one in which transactions are done digitally rather than with cash. India has started taking steps to become a cashless economy, but there are still more steps to be taken before the economy is completely digitalised.
5. How do I send money from one bank account to another online?
Ans: You can send money to another bank account with NEFT, RTGS, or IMPS. The Reserve Bank of India is in charge of NEFT and RTGS. UPI apps have also made it easy to move money from one account to another.