The transaction system in India has seen revolutionary changes in the recent past with many tools and apps coming up to encourage Indians to go cashless. This has been greatly encouraged by various governmental initiatives like the Digital India programme and demonetisation. The central government is aiming to transform India into a digitally empowered society and economy.
Aim of the government
With technology as the backbone, the country is definitely heading towards establishing itself as a developed economy. Also, about 1.8 billion mobile banking users will emerge by 2019 globally. What we need to understand and build is a better ecosystem. A digital bank today needs to grow by embracing the pillars of digitalisation and also work towards remaining relevant in the competitive global financial system.
In a bid to make the Indian economy cashless, the central government led by Prime Minister Narendra Modi has planned a series of steps to increase awareness in this regard, especially in rural areas. These include incentives for digital payments, day to day financial transactions like buying or selling goods or services and transferring money. The government is promoting online payments, point of sale systems, payment wallet applications and cash cards as well. However as things stand today, 80% of the Indian population transact in cash. Additionally, most cashless transactions originate in urban centres.
According to a Vodafone survey, as much as 92% of the $800 billion (over Rs. 52 lakh crore) worth of annual retail purchases in India is made in cash. While the use of plastic money has been growing in cities and towns (Indians use 661.8 million debit cards and 24.5 million credit cards as on March 2016, as per RBI data), much of the debit card usage (94% in value terms) has been for withdrawing money from ATMs. In fact, India’s average number of card transactions per capita which stands at 6.7, is among the lowest in the world (249.3 in Australia, 54.8 in Brazil and 14.4 in China).
There is a huge portion of the workforce that prefers cash, says Naresh Makhijani, Partner and Head, Financial Services, KPMG India. “People are used to the touch and feel of money. It is a habit they have formed, and changing that will need a change in mindset.” Nearly 850 million Indians are not connected to the internet and broadband penetration in India is about 7%. The challenge is to take digital infrastructure to these people. It took a few years for banks, cyber security agencies and other financial institutes to spread awareness among the urban educated regarding cashless transactions. It would be a good move to include farmers, daily wage workers and other labor class to become the part of this movement.
Security is one of the biggest challenges for constituting India as a cashless society. A Qualcomm report states that most of the wallets and banking apps in India lack hardware security. These apps primarily run on Android and are highly susceptible to password leakages. The password used can be easily stolen. Even the fingerprints, used as security codes can be hacked.
Steps to ensure a ‘less-cash’ economy
Digital security needs continuous feeding and improvisation to facilitate a secure and confident India. It is crucial to make the citizens, especially from the areas and regions that have sporadic penetration and less information about digitisation, digitally-literate. The government should ensure such trainings.
The RBI has not yet prescribed any security standards for e-wallets in India. The wallets should have a robust infrastructure for data security. The Reserve Bank of India (RBI) has set up a five-member committee headed by Infosys Chairman Nandan Nilekani to suggest a strategy for deepening the penetration of digital payments in the country. The idea of a cashless or less-cash society is appealing, given that it would help bring more money into the banking system and, as a result, create better tax compliance and possibly lower corruption. However, the challenges associated with its meaningful implementation in India need to be tackled.