The document discusses India's transition to a cashless economy through the promotion of digital payment methods. It provides an overview of various digital payment options in India like banking cards, USSD, UPI, mobile wallets, BHIM app, and their benefits in making transactions more convenient, economical and providing digital records. While demonetization increased digital payments usage, fully transitioning India will depend on factors like increasing access to banking, incentivizing digital payments, and improving telecom infrastructure.

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CONTENT
Chapter
No.
Chapter Name.
Chapter - 1 1. Introduction
 Cashless India
 Digital payment methods
 Benefits of digital payments
 Digital money
 India’s adoption
Chapter - 2 2. Concept
Chapter - 3 3. Feature
 A cashless economy and where does India stand
 Cashless Indian economy? –a reality?
 Why is cash required?
 The challenge to go digital
 Cash is here to stay.
Chapter - 4 4. Benefits of cashless economy
 This will eventually have the following chain effect:
Chapter - 5 5. Challenges in making India a cashless economy
 Steps taken by RBI and Government to discourage use of cash
 What else needs to be done?
 India taking a step on the road to cashless economy
Chapter - 6 6. Cashless India- Importance, Implementations and Future!
 Importance
 Implementations
 Future

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 Merits of Cashless Economy in India.
 Demerits of Cashless Economy in India.
Chapter - 7 7. How Will Mobile Play a Significant Role in the Cashless India
Initiative?
Chapter - 8 8. The race to make India a cashless economy
 How did demonetization impact retail transactions?
 What’s happening with Payments Banks?
 How are traditional banks going to tackle this competition?
Chapter - 9 9. A Cashless Future Is The Real Goal Of India's Demonetization Move
Chapter - 10 10. How Technology is Pushing India towards a Cashless Economy
Chapter - 11 11. India is far away from being a cashless economy. Here’s why
Chapter - 12 12. Positive and Negative Impacts of cashless economy

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CHAPTER – 1
INTRODUCTION
Even as ordinary citizens queue up for cash and economists are busy estimating the
extent to which economic growth will be hit because of the ongoing drive to replace
high-value banknotes, there has been a lot of discussion on whether the government can
use the current situation to push India towards a cashless future. In his radio address on
Sunday, Prime Minister Narendra Modi once again pitched for creating a cashless
society.
Reducing Indian economy’s dependence on cash is desirable for a variety of reasons.
India has one of the highest cash to gross domestic product ratios in the word, and
lubricating economic activity with paper has costs. According to a 2014 study by Tufts
University, The Cost Of Cash In India, cash operations cost the Reserve Bank of India
(RBI) and commercial banks about Rs21,000 crore annually. Also, a shift away from
cash will make it more difficult for tax evaders to hide their income, a substantial benefit
in a country that is fiscally constrained.
To be sure, the government on its part is working at various levels to reduce the
dependence on cash. Opening bank accounts for the unbanked under the and adoption of
direct benefit transfer is part of the overall idea to reduce usage of cash and increase
transparency.
RBI has also issued licenses to open new-age small finance banks and payments banks
which are expected to give a push to financial inclusion and bring innovative banking
solutions. Things are also falling in place in terms of technology for India. The recently
launched Unified Payments Interface by National Payments Corporation of India makes
digital transactions as simple as sending a text message.
So, will the exercise to exchange currency notes and the ongoing currency crunch be a
decisive factor in making India a truly cashless economy? Nandan Nilekani, in an
interview to this newspaper, termed this as “a defining point in India moving to cashless”.

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Shortage of cash has significantly increased the use of digital modes of payment, but the
actual shift will only be visible after the cash crunch eases. It is possible that a section of
people which has used electronic mode of payment for the first time due to the cash
crunch will continue to transact through this medium, but there are still a number of
hurdles in making India a cashless economy.
First, a large part of the population is still outside the banking net and not in a position to
reduce its dependence on cash. According to a 2015 report by PricewaterhouseCoopers,
India’s unbanked population was at 233 million. Even for people with access to banking,
the ability to use their debit or credit card is limited because there are only about 1.46
million points of sale which accept payments through cards.
Second, about 90% of the workforce, which produces nearly half of the output in the
country, works in the unorganized sector. It will not be easy for the informal sector to
become cashless, and this part of the economy is likely to be affected the most because of
the ongoing currency swap. Third, there is a general preference for cash transactions in
India. Merchants prefer not to keep records in order to avoid paying taxes and buyers find
cash payments more convenient. Although cashless transactions have gone up in recent
times, a meaningful transition will depend on a number of things such as awareness,
technological developments and government intervention. For instance, mobile wallets
have seen notable traction, and it is possible that a large number of Indians will move
straight from cash to mobile wallets. A study by Boston Consulting Group and Google in
July noted that wallet users have already surpassed the number of mobile banking users
and are three times the number of credit card users.
However, as noted above, a material transition to a cashless economy will depend on a
number of factors. First, the availability and quality of telecom network will play an
important role. Presently, people face difficulties in making electronic payments even in
metro cities because of poor network. Second, as one of the biggest beneficiaries of this
transition, banks and related service providers will have to constantly invest in
technology in order to improve security and ease of transaction. People will only shift
when it’s easier, certain and safe to make cashless transactions. Third, the government

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will also need to play its part. It will have to find ways to incentivize cashless
transactions and discourage cash payments. Implementation of the goods and services
tax, for example, should encourage businesses to go cashless. Government should also
use this opportunity to revamp the tax administration, as more than taxes, small
businesses fear tax inspectors.
The government will have to create conditions—not necessarily by creating cash
shortages—to push cashless transactions to a threshold level after which the network
effect will take over. India may not become a cashless economy in the foreseeable future,
but it needs to reduce its unusually high dependence on cash to bring in much needed
transparency and efficiency in the system.
The government is working at various levels to reduce the dependence on cash.
CASHLESS INDIA
The Digital India programme is a flagship programme of the Government of India with a
vision to transform India into a digitally empowered society and knowledge economy.
“Faceless, Paperless, Cashless” is one of professed role of Digital India. Major progress
towards this goal was made in late 2016, when the government took steps to demonetize
the country. Now, even small retailers and shop owners are using cashless models like
Paytm for transactions.
A cashless economy is one in which all transactions are made using credit/debit cards or
digital devices (e.g., point-of-sales machines, digital wallets, etc.), and the circulation of
liquid money or paper currency is minimal. In this economy, a third-party such as the
government or a public/private sector bank possesses an individual’s money and can
circulate that money whenever it is not needed by the individual.

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DIGITAL PAYMENT METHODS
As part of promoting cashless transactions and converting India into less-cash society,
various modes of digital payments are available.
These mode are:
 Banking cards
 USSD
 Aadhaar Enabled Payment System (AEPS)
 UPI
 Mobile Wallets
 Bank pre-paid cards
 Point of Sale (PoS)
 Internet Banking
 Mobile Banking
 Bharat Interface for Money (BHIM) app
1. Banking cards: Cards are among the most widely used payment methods and come
with various features and benefits such as security of payments, convenience, etc. The
main advantage of debit/credit or prepaid banking cards is that they can be used to make
other types of digital payments. For example, customers can store card information in
digital payment apps or mobile wallets to make a cashless payment. Some of the most
reputed and well-known card payment systems are Visa, Rupay and MasterCard, among
others. Banking cards can be used for online purchases, in digital payment apps, PoS
machines, online transactions, etc.
How to get banking cards:
 Apply with your respective bank and provide Know Your Customer (KYC) details
 The card will get activated within a week and you will be allotted a 4-digit pin, which
can be used for all transactions
2. USSD: Another type of digital payment method, *99#, can be used to carry out mobile
transactions without downloading any app. These types of payments can also be made
with no mobile data facility. This facility is backed by the USSD along with the National
Payments Corporation of India (NPCI). The main aim of this type of digital payment

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service is to create an environment of inclusion among the underserved sections of
society and integrate them into mainstream banking. This service can be used to initiate
fund transfers, get a look at bank statements and make balance queries. Another
advantage of this type of payment system is that it is also available in Hindi.
How to Use *99#:
 This service can be used by dialing *99#, after which the customer can interact with an
interactive voice menu through their mobile screen.
 To use the service the mobile number of the customer should be the same as the one
linked to the bank account
 The next step is to register for USSD, MMID (Mobile Number Identifier) and MPIN
3. AEPS: Expanded as Aadhaar Enabled Payment System, AEPS, can be used for all
banking transactions such as balance enquiry, cash withdrawal, cash deposit, payment
transactions, Aadhaar to Aadhaar fund transfers, etc. All transactions are carried out
through a banking correspondent based on Aadhaar verification. There is no need to
physically visit a branch, provide debit or credit cards, or even make a signature on a
document. This service can only be availed if your Aadhaar number is registered with the
bank where you hold an account. This is another initiative taken by the NPCI to promote
digital payments in the country.
How to use AEPS:
 It is very simple to use AEPs, all you need to do is to provide the accurate Aadhaar
number and the payment will be successfully made to the concerned merchant
4. UPI: UPI is a type of interoperable payment system through which any customer
holding any bank account can send and receive money through a UPI-based app. The
service allows a user to link more than one bank account on a UPI app on their
smartphone to seamlessly initiate fund transfers and make collect requests on a 24/7 basis
and on all 365 days a year. The main advantage of UPI is that it enables users to transfer
money without a bank account or IFSC code. All you need is a Virtual Payment Address
(VPA). There are many UPI apps in the market and it is available on both Android and
IOS platforms. To use the service one should have a valid bank account and a registered
mobile number, which is linked to the same bank account. There are no transaction

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charges for using UPI. Through this, a customer can send and receive money and make
balance enquiries.
How to use UPI:
 Download the app on Android or IOS platform
 Register for the service by providing bank account details
 Create a VPA, get an MPIN
5. Mobile Wallets: A mobile wallet is a type of virtual wallet service that can be used by
downloading an app. The digital or mobile wallet stores bank account or debit/credit card
information or bank account information in an encoded format to allow secure payments.
One can also add money to a mobile wallet and use the same to make payments and
purchase goods and services. This eliminated the need to use credit/debit cards or
remember the CVV or 4-digit pin. Many banks in the country have launched e-wallet
services and apart from banks, there are also many private players. Some of the mobile
wallet apps in the market are Paytm, Mobikwik, Freecharge, etc. The various services
offered by mobile wallets include sending and receiving money, making payments to
merchants, online purchases, etc. Some mobile wallets may charge a certain transaction
fee for the services offered.
How to use a mobile wallet:
 Download the app
 Register for the service by following instructions and providing all details
 Load money
6. Bank pre-paid cards: A prepaid card is a type of payment instrument on to which you
load money to make purchases. The type of card may not be linked to the bank account of
the customer. However, a debit card issued by the bank is linked with the bank account of
the customer.
How to Use a Prepaid Card:
 Apply for the card
 Get pin
 Load money from your bank account/debit card

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7. PoS terminals: Traditionally, PoS terminals referred to those that were installed at all
stores where purchases were made by customers using credit/debit cards. It is usually a
hand held device that reads banking cards. However, with digitization the scope of PoS is
expanding and this service is also available on mobile platforms and through internet
browsers. There are different types of PoS terminals such as Physical PoS, Mobile PoS
and Virtual PoS . Physical PoS terminals are the ones that are kept at shops and stores.
On the other hand, mobile PoS terminals work through a tablet or smartphone. This is
advantageous for small time business owners as they do not have to invest in expensive
electronic registers. Virtual PoS systems use web-based applications to process payments.
8. Internet Banking: Internet banking refers to the process of carrying out banking
transactions online. These may include many services such as transferring funds, opening
a new fixed or recurring deposit, closing an account, etc. Internet banking is also referred
to as e-banking or virtual banking. Internet banking is usually used to make online fund
transfers via NEFT, RTGS or IMPS. Banks offer customers all types of banking services
through their website and a customer can log into his/her account by using a username
and password. Unlike visiting a physical bank, there are to time restrictions for internet
banking services and they can be availed at any time and on all 365 days in a year. There
is a wide scope for internet banking services.
9. Mobile Banking: Mobile banking is referred to the process of carrying out financial
transactions/banking transactions through a smartphone. The scope of mobile banking is
only expanding with the introduction of many mobile wallets, digital payment apps and
other services like the UPI. Many banks have their own apps and customers can
download the same to carry out banking transactions at the click of a button. Mobile
banking is a wide term used for the extensive range or umbrella of services that can be
availed under this.
10. Bharat Interface for Money (BHIM) app: The BHIM app allows users to make
payments using the UPI application. This also works in collaboration with UPI and
transactions can be carried out using a VPA. One can link his/her bank account with the
BHIM interface easily. It is also possible to link multiple bank accounts. The BHIM app
can be used by anyone who has a mobile number, debit card and a valid bank account.

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Money can be sent to different bank accounts, virtual addresses or to an Aadhaar number.
There are also many banks that have collaborated with the NPCI and BHIM to allow
customers to use this interface.
How to Use BHIM App:
 Download and install the BHIM app
 Choose a language
 Register for the service by providing mobile number linked to bank account
 Add bank-related information and set up a UPI PIN by following the given instructions
Benefits of Digital Payments
 Faster, easier, more convenient: Perhaps, one of the biggest advantages of cashless
payments is that it speeds up the payment process and there is no need to fill in lengthy
information. There is no need to stand in a line to withdraw money from an ATM or
carry cards in the wallet. Also, with the move to digital, banking services will be
available to customers on a 24/7 basis and on all days of a year, including bank
holidays. Many services like digital wallets, UPI, etc. work on this basis.
 Economical and less transaction fee: There are many payment apps and mobile
wallets that do not charge any kind of service fee or processing fee for the service
provided. The UPI interface is one such example, where services can be utilized by the
customer free of cost. Various digital payments systems are bringing down costs.
 Waivers, discounts and cashbacks: There are many rewards and discounts offered to
customers using digital payment apps and mobile wallets. There are attractive cash
back offers given by many digital payment banks. This comes as boon to customers
and also acts a motivational factor to go cashless.
 Digital record of transactions: One of the other benefits of going digital is that all
transaction records can be maintained. Customers can track each and every transaction
that is made, no matter how small the transaction amount this.
 One stop solution for paying bills: Many digital wallets and payment apps have
become a convenient platform for paying utility bills. Be it mobile phone bills, internet

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or electricity bills, all such utility bills can be paid through a single app without any
hassle.
 Helps keep black money under control: Digital transactions will help the
government keep a track of things and it will help eliminate the circulation of black
money and counterfeit notes in the long run. Apart from this, this may also give a boost
to the economy as the cost of minting currency also goes down.
Digital payments are slowly gaining popularity in India and there are many apps that are
being launched in this sector. It has become a hassle-free and secure way to make
payments.
Digital money
Since the removal of the notes, the government has been working hard to promote digital
payment systems to consumers, proactively offering different incentives and rewards. So
far, it seems to be working: the government has reported a transactions since the
demonetization.
The changes have created perfect market conditions for alternative digital payment
systems, in addition to existing e-wallets and debit/credit cards. These are not just the
basic banking apps or websites either. The National Payments Corporation of India,
together with the RBI, has launched UPI (“united payment interface”), which powers
multiple accounts from participating banks, and offers several banking services all in a
single mobile application.
A step in the right direction certainly, but not one without its problems. Although India
has around 220m smartphone users as of February 2016, there is still a long way to go
until 100% of the population has mobile internet access.
Nevertheless, the banks have made sure that smartphone ownership is not a barrier to
accessing mobile payments, providing a USSD option on older, “non-smart” phones
which users call up for. In addition, the “Digital India Initiative” has been set up to
provide internet access and comprehensive mobile phone coverage across India, helping
over a billion people to get online and utilize digital payment techniques.

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Furthermore, the RBI has been promoting a biometric authentication system for banking.
The Aadhaar Enabled Payment System (AEPS) can be used to open a bank account,
withdraw or deposit cash, and transfer funds using just an identification number and
fingerprint.
AEPS was created to serve remote towns and villages where cash machines cannot be
provided. It has the potential to be the cornerstone of the government’s vision of a
cashless digital society – if it can penetrate deeply enough into rural India.
India’s adoption
The people of India are the biggest hurdle in the implementation of the cashless strategy.
By and large, they have welcomed the beginnings of a cashless society, albeit with some
opposition to the demonetization implementation. Many can already see the benefits of
going cash-free – such as the ability to tender exact change at small retailers, and keep
track of expenditures – and are ready to adopt.
The opportunity is there, and the Indian authorities are certainly keen to take it. The
interdepartmental approach by the government, working on finance, internet penetration
and public relations strategies all at once is essential to making the cashless plan work.
Overseen by the government’s Niti Ayog (planning commission), the plan is to
implement these systems in the shortest amount of time possible.
But citizens have to feel confident about the move, especially those who doubt online
security. Furthermore, the cashless initiative needs comprehensive pan-India awareness,
especially in more rural areas. Participation by rural and cooperative banks, post offices
and other financial institutions to create awareness and education programmes will
ultimately pave the way for a cashless economy.
Training will be a necessity in urban parts of the country, too. Awareness is all well and
good, but some will still need help to understand how to install and use digital payment
systems.

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Although it would be impossible for India to become a cashless economy in the short
amount of time since demonetization, it is definitely something the country can look
forward to.

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Chapter – 2
CONCEPT
If one were to opine about the ploy of the times, the explanation would be rather simple:
we live in a world that moves quickly, a world that no longer follows the customs of an
evolutionary change. It rather thrives on the concept of revolution. When Indian Prime
Minister Narendra Modi demonetized the nation’s high value currency denominations in
2016, it was nothing short of a revolution. While onlookers believed that the move in itself
was to tackle the black money freely-flowing in the economy, economists predicted a
different narrative attached to it; the narrative of converting India into a cashless economy.
The vision of accepting economic digitization, in a third world nation like India, points
towards the fact that we as a bunch have come a long way. And that has been propelled
only because of the technological advancements the world has made. In fact, there has been
a sort of a digital disruption in the way payments are made around the world. The 21st
century has seen the portmanteau of fintech spread its wings to encompass things that were
previously thought unfathomable.
The way technology has progressed over the last decade or so has been nothing short of
spectacular, and even people who previously pointed at corduroy have come to accept its
momentousness. The matter of the fact is that technology has opened up new ways in which
we can interact with money and its role in nudging an economy to abandon liquid cash has
been massive.
Smartphones have paved the way for online transactions and that coupled with the services
one were to find on the internet today makes it the perfect hotcake recipe. The world’s most
valuable tech company, Apple, has something called the Apple Pay that allows you to pay
for things using nothing but your mobile phone. Samsung and Google have followed suit
with similar offerings. By the virtue of other apps, banking services have found their way
into people’s phones. And it has now become possible to do all banking related things
without ever having to visit your bank. Apart from all that, technology has opened the

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floodgates and made the idea of bringing your local home depot to your doorstep possible.
Amazon and Alibaba are only a few names that have let people buy groceries, shop for
clothes, and do a lot more, all in the comfort of their homes.
The days of having a pen and countless intellectual thoughts to bring about a revolution,
seem to have gone. Today, all you really need is a mobile phone and an internet connection.
This trend is best reflected in the popularity of the Bit coin. Before it, people believed that
gold was perhaps the best investment. However, crypto currency has presented the world
with another reliable way of making huge investments. As a result, more and more
countries have started to realize the massive potential in Bit coins. And while India still
doesn’t recognize Bit coin or other forms of crypto currency, it still recognizes its potential
and is working on the Bharat Coin. This is indeed a classic example of how technology has
led the world to leave traditional ways of investing, thus bringing in investments in
digitized denominations.
But, like we discussed above, the world moves quickly, and if we were to doddle beyond
the tip of this technological iceberg, even smartphones are looking like a thing of the past.
Wearable tech has arrived and looks like it is here to stay. Now, we have watches that can
make transactions by just a simple tap, and shoes that can order their replacement once
they’ve seen enough tear.
What is more revolutionary than these wearable tech gadgets themselves, is the number of
possibilities that they open, which to be fair, seem virtually limitless. And it is not hard to
understand why. Technology fabricates convenience and wearable tech brings
unprecedented convenience with itself. Then, there have been talks of the concept of
cashless cars becoming a reality. These would be cars that would double as your wallet and
will also find their way to the repair shop in case of any mechanical flaw, without any
assistance whatsoever. It only baffles one to think what it would be like if this becomes
reality.

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Standing where we are today, at this juncture, the future seems bright and humanity seems
to have made the right technological leap. The mobile phone has already become the wallet
for millions of people around the world, and we have just started. Imagine of a time when
virtual reality will be successful in converting your home into your local store, where you
can see the whole store on your headset or on a virtual hologram and make payments just
by the nod of your head. This way, businesses won’t have to bear the costs of constructing
a physical store and can put all that money into enhancing customer experience. Something
that might likely bring prices down.
Technology has made it possible for online transactions to be more transparent, thus
reducing the margin of any error substantially. Digital transactions can be traced back to a
person, and this can help in minimizing bribes and other forms of corruption within the
society. And not to forget that it would be virtually impossible to have digital currency in
the black. Yes, there are problems, and like with everything else, technology and the idea
of a cashless society has certain flaws. For instance, in a country like India, 40% of its
population still doesn’t own a basic phone, let alone a smartphone. Then there are the
people who live in inaccessible areas with no network coverage and scant electricity
supply. There is also the persistent issue of a person’s security on the web.
But, we get to choose the future and it seems that the world has unanimously decided to go
towards a digital economy. In a way, cashless is not the economy of today, rather, it is the
stepping stone for the economy that will be tomorrow. And technology, just like till now,
will have a major role in that. As the infrastructure improves and as more and more people
in the world achieve technological literacy, we shall move towards a cashless society. The
fact is, we had to start somewhere.

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CHAPTER - 3
FEATURE
India continues to be driven by the use of cash; less than 5% of all payments happen
electronically however the finance minister, in 2016 budget speech, talked about the idea
of making India a cashless society, with the aim of curbing the flow of black money.
Even the RBI has also recently unveiled a document — “Payments and Settlement
Systems in India: Vision 2018” — setting out a plan to encourage electronic payments
and to enable India to move towards a cashless society or economy in the medium and
long term.
A cashless economy and where does India stand
A cashless economy is one in which all the transactions are done using cards or digital
means. The circulation of physical currency is minimal.
India uses too much cash for transactions. The ratio of cash to gross domestic product is
one of the highest in the world—12.42% in 2014, compared with 9.47% in China or 4%
in Brazil.
Less than 5% of all payments happen electronically
The number of currency notes in circulation is also far higher than in other large
economies. India had 76.47 billion currency notes in circulation in 2012-13 compared
with 34.5 billion in the US.
Some studies show that cash dominates even in malls, which are visited by people who
are likely to have credit cards, so it is no surprise that cash dominates in other markets as
well.
Cashless Indian Economy? -A Reality??
The low literacy rates in rural India, along with the lack of infrastructure like internet
access and power make things extremely difficult for people to adopt e-transaction route.

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The financial technology industry would be unwise to ignore the rise of mobile
transaction services, person-to-person networks and the whole range of digital disruption
in the payments arena from the likes of Bit coin, Apple Pay and PayPal that undoubtedly
is putting pressure on cash.
Cash is like water a basic necessity without which survival is a challenge. Nevertheless,
cash use doesn't seem to be waning all that much, with around 85% of global payments
still made using cash. One of the main reasons is that there is nothing to truly compete
with the flexibility of notes and coins.
Of course, the digital era is something to embrace, and new methods of payments will
continue to be introduced. But Indians need to recognize the risks and benefits of
different payment instruments, the risks associated with electronic payment instruments
are far more diverse and severe. Recently lakhs of debit card data were stolen by hackers;
the ability of Indian financial institutions to protect the electronic currency came into
question also an important reason why people favour cash.
In a courageous move to combat black money and counterfeit currency, Narendra Modi's
government scrapped currency notes of INR 500 and INR 1000 denominations, which is
seen as an unprecedented measure, though a giant leap towards curbing corruption and
forged currency. The declaration created confusion across the spectrum, as these high-
value notes form around 86% of total legal tender.
However, the whole isometrics of moving from cash-driven economy to cashless
economy has somehow been assorted with demonetization that was aimed to extract
liquidity from the system to unearth black money. Prime Minister Narendra Modi
acknowledged the fact in his monthly radio programme, 'Mann Ki Baat' on Sunday that
making the transition to cashless economy is challenging, and hence has urged the public
to move to 'less-cash' society.

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A report by Boston Consulting Group (BCG) and Google India revealed that last year
around 75 per cent of transactions in India was cash-based, while in developed nations
such as the US, Japan, France, Germany etc. it was around 20-25 per cent. The depletion
in cash due to demonetization has pushed digital and e-transactions to the forefront; e-
banking, e-wallets, and other transaction apps becoming prevalent.
Why Is Cash Required?
The magnificence of cash is that -- it just works; even in the isolated whereabouts of
India, where the government might not be present physically with its paraphernalia, its
injunction runs in the form of legal tender that public uses for business on an everyday
basis. A large informal economy that supports a major part of Indian population and their
livelihoods also runs in cash. This is why Cash is yet King.
The ground reality reveals, a majority of transactions in Kirana stores, the go-to shop for
daily purchases in India are cash based transactions, because these are generally small
ticket transactions. The customers, as well as Kirana store owners feel more comfortable
in dealing with cash for small transactions, while these merchants also provide credit
facility to customers.
However, the governments drive to incentivise consumers and merchants alike to move
to electronic modes of payments has not found many takers because our cash driven
economy is fuelled through rampant corruption in society and black money. The modus
operations for corruption are cash so unless we rid our society of corruption at all levels
this will be a huge task. Imagine paying a corrupt official through your e-wallet it will
never happen.
Also another point to ponder on is why India has such less tax payers in a population of
over 1.2 billion people. Is 98% of our population earning below 2.5 lakhs a year. This is
one of the issues that needs to be addressed and hopefully with many more transaction
moving electronic & records of the same being made available many more people should
fall under the tax net be it small merchants, professionals etc. Will this segment of society

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adapt to electronic modes of payment so that the nation can benefit from a higher tax
collection leading to better benefits to society at large?
The challenge to go digital
A major obstacle for the quick adoption of alternate mode of payments is mobile internet
penetration, which is crucial because point-of-sale (PoS) terminal works over mobile
internet connections, while banks have been charging money on card-based transactions,
which is seen as a hurdle. The low literacy rates in rural India, along with the lack of
infrastructure like internet access and Power make things extremely difficult for people to
adopt e-transaction route.
The financial safety over the digital payment channels is important for pushing the
cashless economy idea. Imagine losing your credit cards or being the victim of digital
hackers can lead to a whole host of issues like denied payment, identity theft, account
takeover, fraudulent transactions and data breaches. According to the digital security
company Gem alto, more than 1 billion personal records were compromised in 2014.
Cash is here to Stay!
Despite the numerous State endeavours, India has always been driven by cash; while
electronic payments are seen restricted to a small size of the population, compared to the
cash transactions. Considering the demographics of India, two-thirds of the population
live in rural areas, where farmers and poor people are still struggling to get their hands on
their own money. As per Data in July this year, 881 million transactions were made using
debit cards at ATMs and PoS terminals. Out of these, 92 per cent were cash withdrawals
from ATMs. The sole purpose for cards in Indian is to withdraw cash. Changing this
mind set will be an uphill task. The last few days have clearly shown that the country is
highly underpenetrated as far as ATMs per million people and it's the ATM which will
help the government fulfill its ambition of financial inclusion as the ATM will play a key
role in the last mile towards customer fulfillment which is self-service 24*7 which even a
Business Correspondent or Micro ATM cannot do.

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Currently, there is a mix of cash and cashless transactions happening across the country,
while many enablers are working towards turning the cashless economy dream into a
reality. We have taken big strides towards becoming a cashless economy; however it will
take more than a generation to change the habit from cash to no cash transaction. Rushing
the economy into a cashless state without proper planning and infrastructure will be
disastrous and its consequences will be everlasting. A gradual move towards less-cash
society as said by the Prime Minister is the right way forward.
Also, important to note that if people start flocking to alternate currencies, governments
could wind up losing much of their power to influence economic issues such as inflation
and unemployment. The government can't set an interest rate for institutions lending in a
currency it doesn't control.

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Chapter – 4
Benefits of Cashless economy
 Reduced instances of tax avoidance because it is financial institutions based
economy where transaction trails are left.
 It will curb generation of black money
 Will reduce real estate prices because of curbs on black money as most of black
money is invested in Real estate prices which inflates the prices of Real estate
markets
 In Financial year 2015, RBI spent Rs 27 billion on just the activity of currency
issuance and management. This could be avoided if we become cashless society.
 It will pave way for universal availability of banking services to all as no physical
infrastructure is needed other than digital.
 There will be greater efficiency in welfare programmes as money is wired directly
into the accounts of recipients. Thus once money is transferred directly into a
beneficiary’s bank account, the entire process becomes transparent. Payments can
be easily traced and collected, and corruption will automatically drop, so people
will no longer have to pay to collect what is rightfully theirs.
 There will be efficiency gains as transaction costs across the economy should also
come down.
 1 in 7 notes is supposed to be fake, which has a huge negative impact on
economy, by going cashless, that can be avoided.
 Hygiene – Soiled, tobacco stained notes full of germs are a norm in India. There
are many such incidents in our life where we knowingly or unknowingly give and
take germs in the form of rupee notes. This could be avoided if we move towards
Cashless economy.
 In a cashless economy there will be no problem of soiled notes or counterfeit
currency
 Reduced costs of operating ATMs.

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 Speed and satisfaction of operations for customers, no delays and queues, no
interactions with bank staff required.
 A Moody’s report pegged the impact of electronic transactions to 0.8% increase
in GDP for emerging markets and 0.3% increase for developed markets because
of increased velocity of money
 An increased use of credit cards instead of cash would primarily enable a more
detailed record of all the transactions which take place in the society, allowing
more transparency in business operations and money transfers.
This will eventually have the following chain effect:
 Improvement in credit access and financial inclusion, which will benefit the
growth of SMEs in the medium/long run.
 Reduce tax avoidance and money laundering thanks to the higher traceability of
all the transactions.
 The increased use of credit cards will definitely reduce the amount of cash that
people will carry and as a consequence, reduce the risk and the cost associated
with that.

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Chapter - 5
Challenges in making India a cashless economy
 Availability of internet connection and financial literacy.
 Though bank accounts have been opened through Jan Dhan Yojana, most of them
are lying un operational. Unless people start operating bank accounts cashless
economy is not possible.
 There is also vested interest in not moving towards cashless economy.
 India is dominated by small retailers. They don’t have enough resources to invest
in electronic payment infrastructure.
 The perception of consumers also sometimes acts a barrier. The benefit of
cashless transactions is not evident to even those who have credit cards. Cash, on
the other hand, is perceived to be the fastest way of transacting for 82% of credit
card users. It is universally believed that having cash helps you negotiate better.
 Most card and cash users fear that they will be charged more if they use cards.
Further, non-users of credit cards are not aware of the benefits of credit cards.
 Indian banks are making it difficult for digital wallets issued by private sector
companies to be used on the respective bank websites. It could be restrictions on
using bank accounts to refill digital wallets or a lack of access to payment
gateways. Regulators will have to take a tough stand against such rent-seeking
behaviour by the banks.
Steps taken by RBI and Government to discourage use of cash
 Licensing of Payment banks
 Government is also promoting mobile wallets. Mobile wallet allows users to
instantly send money, pay bills, recharge mobiles, book movie tickets, send
physical and e-gifts both online and offline. Recently, the RBI had issued certain
guidelines that allow the users to increase their limit to Rs 1,00,000 based on a
certain KYC verification
 Promotion of e-commerce by liberalizing the FDI norms for this sector.

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 Government has also launched UPI which will make Electronic transaction much
simpler and faster.
 Government has also withdrawn surcharge, service charge on cards and digital
payments
What else needs to be done?
 Open Bank accounts and ensure they are operationalized.
 Abolishment of government fees on credit card transactions; reduction of
interchange fee on card transactions; increase in taxes on ATM withdrawals.
 Tax rebates for consumers and for merchants who adopt electronic payments.
 Making Electronic payment infrastructure completely safe and secure so that
incidents of Cybercrimes could be minimized and people develop faith in
electronic payment system.
 Create a culture of saving and faith in financial system among the rural poor.
 The Reserve Bank of India too will have to come to terms with a few issues, from
figuring out what digital payments across borders means for its capital controls to
how the new modes of payment affect key monetary variables such as the velocity
of money.
 RBI will also have to shed some of its conservatism, part of which is because it
has often seen itself as the protector of banking interests rather than overall
financial development.
 The regulators also need to keep a sharp eye on any potential restrictive practices
that banks may indulge in to maintain their current dominance over the lucrative
payments business.
 Though it will take time for moving towards a complete cashless economy, efforts
should be made to convert urban areas as cashless areas. As 70% of India’s GDP
comes from urban areas if government can convert that into cashless it will be a
huge gain. Therefore different trajectories need to be planned for migration to
cashless for those having bank account and for those not having.

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India taking a step on the road to cashless economy
 It was a move that could have brought India’s economy to a shuddering halt.
Indeed, the seemingly endless queues outside banks, and the difficulty of
spending cash at shops and stalls may have seemed like it did. But the decision
to demonetize the 500 and 1,000 rupee notes was just one in a series of moves
that will push India towards a digital economy.
 The demonetization was implemented with the aim of eliminating societal
corruption and counterfeit currency. But the move was sudden, happening
overnight. The two notes accounted for 86% of the bank notes in circulation in
India, and retailers and consumers were forced to look immediately for options.
Many turned to digital paying systems.
 The digital money strategy has been laid out by Prime Minister Modi’s
government from its early days in power, via a string of major decisions. The Jan
Dhan scheme, for example, saw more 220m new bank accounts being opened for
the poorest in society. The Reserve Bank of India also decommissioned all
currency notes issued before 2005.
 Until recently, cash was used for more than two-thirds of transactions in India.
However, just over a month into the demonetization and the country had already
started to see the benefits of digital transactions. Government figures show
a collection from 47 Indian cities for November 2016.
 But can India become a truly cashless society? These moves are pushing the
economy in the right direction, but is it digitally savvy enough for such a system
to survive?

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Chapter - 6
Cashless India- Importance, Implementations and Future!
Ordering a product from an E-commerce site and realizing that you have Rs. 500 and Rs.
1000 rupee notes make you drive crazy but a mobile wallet and that incoming message
that you’re ‘Transaction Successful’ as an alternative payment method relieve your heart.
Cashless India or an economy with lower cash transactions seems to be unreal when we
used to look at the older picture of the economy. But, the current scenario is deviating
Indian economy towards a cashless future! The Indian economy is experiencing a series
of deviations after the midnight of November 8, 2016. With the aim to revert back the
black money to the government of India, the signs are likely that cashless is not very far!
IMPORTANCE:
 The cashless economy has importance attached to it in the following ways:
 The cashless economy needs to be present as the financial year of 2015
experienced the hefty amount of Rs. 21,000 crores just on the printing of the cash
into the economy.
 The other need for the cashless economy is that every shady transaction that is left
unrecorded will now come into the picture making India one of the fastest-
growing economies in the world.
 A cashless economy is required to make the transactions more convenient for the
layman rather than carrying the bulk of cash in the wallet along with plastic
money.
 Cashless economy is needed to reduce the taxes that are charged by the
government due to the lack of funds in the government bodies.
 Cashless India is important because it will decrease the tax avoidance and the
money laundering cases subsequently resulting in the benefits for the customers.
 Cashless is needed as 1 out of 7 notes present in the economy is fake which
results into a bad image of the economy.

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IMPLEMENTATION:
For different mediums present in the digital transactions different requirements are
necessary to carry out transactions in the economy. But we are going to shower light on
the basic requirements if you want to deviate to a digital transaction medium.
FUTURE:
The future of the Cashless India looks pretty promising as the response of the country
people towards this move of the government and the support towards it is a clear
indication that the government’s move is likely to succeed. The transparency in the
economy will increase through the e-commerce transactions and the digital payment
gateways which will increase the GDP of the economy. This will increase the
creditability of the country and make a rise in investments. This step of cashless is truly
going to create ripples of big success.
For the industrialists, it is a great time to integrate the cashless practices will be
benefitting in the near future. Do you want the best cashless solutions for your
business? Max Vision Solutions can help you in it. Let’s fix the problems demonetization
caused to you and be the part of a better, developed, digitally equipped and Cashless
India together!
Merits of A Cashless Economy
Some of the merits of a cashless economy are listed below, going through these you will
realize how significant this initiative is and how it will shape the Indian economy in a
positive way.
 It boost the economy because the cost of making and handling paper money is
quite high.
 It reduces the terrorist activities, as most of the terrorist activities are fueled by the
black money in hard cash.
 This aids the environment, as no trees are cut for printing of paper money.

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 Reduction in crime rates. Crimes with financial motives are rare in cashless
economy. An instance of this has been seen in Delhi recently when the
government pulled out high value notes.
 It is the medicine for fake money problem. No cash simply means no fake cash.
 Adherence to labour laws can be achieved, as now labours will be paid in their
bank accounts.
Demerits of a Cashless Economy
 Every initiative has a lop side also, some of the demerits of cashless economy
with respective to India are given below. In the later part of this article we will
talk in detail about the challenges related to cyber security, individual’s financial
data, and online banking fraud which a cashless economy can face.
 No cash in hand. Always a dependency on your card or bank system connectivity.
 Major part of Indian population is not educated about banking systems,
specifically about the digital aspect of it. Hence they may resist to make online
transactions.
 Automation and online transactions will cut down large number of jobs.
 India is dominated by small retailers and they don’t have enough resources to
invest in electronic payments.
 Increase in cybercrimes and online banking frauds.

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Chapter - 7
How Will Mobile Play a Significant Role in the Cashless India
Initiative?
India has shown a rapid growth in the smartphone market worldwide, with around 27.5
million devices sold in the second quarter of 2016, up by 17 percent from the previous
quarter (according to IDC). This growth in sales is paralleled by an equally enormous
growth in the number of mobile internet users in India. According to a report by
the Internet and Mobile Association of India, India was estimated to have 371 million
mobile internet users as of June 2016. As per the recent study on the Growth of the Indian
Mobile App Market, application downloads in India increased from 1.56 billion in 2012
to 9 billion in 2015. It also says that smartphone users in India have the highest
smartphone usage rates globally, with an average of 3 hours spent on their devices (for
comparison, the average time spent on mobile phone by users in the US is 132 minutes).
These numbers tell us that smartphones and mobile apps are already getting into the DNA
of the Indian population.
It is impossible to imagine a life today without smartphones. Mobile apps assist us in
every aspect of our daily routines, from communication and navigation to shopping and
entertainment. Taking a cue from this market trend, big brands are moving from mobile-
also to mobile-first strategies around their products and services. For example, brands
like Quikr, Olx, Uber, and Flipkart now advertise their presence on mobile devices first.
As such, we can assume that mobile will take a front seat when it comes to implementing
initiatives like Cashless India.
Banks and payment gateway companies have already started leveraging mobile networks
as a channel for extending their existing payment infrastructure because of the reach and
easy of access that mobile offers. Paytm wallet, India’s largest mobile payment service
platform, has over 150 million wallets and 75 million Android-based app downloads as of
late 2016. The app enables users to buy air and movie tickets, book taxis, recharge their

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mobile devices, pay various bills, purchase fuel at petrol pumps, and even shop at small
retailers and neighborhood shops.
Furthermore, the Government of India’s additional initiatives like Mobile Seva and
reward schemes like Lucky Grahak Yojana and Digi Dhan Vyapar Yojana are
supplementing the use of mobile in a cashless economy. Mobile Seva provides a fully
operational mobile payment gateway, incorporating various channels for making
electronic payments through mobile devices. Government departments and agencies can
integrate the gateway with their applications, so that citizens and businesses can make
payments for various government services through their mobile devices.
Launched in late 2016, Lucky Grahak Yojana distributes daily and weekly rewards to
thousands of retail consumers. Similarly, Digi Dhan Vyapar Yojana distributes weekly
rewards to thousands of small businesses. To qualify for these rewards, applicants must
make digital payments through a Unified Payment Interface (UPI), Rupay, the Aadhaar
Enabled Payment System (AEPS), or an Unstructured Supplementary Service Data
(USSD). These initiatives have boosted confidence in digital mediums for payment
services and will likely lead to increased private sector mobile payment services, as well.

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Chapter - 8
The race to make India a cashless economy
Against the backdrop of the demonetization exercise that shook up the Indian economy
last November, there’s a major tussle brewing in the consumer banking space in India.
Vying for the chance to handle citizens’ money are two major sets of players – the
traditional banks, and a new age of “Payments banks” – organizations that have received
licenses to run partial banks, where they can accept deposits, offer services like debit
cards and remittances, but not provide loans (at least not yet). It’s a battle between the old
and the new that we’ve rarely seen the likes of elsewhere in the world.
Demonetization, arguably the most significant trigger of this race, was an involuntary
exercise that the country underwent, where, overnight, the two largest currency
denominations – The INR 500 and the INR 1,000 notes – were declared by the
government as no longer being legal transacting tender.
Instead, the government would introduce a new set of INR 500 notes along with an
entirely new denomination of INR 2,000 notes. INR 1,000 is approximately US $16,
which in an Indian metropolitan city, would buy four movie tickets to a high-end cinema.
Unfortunately, the execution of the exercise was patchy – there was a period of three
months after the declaration of the old notes as illegal that the country was waiting for the
new notes to be printed. The printing had begun during these months, but the demand far
outstripped the supply, leading to daily cash shortages at banks and ATMs.
The move was initially portrayed by the Indian government as a way to combat
undeclared income held privately by entities, outside of the country’s banking system, but
when the move encountered criticism, the government changed the PR spin, reframing it
into an effort to make India go cashless. In hindsight, this was a good reframe of the
exercise, because it shifted focus from the troubled execution of the demonetization

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exercise to an India of the future where transactions are digital (read: ‘easy’), and
accounted for.
The payments banks offer interesting competition to the traditional banks because of the
profile of companies that have received these licenses. Two such prominent licensees are
the Indian telecom giant, Airtel (founded in 1995, $14.5 billion revenues in 2016), and
the e-wallet + online payment facilitator Paytm (founded in 2010, valued by some
sources at $1 billion, in its latest fund-raise, with controlling ownership held by Alibaba’s
parent company).
E-wallets like Paytm have a straightforward operational model – Effectively, they act like
PayPal with an online store and a network of offline retailers that customers can buy
from. Once the user loads money into her or his e-wallet, they can buy from a selection of
products, both online, and from the network of retailers that the particular e-wallet has
tied up with. If the consumer decides to withdraw money back into their bank accounts,
they pay a transaction fee of anywhere between 1 and 4 percent of the amount they’re
withdrawing.
Traditional banks in India have done well for themselves, but do struggle to maintain the
rates of growth in customer acquisition that they’ve had at their peak. This is because
most people that need banking services already have them, and those that don’t have
these services haven’t had a need for them. When demonetization happened, it would
have been a catalyst for more users to enter the banking system, but the e-wallet
alternative stymied this.
This situation is unique to India in that the country’s population has millions of people
that have shunned credit cards as well as bank accounts. There have been efforts by the
government to encourage people to enter the banking system through small incentives
that don’t solve the systemic issues. Among the issues is the fact that many of the routine
transactions that people need can only happen in cash, for reasons that include not having
reached a tipping point in terms of moving a critical mass of people into the banking
system that would make non-cash transactions an alternative. There is also a mindset that
a bank account is for savings, or for surplus money, whereas the on-ground reality of

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many Indians is that they survive on daily wages, where the money they earn is already
spoken for in terms of debts owed to keep the lights on or to feed the family. As a result,
the incentives, like lucky draws or other rewards, offered by the government to move
people into the banking system haven’t been as impactful as the political promises that
preceded them.
How did demonetization impact retail transactions?
Let’s use the term ‘merchants’ to denote service providers as well as retailers of various
sizes. Many of these merchants, from mom-and-pop stores to individual service providers
like plumbers and electricians to rural farmers and beyond, had previously relied on cash
transactions for their livelihood.
When demonetization struck, they quickly adopted Paytm’s e-wallet as a way to continue
serving their customers. These merchants would have a QR code issued by Paytm that
allowed their customers to scan the code, find the specific merchant listed on Paytm and
instantly transfer money from their e-wallet to that of the merchant. The fact that the
country was starved of paper currency for a period of nearly three months while the new
notes were being printed pushed a large number of end-consumers as well into adopting
e-wallets like Paytm to transact, closing the merchant-customer loop.
As a result, Paytm added millions of new subscribers within days of the demonetization
initiative, with villages and towns of populations under 100,000 now contributing to 20
percent of Paytm’s revenue, compared to 2 percent prior to demonetization. The company
estimates to have facilitated 200 million transactions of nearly $750 million in the month
of January alone.
The effect of demonetization was twofold – a large number of Indians, thus far
uncompelled to go cashless, suddenly found themselves warming up to the idea of doing
digital transactions, whether by debit card or via e-wallet, incrementally trusting the
brands of the major players like Paytm or Mobikwik. Secondly, the convenience of e-
wallet transactions via mobile phones made the customers and merchants educate
themselves, out of necessity, on how the system worked. Today, this has gotten gotten

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both customers and merchants a lot closer to now trusting a payment bank with a mobile
interface, which is right in the wheelhouse for both Airtel and Paytm.
What’s happening with Payments Banks?
A Payments Bank is an entity sanctioned by the Reserve Bank of India (India’s central
banking institution which controls the country’s monetary policy) that will allow
customers to open accounts and will accept (as of the printing of this article) deposits up
to INR 100,000. These banks may not give out loans or credit cards, but they can provide
services like debit cards and ATM withdrawals, along with net and mobile banking
When Paytm launches its payments bank, it will cannibalize a part of its own e-wallet
business – for example, transacting with a merchant using the payment bank account will
eliminate the e-wallet transaction fee that Paytm previously imposed when the merchant
or consumer tried to withdraw their e-wallet balance back into their bank accounts. It also
impacts new customer acquisition for point-of-sale card swipe terminals which required
the merchants to rent the actual hardware, have an internet connection, as well as pay a
fee of about 2 percent of the transaction value to the banks offering the machines and to
the card-issuing entity (Visa/MasterCard/Amex).
In offering the services of a bank, Paytm and Airtel will have to continue to provide a
sense of trust to their target market – trust that they aren’t disappearing anytime overnight
(even though the regulatory provisions already ensure that such a thing cannot happen) as
well as trust that they are accessible, and not just a virtual storefront. Airtel has an
advantage in that its thousands of retail outlets, spread across the country, where
customers buy SIM cards, recharge their pre-paid voice and data plans etc, can double up
as Airtel Payment Bank counters where a customer can create an account or withdraw
money. Sitting in a busy part of Bangalore, I find that Airtel has 30 such payment points
within a 2 mile radius of my location. A smaller city, with a quarter of Bangalore’s
population, like Faridabad, has 60 of these.
A neighborhood store that doubles as an Airtel payment bank outlet in Bangalore

36. 36
That said, Airtel is still going to bankroll its initial customer acquisition by offering the
highest interest rate of any Indian bank, payment or not, at 7.25 percent. According to
a report, as of February 21, the big traditional banks (ICICI, HDFC and Axis) are holding
at 4 percent.
How are traditional banks going to tackle this competition?
As it turns out, the traditional banks have gotten a leg-up from the Indian government,
which is pushing unified interfaces to allow customers to make transactions across banks
easily using their phones – similar to the way one could use a debit card issued by one
bank at an ATM operated by another bank.
The United Payments Interface (UPI) (PDF), launched by the government, is a payments
system that allows for instant mobile transfers between account holders of two different
Indian banks. On the back of this, the government is deploying various technologies, like
the BHIM (Bharat Interface for Money) app to allow end-consumers to transact between
each other as well as with merchants. Like the venture-funded private e-wallet startups
(Paytm, Mobikwik), the Indian government is aggressively promoting their digital
cashless technologies (BHIM, Aadhaar-enabled Payment System or AEPS and United
Payments Interface).
And India is marketing these as aggressively as any well-funded B2C startup: As of
February 22, the government has paid out INR 1530 million (~ $23 million) over the past
four months through cashback rewards (such as lucky draws and referral schemes). The
BHIM app currently has 17 million downloads in less than three months since its launch.
The more successful the BHIM app is, the less that traditional banks have to worry about
mobile payment banks eating their lunch.
Then there is the Bharat QR code – a competitor to the Paytm QR code that merchants
have been displaying (especially since demonetization in November 2016). The
advantage is that because it is government-backed (effectively a neutral third party), 15
major banks in India have already signed on to link the Bharat QR code into their existing
apps. This will allow consumers to scan a merchant’s Bharat QR Code through their own
bank’s app, and upon authorization, debit directly from their bank account. This

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eliminates the need for both parties to be a part of the same currency system (like it used
to be for Paytm).
So, while payments banks like Airtel and Paytm are going to take steps to provide a
trustable monetary transaction and banking experience, like traditional banks already do,
the traditional banks themselves are rapidly moving towards adding on e-wallet like
services, on mobile, like the challengers already do.

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Chapter - 9
A Cashless Future Is the Real Goal of India's Demonetization
Move
"This is a public sector innovation unthought of in history. A cultural-economic
revolution in the making!" exclaimed Monishankar Prasad, a New Delhi-based author
and editor, about India's demonetization initiative and subsequent drive towards
developing a cashless economy.
The biggest problem with India suddenly removing 86% of its currency from
circulation without having an adequate supply of new notes ready to take their place is
that fact that India is more reliant on cash than almost any other country on earth.
Suddenly, hundreds of millions of people were left without the means to engage
economically, to buy the things they wanted and needed, and myriad businesses were left
without a readily available mechanism to receive payment for their goods, to buy
supplies, or pay their staff.
India’s demonetization scheme was a unilateral initiative that was planned in secret — in
a back room of Prime Minister Modi’s home, in fact — by a small group of insiders tied-
in with the upper echelons of India’s government. The strategy was to instantly nullify all
500 and 1,000 rupee banknotes, the most common currency denominations in the
country, and then eventually replace them with newly designed, more secure 500 and
2,000 rupee notes. This endeavor instantaneously became policy when the prime minister
announced it via a surprise television address at 10:15 PM on November 8.
One of Modi’s main brands is that of a corruption fighter, and his demonetization
initiative was rushed into effect in an attempt to catch the black market off guard —
which could potentially lead to a big payday for the central bank if large amounts of illicit
cash wasn’t redeemed. That plan flopped, as almost all of the recalled notes were
officially accounted for one way or another.

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But this surprise demonetization also did something else: it pushed millions of new users
onto the country’s digital economic grid by virtual fiat. Not even the banks were notified
in advance of Modi's plan, and, even with strict exchange limits that prohibited people
from exchanging over $60 worth of rupees at a time, they simply didn’t have enough of
the newly designed banknotes on-hand to distribute to the masses looking to redeem their
canceled notes. Rather than being a 50 day transition, as the Indian government projected,
it is looking as if it will take four months to a year before the country's currency supply is
restored.
In point, the people of India were left in limbo as the government cancelled the bulk of
their currency without providing them with the means to obtain the newly printed notes to
replace it. On the surface, this seems as if it was a matter of gross negligence, but there
may have been more to it than that. As the demonetization process continues, Modi’s
rhetoric is less about fighting corruption and more about transitioning India to a cashless
economy.
Up until this campaign, India was an incredibly cash-centric economy. Cash accounted
for upwards of 95% of all transactions, 90% of vendors didn’t have card readers or the
means of accepting electronic payments, 85% of workers were paid in cash, and almost
half of the population didn’t even have bank accounts. Even Uber in India accepted cash
— the only country in the world where this option is available — and “Cash on Delivery”
was the preferred choice of 70% of all online shoppers.
By temporarily turning off the engines which drove the cash economy, India hoped that
more people could be brought into the fold by using track-able — and taxable — digital
financing vehicles, like debit cards and e-wallets.
“Look, you still have a reasonably large part of the population that doesn't even have a
bank account,” said Arpan Nangia, the head of the India desk for HSBC’s commercial
banking division. “Yes, our position is that everybody should have a bank account and
everybody should be transacting through that, but if a large part of your population

40. 40
doesn't even bank it is going to take some time for you to invest before you can say let's
go completely cashless.”
However, reservations about the timing of India’s big cashless push at this point are
irrelevant. It’s happening, ready or not.
India is currently in the middle of an all-out movement to modernize the way things are
paid for. New bank accounts are being opened at a heightened rate, e-payment services
are seeing rapid growth, cash-on-delivery in e-commerce has crashed, and digitally-
focused sectors like the online grocery business have started booming.
“Even the vegetable vendors on the streets have opened up Paytm accounts and they have
a machine outside their shop where someone can scan the bar code and make the
payment,” Nangia explained.
“A lot more retail outlets are accepting e-wallets, including my laundry provider and
my dabbawala," Prasad proclaimed. "This is revolutionary, and survival of the fittest.”
Modi’s demonetization initiative has been a boon for India’s e-payment
providers. Paytm reported a three-time surge in new users -- tacking on over 14 million
new accounts in November alone. While Oxigen Wallet’s daily average users increased
by 167% since demonetization began.
“Ever since Prime Minister Narendra Modi’s demonetization announcement, we have
suddenly seen a spike in both app downloads & merchant registrations. This spike is now
coming from all cities, big and small, pan-India, consisting of small merchants like
vegetable vendors, Kirana shopkeepers [small convenience stores], street vendors,
rickshaw drivers, taxi’s etc., who’ve signed onto our Oxigen Wallet app for the merchant
payments service,” said Pramod Saxena, the founder and CMD of Oxigen Services.
Crypto currencies like Bit coin and Asiadigicoin have also been the recipients of a
positive upswing from Modi’s currency purge — with Bit coin in particular being driven
up in value.

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The lack of cash in the economy combined with the buzz around electronic payments
systems has also sparked some very innovative solutions. The farmers’ markets of
Telangana began experimenting with their own electronic payment system where
customers with Aadhaar-linked bank accounts could buy vegetables using tokens which
could be purchased via debit cards at specialized kiosks.
“These changes indicate towards a more inclusive society in the future,” Saxena said. He
then outlined several areas in which India is trying to improve its digital economy, which
include simpler, more technologically advanced digital payment systems, increased
merchant acceptance, improvements in UPI, which allows monetary transfers between
any two bank accounts via a smartphone, as well as a reduction in cash-based
transactions.
“The Prime Minister's move to incentivize digital payments will offer a strong support to
our ongoing efforts in helping the country leapfrog the cash generation to digital payment
solutions," added Deepak Abbot, the senior vice president of Paytm. "This will not only
help millions of Indians overcome the hassles of dealing in cash but also act as a
significant step towards propelling India to emerge as a truly cashless economy.”
Digitalizing a wider swath of the economy is meant to be a fix for many aspects of
India’s society that the government aims to reform. First of all, it creates a way for all
purchases to be tracked and recorded, which can work towards limiting the effectiveness
of the black market as well as stemming the flow of capital that's destined to fund
terrorist activities.
Economic digitization also increases the government’s ability to enhance its taxation
systems. India’s informal economy is responsible for roughly 45% of GDP and 80% of
employment, which means that billions of dollars are being exchanged each year without
the tax collector taking his cut. Currently, only 1% of India’s population pays income tax.
“A digital economy is an economy which is tracked in real time,” Prasad said. “Each
transaction is mapped. Every taxman likes numbers. It will certainly help expand the tax
net.”

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India hopes to create a cleaner, more transparent economy via digitalization that will lead
to an improved climate for foreign investment, boost economic growth, and ultimately
propel the country to the next chapter of its emerging markets story.
But even if India were to accomplish this rather incredible and, in the short-term at least,
improbably feat, there is still a marked downside, as Prasad exhibits: “The long term
impact will be a paradigm shift to the digital fintech platforms. It will be a surveillance,
panoptic on-led society of a new breed.”
There are also marked class issues which are built into India’s cashless transition. India is
a country that has one foot in the future and the other in the Stone Age — almost literally.
This is a country that has one of the most vibrant and innovative high-tech ecosystems in
the world along with hundreds of millions of people living in villages who are
comfortable with technology that’s hardly more sophisticated than a bullock cart and a
plow. Only 17% of the India’s population currently has access to a smartphone.
“The poor were taken totally off-guard and the banking infrastructure in the hinterland is
rather limited,” Prasad said. “The poor do not have the access to structural and cultural
resources to adapt to shock doctrine economics. The tech class has poor exposure to
critical social theory in order to understand the impact on the ground. There is an
empathy deficit.”
To these ends, widespread grassroots education campaigns have been launched via
government, business, and social entities across India to provide the basic technological
know-how for an increased amount of people to get on the digital economic grid.
“Many have have gone and encouraged the vendors or the domestic help or a car driver
or somebody else to go and open an account so they can then transfer them money
electronically,” Nangia said.
Electronic payment companies like Oxigen Services have also been running extensive on
the ground initiatives to educate people on how to use their technology, as well as to
install more micro-ATMs and retail touch points throughout the country.

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“We have a large task force out on the ground, educating merchants and customers how
to use the wallet, to enable smooth transactions,” Saxena explained. “Be it a Kirana store,
your local vegetable vendor, your corner chemist, or salon, all are being acquired. The
task in hand is really large, however the adoption is fast, as the merchants need a
solution, just as the non-credit/debit card population of India.”
“Going cashless will take time and a lot of public education,” Prasad rationalized. “It is
not instant coffee.”
At least two places in India have already gone completely cashless. Long before Modi
began his monetary purge, Auroville — a European-influenced, intentionally developed
“hippie” town in Tamil Nadu — and the 1,200 person village of Akodara in Gujarat have
already eradicated cash in exchange for electronic payment systems.
However, as Prasad pointed out, “No economy can go completely cashless. This will
require a lot of ecosystem building to even reach a tangible threshold. India culturally
believes in cash and a paradigm shift in thinking will need time and resources.”
Whether intentionally at the outset of demonetization or not, this paradigm shift was
initiated by the Modi government this November. While some of the boom in additional
usage of electronic payment systems may fizzle out as cash is restored to India’s
economy -- and people go back to paying for things with bills and coins and storing gluts
of cash in their mattresses as they've always had -- a reasonable portion of this transition
may stick in the form of new long-term users.
The way people pay for things is a cultural pattern, and such patterns are often hard to
break. But once they are broken and new ways emerge, new patterns become solidified as
societies update the way they function. Cashless is now the big buzzword in India, and
the ball is rolling as the world's largest cash economy begins going digital.

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Chapter - 10
How Technology is Pushing India towards a Cashless Economy
If one were to opine about the ploy of the times, the explanation would be rather simple:
we live in a world that moves quickly, a world that no longer follows the customs of an
evolutionary change. It rather thrives on the concept of revolution. When Indian Prime
Minister Narendra Modi demonetized the nation’s high value currency denominations in
2016, it was nothing short of a revolution. While onlookers believed that the move in itself
was to tackle the black money freely-flowing in the economy, economists predicted a
different narrative attached to it; the narrative of converting India into a cashless economy.
The vision of accepting economic digitization, in a third world nation like India, points
towards the fact that we as a bunch have come a long way. And that has been propelled
only because of the technological advancements the world has made. In fact, there has been
a sort of a digital disruption in the way payments are made around the world. The 21st
century has seen the portmanteau of fintech spread its wings to encompass things that were
previously thought unfathomable.
The way technology has progressed over the last decade or so has been nothing short of
spectacular, and even people who previously pointed at corduroy have come to accept its
momentousness. The matter of the fact is that technology has opened up new ways in which
we can interact with money and its role in nudging an economy to abandon liquid cash has
been massive.
Smartphones have paved the way for online transactions and that coupled with the services
one were to find on the internet today makes it the perfect hotcake recipe. The world’s most
valuable tech company, Apple, has something called the Apple Pay that allows you to pay
for things using nothing but your mobile phone. Samsung and Google have followed suit
with similar offerings. By the virtue of other apps, banking services have found their way
into people’s phones. And it has now become possible to do all banking related things
without ever having to visit your bank. Apart from all that, technology has opened the

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floodgates and made the idea of bringing your local home depot to your doorstep possible.
Amazon and Alibaba are only a few names that have let people buy groceries, shop for
clothes, and do a lot more, all in the comfort of their homes.
The days of having a pen and countless intellectual thoughts to bring about a revolution,
seem to have gone. Today, all you really need is a mobile phone and an internet connection.
This trend is best reflected in the popularity of the Bit coin. Before it, people believed that
gold was perhaps the best investment. However, crypto currency has presented the world
with another reliable way of making huge investments. As a result, more and more
countries have started to realize the massive potential in Bit coins. And while India still
doesn’t recognize Bit coin or other forms of crypto currency, it still recognizes it’s potential
and is working on the BharatCoin. This is indeed a classic example of how technology has
led the world to leave traditional ways of investing, thus bringing in investments in
digitized denominations.
But, like we discussed above, the world moves quickly, and if we were to doddle beyond
the tip of this technological iceberg, even smartphones are looking like a thing of the past.
Wearable tech has arrived and looks like it is here to stay. Now, we have watches that can
make transactions by just a simple tap, and shoes that can order their replacement once
they’ve seen enough tear.
What is more revolutionary than these wearable tech gadgets themselves, is the number of
possibilities that they open, which to be fair, seem virtually limitless. And it is not hard to
understand why. Technology fabricates convenience and wearable tech brings
unprecedented convenience with itself. Then, there have been talks of the concept of
cashless cars becoming a reality. These would be cars that would double as your wallet and
will also find their way to the repair shop in case of any mechanical flaw, without any
assistance whatsoever. It only baffles one to think what it would be like if this becomes
reality.

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Standing where we are today, at this juncture, the future seems bright and humanity seems
to have made the right technological leap. The mobile phone has already become the wallet
for millions of people around the world, and we have just started. Imagine of a time when
virtual reality will be successful in converting your home into your local store, where you
can see the whole store on your headset or on a virtual hologram and make payments just
by the nod of your head. This way, businesses won’t have to bear the costs of constructing
a physical store and can put all that money into enhancing customer experience. Something
that might likely bring prices down.
Technology has made it possible for online transactions to be more transparent, thus
reducing the margin of any error substantially. Digital transactions can be traced back to a
person, and this can help in minimizing bribes and other forms of corruption within the
society. And not to forget that it would be virtually impossible to have digital currency in
the black. Yes, there are problems, and like with everything else, technology and the idea
of a cashless society has certain flaws. For instance, in a country like India, 40% of its
population still doesn’t own a basic phone, let alone a smartphone. Then there are the
people who live in inaccessible areas with no network coverage and scant electricity
supply. There is also the persistent issue of a person’s security on the web.
But, we get to choose the future and it seems that the world has unanimously decided to go
towards a digital economy. In a way, cashless is not the economy of today, rather, it is the
stepping stone for the economy that will be tomorrow. And technology, just like till now,
will have a major role in that. As the infrastructure improves and as more and more people
in the world achieve technological literacy, we shall move towards a cashless society. The
fact is, we had to start somewhere.

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Chapter - 11
India is far away from being a cashless economy. Here’s why
A day after Prime Minister Narendra Modi announced that to curb black money in
circulation Rs 500 and Rs 1,000 notes would no longer be recognized as legal tender,
finance minister Arun Jaitley added a new gloss to the decision. He announced that this
currency swap would “not merely nudge the economy in the direction of cashless
economy but [give it] a significant push in that direction.” Economic affairs secretary
Shaktikanta Das echoed this in an interview, explaining that this move was part of a
larger agenda to move India into a digital economy. These calls reached a crescendo in
Modi’s monthly radio address, where he asked citizens to take a pledge to be part of a
cashless society. But do the preconditions for a successful transition to digital banking
exist?
The numbers paint a stark portrait. As of last week, there were 256 million no-frills ‘Jan
Dhan’ accounts, roughly one for every household, under the Pradhan Mantri Jan-Dhan
Yojana (PMJDY). The scheme also promised to provide every new account holder with
RuPay debit cards, with 195 million cards being issued so far. While the finance ministry
must be given due credit, the Modi administration appears to have conflated outputs with
outcomes.
Just as building more schools does not improve literacy rates, opening accounts does not
empower citizens to make digital financial transactions. Key demand and supply-side
gaps remain: 23% of PMJDY accounts lie empty. A recent investigation from September
found that 10 million accounts held only Re. 1, as bank officials took matters into their
own hands to reduce their branch’s share of zero-balance accounts. A survey of PMJDY
customers conducted by a financial inclusion consultancy found that only 33% of all
beneficiaries were ready to use their Rupay cards. The others were bewildered by the
complicated PIN and activation procedures. Inconsistent electricity and sporadic internet
access further eroded customers’ trust in ATMs and POS machines, with one failed
transaction enough to make an entire village swear off formal financial institutions.

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This is as much a structural constraint as it is logistical. Card acceptance infrastructure
struggles to keep pace with India’s growing population: in 2014, there were
18 ATMs and 13 commercial bank branches per 100,000 adults – in comparison, the
number in Brazil was 129 and 47 respectively. Between 2013 and 2015, debit cards grew
twice as fast as the number of POS machines and one-and-a-half times the number of
ATMs, with the majority of new infrastructure taking root in urban Centre’s. India’s
modern banking system maps neatly onto social and spatial inequalities. Only 18% of all
ATMs are deployed in rural India. The RBI’s own research finds that states with a higher
female population and a more rural populace show lower levels of financial inclusion.
The impact of mobile wallets in hastening the transition to a cashless economy is
overstated. Merely 26% of India has internet access, and there are only 200 million users
of digital payment services. The World Bank’s Global Findex shows that Indians are
significantly less familiar with digital banking – the use of credit or debit cards, making
transactions using mobile phones, and using the internet to pay bills – than their peers in
middle-income nations.
The path forward is clear: A nationwide financial literacy campaign accompanied by a
medium-term strategy to improve access to, and awareness of, electronic
payments. Targeted financial education programmes can improve financial skills and
credit management, and increase account ownership.
India’s current economic moment constitutes a crucial inflection point; if handled
correctly, there is a real chance that the unbanked will adopt digital payments en masse.
The RBI and finance ministry have made Financial Literacy Centre’s (FLCs) a
cornerstone of the PMJDY. These Centre’s provide tailored financial education
programmes to introduce adults to banking products and setting financial goals.
Well-publicized literacy activities conducted at the 1,400-odd FLCs will go a long way
towards reassuring consumers that bank accounts are a legitimate alternative to a cash-
heavy economy. Beyond this interim measure, the government must undertake the
Sisyphean task of changing attitudes towards digital payments among customers and
merchants. Off-the-shelf policy templates provide a good starting point, such as a report

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on Indian payment systems and an USAID survey on expanding payment acceptance
networks.
India’s cross-cutting cleavages have historically prevented the benefits of economic
reforms from reaching marginalized groups. As the government works to restore currency
circulation, it should take full advantage of this critical juncture to take a giant step
towards substantive financial inclusion.
Speaking to the Wall Street Journal in May, Prime Minister Modi admitted that he was
puzzled by the calls for ‘big-bang’ reforms since no expert could define the term for him.
As the shock waves of demonetization roll across the Indian heartland, Modi’s
administration would do well not to be blinded by the flash.

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Chapter – 12
Positive and Negative impact of cashless economy
The drastic digitalization over the past few years has indeed affected almost every sphere
of our lives. One of the most recent effects has been the move towards a cashless
economy in India. Starting with the note ban in November 2016 due to the sudden
withdrawal of the notes of Rs.500 and Rs.1000 denominations from the economy
overnight, the Indian economy is going cashless. In other words, least paper transactions
will be involved, substituted by more digital transactions with the help of internet
banking, digital wallets, Point-of-Sale machines, credit and debit cards, etc. These are
having multiple implications on the economy with the following advantages and
disadvantages.
Advantages
A cashless economy will allow less tension of tackling a wallet full of notes along with
us, which is not at all safe in a world full of anti-socials. We can rather use our mobile as
a one-stop solution for all kinds of transactions such as bill payments, fees payments,
funds transfer, recharge, etc.
 It will ensure a ‘black-money free India’ or rather the so-called ‘parallel
economy’ where people bypass the banks to gather money in their closets at home
without coming under the purview of tax will suffer a setback.
 Crime rates have already started diminishing due to cash ban as most of the
terrorist activities are funded with black money that has bore the brunt of this. In
addition to this, other crimes such as burglary, extortion, bank robbery, etc. are
also declining.
 One of the biggest advantages is the increase in the span of the income tax. Due to
least involvement of cash, transactions have to be done through banks where
proper KYC verifications will be done prior to banking transactions and hence, it
will be easier for the Government to monitor and mend the income tax evasion by

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the unscrupulous persons. This will, in turn, enhance the revenue received by the
Government.
 Above all, the cashless economy will lead to the most convenient and secure
economy for all.
Disadvantages
 The cashless economy will see a hike in the hacking of the personal information
over the internet such as credit and debit card numbers, PINs, passwords and
other sensitive information due to an increase of digital transactions. In short,
cybercrimes will escalate like anything if proper internet security measures are
not taken.
 The poor section of India who is in majority and is scarcely covered under
conventional banking system will suffer a lot, as they are solely dependent on
cash for their daily wages.
 Sectors such as real estate, retail, restaurants, cement and other MSMEs, where
huge cash transactions are involved are going to be affected terribly.
 Inadequate internet infiltration, low internet speeds, limited smartphone and
broadband penetration, very less PoS machines are the roadblocks towards
achieving full digitalization that is here the main substitute for cash transactions.
 Funds will always be in control of the third party such as Government, banks,
payment interfaces, etc. which lead to extreme uncertainty.
 In short, a cashless economy can only be possible with sufficient infrastructure
and planning that are required for supporting an economy like India.