A cash-less economy is where the financial transactions are carried out through the transfer of digital information between the transacting parties rather than with money in the form of physical currency coins or notes. Mobile wallets, credit & debit cards, IMPS, REGT, and NEFT are the common digital modes of transactions used in a cash-less economy.
Even though the cash-less economy has many advantages, many experts believe the full elimination of cash as a mode of transaction is near to impossible. The confidence that cash instills on customers is one of the main reasons for this. Cash also ensures that customers are not bound to the banks and other businesses for every transaction. But people from financial background believe that cash will disappear from the economy within the next 10 years. The figures below depict the advantages and disadvantages of both cash-less economies and cash-based economies.
Even though cash-less economies have several advantages, many experts believe that governments and corporations enjoy way more benefits in a cash-less economy than normal individuals. Since governments and corporation directly benefit from a cashless economy, the idea of cash-less economies is mainly perpetuated by card companies, banks, and other electronic payment service providers.
Merchants are being levied charges for every transaction using POS terminals and cards, which results in these charges getting passed on to customers in the form of higher prices. Approximately ₹150 is charged per month to the merchants for using a mobile Point of Sale (POS) terminal in India. Additionally, a discount rate of 1% is charged on every transaction of more than ₹2,000. Whereas for transaction below ₹2,000, a discounted rate of 0.75% is charged on merchants by the banks and other electronic payment service providers.
On top of these discount rate electronic payment service providers also charge an annual fee from the consumers for providing services such as mobile banking, internet banking, debit cards, and credit cards. Studies show that credit card is the most expensive mode of transaction for both consumers and merchants. Other challenges in a cash-less economy include issues such as technical glitches and security frauds.
Comparatively, cash-based economies also have some challenges that may lead to negative financial implications. There is a cost associated with the printing and distribution of money to the Central bank. In 2013-14, it cost Reserve Bank of India ₹32.1 billion to print money and a further ₹15.2 billion per year is spent on adding and maintaining ATMs by banks.
Studies show that the direct cost associated with the running of the cash-based economy in India is about 0.25% of the Gross Domestic Product (GDP). Other issues such as tax evasion, corruption, and money laundering cannot be easily traced in a cash-based economy.
Even though many policy-makers and large corporation executives believe that the “future will be cash-less”, both cash-based and cash-less economies have their own benefits and challenges. The customers should be given the choice to decide the mode of transactions that best serves his/her purposes. The move to remove cash from the economy could create a ‘power block’ controlled by corporations. Hence, there is an advantage to allow both modes of transactions to co-exist to satisfy consumer preferences. Ultimately, the choice should be down to the customers to choose between digital transactions or cash transactions.