Cashless economy is defined as the phenomenon where use of physical cash does not exist fortransactions. Use of other modes of payments such as Debit cards, Credit cards, NEFT, IMPS, UPI Wallet money are new modes of payments whichthe consumers are opting for especially after the COVID 19 pandemic where useof physical cash was not a preferred option by people.

The ecosystem of cashless economy in India grew in two phases.

First was during Demonetization in 2016.Demonetization pushed people to opt for cashless transactions due to lack of availability of liquid cash. India at that time did not have adequate infrastructure for online payments. This was the first time when use of mobile wallets such as Paytm, Freecharge, Mobikwik, etc. rose exponentially. The share of use of Paytm wallet grew by about 400% for bill payments. The number of users of such wallets also grew at a fast rate. Also, the number of people having smartphone were less and internet penetration was also low. Use of Debit and Credit cards became common. The number of people having bank accounts was just increasing during the Jan Dhan Yojana Scheme. Many people having bank accounts were still not comfortable to use Card as the mode of payment. However, when supply of cash increased, people again started using cash as their preferred mode of payment.The main purpose of demonetization was to reduce black money.

Meanwhile, the government was working on bringing BHIM app (Bharat Interface for Money) as a part of its Digital India Campaign whereby government was building necessary infrastructure for online payments not only from wallets but bank to bank transfers as well. Thus, the government launched BHIM in December, 2016 based on NPCI’s UPI (Unified Payment Interface). It allows easy money transfer without the hassle of knowing the recipient’s bank or account number. Instant money can be transferred at all times. It does not require prior beneficiary registration, unlike net-banking. Customers who don’t have UPI accounts can also receive money via the Indian Financial System Code (IFSC) and Mobile Money Identifier (MMID) codes. A fixed amount can be transferred by generating a QR code, in case the receiver does not want to share their phone number thus making it useful for merchants and vendors.

Second phase was during the COVID 19 pandemic when people avoided use of contact in any form. Exchanging liquid money was also not a preferred option among people. This is when people switched to digital mode of payment. Use of Netbanking, Mobile banking, QR code based payments significantly increased in India. Almost all the vendors and merchants had the necessary infrastructure to enable these payments. Thus, this mode of payment became a preferred option for many people. It was hassle free, convenient and secure. Also, payments can now be tracked and entered into the formal banking system as against earlier where use bank money was present. The main aim of the government to encourage digital transactions was to bring the transactions especially that of high amount in the ambit of banking institutions where it can be verified and tracked.

However, despite these developments, somepeople are still hesitant to use this mode of payment. Senior citizens who are not that comfortable with the technology still prefer physical mode of payment. People are also concerned about data privacy and data breach. A lot of personal information has to be provided to open a bank account. Also, bank details are needed to register for payment apps and digital wallets. Some even ask for details such as PAN Card number which users are hesitant to share. Consumers in India particularly are concerned that their personal information might be shared with people and external agencies who might misuse it.

For a cashless economy to take off the primary precondition that should exist is that there should be universal financial inclusion. Every individual must have access to banking facilities and should hold a bank account with debit/credit card and online banking facilities. Ensuring financial and digital inclusion alone are not sufficient to transition to a cashless economy. The citizens should also be made aware of the financial and digital instruments available and how totransact using them. Digital infrastructure is highly vulnerable to cyber-attacks,cyber frauds, phishing and identity theft. Off late cyber-attacks have become more sophisticated and organised and poses a clear and present danger. Hence, establishing secure and resilient payment interfaces is a prerequisite for going cashless. Indian economy functions primarily on cash due to lack of penetration of e-payment modes, digital illiteracy of e-payment and cashless transaction methods and thirdly habit of handling cash as a convenience. While urban centres mostly enjoy high-speed internet connectivity, semi-urban and rural areas are deprived of a stable net connection. Therefore, even though India has more than 200 millionsmartphones, it is still some time away for rural India to seamlessly transactthrough mobile phones. Even with regard to the presence of ATM’s, PoS terminals and bank branches there exists a significant urban-rural divide and bridging this gap is a must to enable a cashless economy.

Many countries such as Sweden have already successfully transitioned to a cashless economy and many others are in line for doing so. Recently, NPCI based QR code payment system is set to enter the UK market foraying Indian technologies to go on a global platform and this can be the future of payment systems. Also, many countries are palnning to introduce digital currencies which will give cashless economy a further push. Are these payments going to stay after the pandemic is over or people will go back to transacting in cash as they did after demonetization will be something to look out for in the future.