See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/316429963

Cashless transaction: Modes, advantages and disadvantages

Article · January 2017

CITATIONS READS

0 20,077

3 authors, including:

Ramya N.
Dr. N.G.P. Arts and Science College
11 PUBLICATIONS   5 CITATIONS   

SEE PROFILE

All content following this page was uploaded by Ramya N. on 24 April 2017.

The user has requested enhancement of the downloaded file.

 International Journal of Applied Research 2017; 3(1): 122-125

ISSN Print: 2394-7500

ISSN Online: 2394-5869
Impact Factor: 5.2
Cashless transaction: Modes, advantages and
IJAR 2017; 3(1): 122-125
www.allresearchjournal.com
disadvantages
Received: 09-11-2016
Accepted: 10-12-2016
N Ramya, D Sivasakthi and M Nandhini
N Ramya
Assistant Professor, Abstract
Department of Commerce with The RBI and the Government are making several efforts to reduce the use of cash in the economy by
Professional Accounting, promoting the digital/payment devices including prepaid instruments and cards. RBI’s effort to
Dr. N.G.P. Arts and Science
encourage these new varieties of payment and settlement facilities aims to achieve the goal of a ‘less
College, Coimbatore,
cash’ society. With limited cash in hand and an indefinite crunch in sight, most people are rushing to
Tamil Nadu, India
cashless transactions. Digital transactions bring in better transparency, scalability and accountability.
D Sivasakthi The new move will compel more merchants to accept digital money. Cash may no longer be king.
Assistant Professor,
Department of Commerce with Keywords: Convergence, NEFT, RTGS, AEPS, point of sale
Professional Accounting,
Dr. N.G.P. Arts and Science Introduction
College, Coimbatore, Cashless Transaction Economy
Tamil Nadu, India
The RBI and the Government are making several efforts to reduce the use of cash in the
Dr. M Nandhini economy by promoting the digital/payment devices including prepaid instruments and cards.
Assistant Professor, RBI’s effort to encourage these new varieties of payment and settlement facilities aims to
Department of Commerce achieve the goal of a ‘less cash’ society. Here, the term less cash society and cashless
(BPS), SNR Sons College, transaction economy indicate the same thing of reducing cash transactions and settlement
Coimbatore, Tamil Nadu,
India
rather doing transactions digitally.
Cashless transaction economy doesn’t mean shortage of cash rather it indicates a culture of
people settling transactions digitally. In a modern economy, money moves electronically.
Hence the spread of digital payment culture along with the expansion of infrastructure
facilities is needed to achieve the goal.
On November 8th, government withdrawn Rs 500 and Rs 1000 notes- two highest
denominations in circulation. Main objectives were to fight counterfeit money and black
money. The action has given tremendous boost to cashless transactions as card based and
digital payments were not hindered when all high denomination cash transactions suffered
because of absence of high denomination currencies.

Efforts towards cashless transaction economy

The RBI and government have launched several measures for the spread of electronic and
other non-cash settlement culture.
The Vision-2018 for Payment and Settlement Systems in India brought by the RBI in June
2016 reiterates the commitment to encourage greater use of electronic payments by all
sections of society so as to achieve a “less-cash” society.
“The broad contours of Vision-2018 revolve around five Cs — coverage, convenience,
confidence, convergence, and cost. To achieve these, Vision-2018 will focus on four
strategic initiatives such as responsive regulation, robust infrastructure, effective supervision
and customer-centricity,” – RBI. The vision statement highlights following plans:
Correspondence • The regulator wants to reduce the share of paper-based clearing instruments
N Ramya • It aims to raise growth of the digital payments space
Assistant Professor, • It wants to ensure accelerated use of Aadhaar in payment systems
Department of Commerce with
Professional Accounting,
Dr. N.G.P. Arts and Science Government also made fiscal measures for the encouragement of card culture in the 2016
College, Coimbatore, budget. Exempting service charge on card-based and other digital payments was one such
Tamil Nadu, India step.
~ 122 ~
International Journal of Applied Research

Aadhar based payment system will be a big boost for After registering for E-Wallet you need to link your credit
promoting the cashless transaction culture. card or debit card with your E-Wallet id. You can use E-
A committee of seven members, chaired by a ministry Wallet for fund transfer or online shopping. It is simplest
official, Neeraj Kumar Gupta was formed to recommend cashless method.
steps for the reduction of cash based transactions.
The technology has spread internet banking, mobile 6. Mobile Wallets
banking, prepaid instruments, credit and debit cards etc. and The next cashless payment method is a mobile wallet. You
at the same time, electronic payments system is fast do not need a debit card, credit card or internet banking
growing. All these indicate that India is moving towards the password for making payment using a mobile wallet. Just
RBI’s goal of less cash economy-steady but slowly. load money in your wallet via IMPS and use it on the move.
It’s time to go cashless. The purpose of demonetization is You can download mobile wallet app from play store. Few
not only to remove black money but also to encourage examples of mobile wallets are Paytm, PayUmoney,
cashless payment. Instead of breaking heads by standing in MobiKwik, etc.
ATM queue you should adopt a cashless method for the
transaction. A cashless method is more transparent as every 7. UPI Apps
transaction can be traced easily as it leaves its footprints. UPI is a mobile payment system which allows you to do
Many smart people have adopted new cashless payment various financial transactions on your smartphone. UPI
options. allows you to send or receive money using virtual payment
address without entering bank information. Merchants can
Modes of cashless transactions enroll with banks to accept payments using UPI. Like in the
1. Cheque case of a PoS machine, the merchant would require a current
The cheque is one of the oldest methods of cashless account with a bank to accept UPI payments. The examples
payment. It is a known method to everyone. In this method, of few UPI Apps are SBI Pay, Union Bank UPI App,
you issue a cheque for the specific amount to someone else. Phonepe, etc.
The cheque gets deposited in the respective bank. The bank
processes a payment through a clearing house. 8. Gift Card
The entire transaction done through cheque gets recorded The next cashless payment method is a gift card. Gift card is
and there is a proof of payment. However, there are a readymade card and can be purchased from a merchant or
instances where cheque payments get dishonored due to from the bank. The gift card is loaded with a fix cash
signature mismatch or insufficient fund. In order to avoid amount you can purchase any item from the specific vendor
such issue, we can use other cashless payment options. by using a gift card.

2. Demand Draft 9. Aadhaar Enabled Payment System

Demand draft is another rudimentary way of cashless Aadhaar Enabled Payment System (AEPS) is one of the best
transaction. It is safest option to receive payment from cashless payment methods. AEPS is like Micro ATM it uses
anyone. Demand draft (DD) never gets defaulted as it is smartphone and a finger-print scanner for the transaction. In
signed by the banker. The disadvantage of DD and cheque is order to use this facility, it is mandatory to link your
you need to visit a bank in order to deposit cheque and Aadhaar card to your bank account. You can use AEPS in
demand draft. The clearance of cheque or DD takes order to perform transactions like Aadhar to Aadhaar fund
additional time. transfer, Cash withdrawn, Cash deposit, etc.

3. Online Transfer – NEFT or RTGS 10. Unstructured Supplementary service Data

The third simplest method for the cashless transaction is You can use USSD cashless option if you don’t have a
online transfer using NEFT or RTGS. In order to do online smartphone or internet connection. Unstructured
money transfer, you need internet banking facility. Online Supplementary Service Data is mobile banking service.
transfer using NEFT or RTGS is comparatively faster than From any mobile phone, you can dial *99# and use this
cheque or DD. Online transfer can be done from anywhere service. You can do all these things which are available to a
using internet facility. person with smartphone and internet connection. Almost
including SBI, ICICI, BOB, Axis Bank and PNB supports
4. Credit Card or Debit Card USSD payment option.
Credit card or debit card is another cashless payment
method. The usage of credit card and debit card was limited
in India. However, usage of credit card and debit card is
increasing now because of demonetization. The limitation of
this payment method is an availability of swipe card facility
(PoS) at merchant end.

5. E-Wallets
E-Wallet is next cashless payment option. E-Wallet can be
used to purchase products starting from grocery to airline
tickets. In order to use E-Wallet customer and merchant, Advantages of cashless transactions
both require a smart phone with active internet connection. There are several reasons why the government and the RBI
The most popular example or E-Wallet is PayPal. brings up measures to promote cashless transaction
economy. Besides convenience, digital transaction gives
~ 123 ~
International Journal of Applied Research

more scope for recording of transactions and in this way it is prints, eye scan, etc), it can be extremely difficult to copy,
a first step against the spread of unaccounted money or making it a very safe option.
black money. Secondly, the problem of counterfeit notes can
also be avoided when payment is settled digitally. Small gains
It may not seem like much of an advantage, but being
Convenience cashless makes it easy to ward off borrowers. Another plus
The ease of conducting financial transactions is probably the is that you can pay the exact amount without worrying about
biggest motivator to go digital. You will no longer need to not having change or getting it back from shopkeepers.
carry wads of cash, plastic cards, or even queue up for ATM
withdrawals. It’s also a safer and easier spending option Go digital, get discounts
when you are travelling. The benefits are enormous if you Service tax: Waiver of service tax of 15% on digital
leave out the low-income group, which will face a huge transactions up to `2,000.
challenge. For the rest of the country, it is constructive and
simple. Fuel: 0.75% discount on digital purchase of fuel through
It will be especially useful in case of emergencies. The credit/debit cards, e-wallets or mobile wallets.
freedom to transact whenever and wherever you want. You
don’t have to be physically present to conduct a transaction Rail tickets: 0.5% discount on monthly and seasonal
or be forced to do so only during office hours. suburban railway tickets from 1 January 2017. Online rail
ticket buyers get up to `10 lakh free accident insurance too.
Discounts
The recent waiver of service tax on card transactions up to Rail catering: 5% discount on digital payments for railway
Rs 2,000 is one of the incentives provided by the catering, accommodation, retiring rooms, etc.
government to promote digital transactions. This has been
followed by a series of cuts and freebies. It’s a good time to Highway toll: 10% discount on NH toll payment via RFID
increase your savings if you take advantage of these. For or fast-tags in 2016-17.
instance, 0.75% discount on digital purchase of fuel means
that the petrol price in Delhi at Rs 63.47 per litre can be Insurance: 10% discount by government general insurers
brought down to Rs 62.99/l with digital payment. on premium paid online via their portals. 8% discount on
Similarly, saving on rail tickets, highway toll, or purchase of new LIC policies bought online via its site. POS: Rs 100 a
insurance can help cut your costs. Add to these the cashback month is the maximum rent that PSU banks can charge for
offers and discounts offered by mobile wallets like Paytm, PoS terminals.
as well as the reward points and loyalty benefits on existing
credit and store cards, and it could help improve your cash Rupay: Kisan credit card holders to get RuPay Kisan cards.
flow marginally.
Disadvantages of cashless transactions
Tracking spends Higher risk of identity theft
If all transactions are on record, it will be very easy for The biggest fear is the risk of identity theft. Since we are
people to keep track of their spending. It will also help while culturally not attuned to digital transactions, even well-
filing income tax returns and, in case of a scrutiny, people educated people run the risk of falling into phishing traps.
will find it easy to explain their spending. Besides the tax, it With the rising incidence of online fraud, the risk of hacking
will have a good impact on budgeting. will only grow as more people hop on to the digital
platform.
Budget discipline Besides, the latest move by the government to remove the
The written record will help you keep tabs on your spending two-factor authentication process for online transactions up
and this will result in better budgeting. Various apps and to `2,000, will not help. Irrespective of the size of
tools will help people analyse their spending patterns and transaction, the absence of this additional layer of security
throw up good insights over a couple of years. Controlled will expose thousands to the risk of identity theft. Another
spending could also result in higher investing. If the same weak link is the inadequate redressal mechanism. With the
amount of cash does not flow back into circulation and poor redressal system in India, imagine what a poor
people continue to use mobile wallets and cards, it is also rickshaw puller will do if he has his Aadhaar ID stolen?
likely to bring down the latte factor. This means that the Rs Given the tedious process and poor grievance redressal,
10 you spent on candy or chips, or that regular cup of coffee people will have no easy recourse if they lose money online.
office is likely to take a hit since you will be short of loose There is no stringent legal process to deal with this kind or
change and smaller currency notes. There’s a lesser chance scale of fraud. Add to it the mass identity theft from banks’
of budgetary leaks and unaccounted for spends sneaking or companies’ databases and it can turn into a financial
into your budget at the end of the month. nightmare akin to the data breach in the Indian banking
system in October this year.
Lower risk
If stolen, it is easy to block a credit card or mobile wallet Losing phone
remotely, but it’s impossible to get your cash back. “In that Since you will be dependent on your phone for all your
sense, the digital option offers limited security,” says Pai. transactions on the move, losing it can prove to be a double
This is especially true while travelling, especially abroad, whammy. It can not only make you susceptible to identity
where loss of cash can cause great inconvenience. Besides, theft, but you could also be rendered helpless in the absence
if the futuristic cards evolve to use biometric ID (finger of physical cash or any other payment option. This can be
~ 124 ~
International Journal of Applied Research

especially problematic if you are travelling abroad or in References

smaller towns or villages with lack of banking infrastructure 1. http://economictimes.indiatimes.com/wealth/spend/read
or other payment options. Another drawback is that you y-to-go-cashless/articleshow/56269830.cms
need to keep your phone constantly charged. If the phone 2. http://economictimes.indiatimes.com/topic/cashless-
dies on you, you will be stranded, particularly if you are in transactions
the middle of an important purchase or dealing with an 3. https://www.sarkariyojna.co.in/10-cashless-digital-
emergency. payments-methods-cashless-india/
4. http://moneyexcel.com/15775/10-best-cashless-
Difficult for tech-UNSAVVY payment-methods
India has a low Internet penetration of 34.8%(2016),
according to the Internet Live Stats, and only 26.3% of all
mobile phone users have a smartphone (2015), as per
Statista figures. Besides the practical difficulty of going
digital, a bigger block is the psychological shift. You are
suddenly jumping three generations to the digital medium.
It’s a problem for the older people, who may suddenly find
themselves locked out of their accounts if they can’t
download an app or don’t have cash. The digital medium
may prove a challenge for the tech-unfriendly people, who
will need more time to adapt or the availability of other
options to conduct transactions.

Overspending
While there is no denying the convenience of card or mobile
wallet transactions, it could open a spending trap for an
unsuspecting population. According to behavioural finance
theorists, the pain of parting with money is felt more acutely
if you use physical cash instead of a card. Hence, using cash
instead of cards or mobile wallet acts as a natural bulwark
for people who find it difficult to control their spending.
This is the reason that people could end up overspending,
throwing their budgets into disarray.
Besides, a high penetration of the digital payment system is
contingent on the fact that the same amount of cash does not
come back into circulation. If it does, people are more likely
to switch back to the former ease of using cash as it is a
habit that they may find difficult to break.

Conclusion
With limited cash in hand and an indefinite crunch in sight,
most people are rushing to cashless transactions. Digital
transactions bring in better transparency, scalability and
accountability. The new move will compel more merchants
to accept digital money. Cash may no longer be king. While
you wait for the serpentine queues at ATMs to peter out and
currency notes of Rs 100 denomination to become easily
accessible again, the adoption of digital payment solutions is
picking up at a furious pace. Everyone from the
neighborhood vegetable vendor to the chai and bhelpuri-
wala is embracing digital payment solutions to tide over the
cash crunch.
ET Wealth conducted an online survey to find out the level
of adoption of digital payment solutions and user habits. The
findings reveal that while people are getting comfortable
with cashless payments, some mindset issues are holding
back many from embracing the newer platforms. The
findings also suggest that the usage habits of those who have
taken to cashless modes could be exposing them to security
threats.

~ 125 ~

View publication stats