A couple of days ago, Indian government rendered almost 86 per cent of total cash in the country worthless. It discontinued the currency notes of Rs 500 and Rs 1000 with immediate effect and declared all the old such notes invalid. The move was aimed at curbing black money within the country. It was also an attempt to move the nation towards an economy that is somewhat cashless, with digital transactions being the preferred way the people in the country do business.

Also Read: Yes, E-Wallets are better than cash: How to setup and use e-wallets

Digital transactions are better in almost every way. They are more convenient and they help government check corruption or tax evasion. It is imperative, nay essential, that India moves towards a cashless economy. In this context the demonetisation ordered by the Modi government is a welcome move. But at the same time, there is also the stark reality of India. It is also true that Indian is not exactly ready for cashless future. As for why, 5 reasons…

  1. Majority still lacks a card: The magic in a cashless economy happens with a card, or rather cards. There are credit and debit cards. Then there are researchable cards. For example, see Hong Kong. It is a city shared by rich and poor. But most people in Hong Kong use what they call an Octopus card. It is like an e-wallet but connected to a plastic card. Here is how the card is described by the company that provides it: “Octopus is accepted all over Hong Kong! Use it for transportation and parking, at retail outlets, self-service machines, leisure facilities and schools as well as through online.” In India, we don’t have anything like Octopus, although Paytm, which is an e-wallet, has potential to turn into something like it. But even though India has Paytm, and millions of people who use a credits or debit card, the numbers relatively are very small. Around 60 per cent of Indians still don’t have a debit card, let alone a credit card. This makes cashless economy a pipe-dream, at least for now.

  2. Poor internet: Good connectivity is important for a cashless economy. Sadly, the good connectivity, whether you see it before Jio’s time or after the Jio dream, which remains a dream for now, is not all that common in India. That creates problems. You can’t have a cashless economy powered by 2G connections.

  3. No data privacy laws: One big problem with India’s adoption is its lack of policy framework. And when it comes to policy, one glaring area that government is ignoring is the data protection and privacy laws. Money is a sensitive thing. Sure, a lot of Indians prefer cash because that helps them avoid taxes. But many also do because of sentimental and trust reasons. It’s their money, it should be kept close and discreetly. On the other hand, banks are unaccountable because consumers aren’t guaranteed data protection. People also fear that their transaction details will leak in public or that if they do e-transactions people may misuse the data that they are giving to companies. To allay all these fears government needs bring in a privacy law and tell people that their e-transactions are as personal and discreet as their cash transaction.

  4. Cyber security issues: This is another major issue that affects the digitisation of monetary transactions in India. And again the blame lies with the government policy and an overall lack of effort from banks etc for this. Indian banks and institutions are among the least secure financial institutions across the world. The majority of banks here still use Windows XP in their ATMs. Windows XP is nearly 15 year old operating system, which doesn’t even get security patches anymore. And they use old software and poorly configured network in their offices. Then there are the strange guidelines from government on encryption etc, which means the quality of protection Indian consumers get in the cyber world is poor. All of this needs fixing.

  5. No PoS machines: This problem of Point of Sale machine is kind of chicken and egg problem, and the one that retailers in India don’t want to solve. The cashless transactions work best when you have something like Octopus — read the first point if not already — in the market. Such a system requires two things: a card that a buyer has and a compatible machine that seller provides. Unfortunately, in India retailers are not interested in digitising the payment system. They prefer cash to avoid tax. But unless they don’t support to digitise the payment mechanism and invest in such a system, India can’t go cashless.

Also Read: No, Rs 2000 note doesn’t have nano GPS for tracking but it may have RFID



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