Turning India into a Cashless Economy: The Challenges to Overcome

19 Pages Posted: 21 Jun 2017

See all articles by Arunava Ghosh

Arunava Ghosh

Indian Institute of Management (IIM), Indore, Information Systems Area, Students, Information Systems Area

Date Written: June 19, 2017


Cashless economy is defined as a situation in which there is very less cash transactions as most of the transactions are done using cards or digital mobile wallets. The demonetization of INR 500 and INR 1000 currency notes by the Government of India and the limit on the cash withdrawals at banks, pushed millions of users into the digital economy. Based on the Forbes report on 14 December, 2016, around 95% of all transactions in India happened in cash and a significant population didn’t have a bank account. By putting a stop on the cash driven economy through demonetization, the Government tried to bring most of the transactions under the track-able and taxable cashless economy means like the debit cards, credit cards and the mobile wallets. Based on the report at the Economic Times by PayTM, the leading mobile wallet company in India, there has been 435% rise in its overall traffic post demonetization. Even small vendors have registered at PayTM to accept payments. Many bank accounts have been opened in response to demonetization. The National Payments Corporation of India developed the Bharat Interface for Money (BHIM app) for transacting amounts directly between the bank accounts of two parties.

The purpose of this paper is to find out the challenges and the penetration issues India would face in implementing the cashless economy and the possible measures to overcome them. The study makes a modest attempt to link the Diffusion of Innovation Theory, Technology Adoption life cycle and the Technology Acceptance Model.

In India, especially in the rural areas, there is a lack of technology awareness. Due to this there is reluctance to adapt to the technological innovations. There is an issue in understanding the ease of use and the usefulness of cashless transactions. Many citizens question the safety of their balance in the mobile wallet accounts. Most of us are also accustomed to the traditional cash transactions and have a resistance to shift to digital payments. Also there are irregular tax payers who refrain from digital transactions to avoid being tracked.

But the rise of cashless economy and the dominance of digital transactions also create a disadvantage to a section of the society: the daily wage workers in India. These workers are mostly immigrants working at construction sites and can’t have the privileges of having a bank account. These workers are paid on daily basis and mostly depend on cash transactions. After the demonetization, they were affected to a great extent as there was a cash crunch with their employers who couldn’t pay them.

Also, the rise of the usage of mobile wallets in India has created a new market segment. Many start-ups are coming up with a promise of making life easier through cashless payments. To penetrate the market, they have come up with cash back schemes like pay for something and get cash back of 50% credited to your mobile wallet. Pre-demonetization, PayTM, Free Charge and Mobikwik were the major players in the cashless economy. Post-demonetization, new start-ups like The Mobile Wallet, Justpay, MoneyonMobile, Ola Money and many more are trying to penetrate the market. Earlier, Ola Money could only be used for Ola Cabs fare payment. Now Ola Money has started mobile wallet services for making cashless payments for other services too. The penetration of so many mobile wallet start-ups has created a lot of confusion among the users especially the elderly citizens. Users have to separately register to every mobile wallet service provider for obtaining its service. This consumes a lot of data and time. Also maintaining a balance in so many mobile wallets is a challenge. Downloading too many mobile wallet apps slows down the mobile phone processing system.

Based on the findings, the Government of India may initiate, communicate and implement a strategy that is linked with the technological awareness and the financial inclusion in order to maximize the success of cashless economy. Also, the Government of India may regulate the number of mobile wallet players. To the best of my knowledge, this study represents one of the first attempts to address the challenges to be faced in a cashless economy, especially in a developing nation.

Keywords: Cashless Economy, Financial Inclusion, Mobile Wallets

Suggested Citation

Ghosh, Arunava, Turning India into a Cashless Economy: The Challenges to Overcome (June 19, 2017). Available at SSRN: https://ssrn.com/abstract=2989290 or http://dx.doi.org/10.2139/ssrn.2989290

Arunava Ghosh (Contact Author)

Indian Institute of Management (IIM), Indore, Information Systems Area, Students, Information Systems Area ( email )


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