A system where no physical cash is in circulation is a cashless system. Payments are made through credit and debit cards, bank electronic fund transfers or virtual wallets.
Benefits:
- Cost Reduction: cashless system brings down the cost associated with printing, storing and transporting of cash.
- Risk Reduction: The risk of money getting stolen or lost is minimal. Even if the card is stolen or lost it is easy to block a credit/debit card or a mobile wallet remotely. It is also a safer and easier spending option while traveling.
- Convenient: The ease of conducting financial transactions is probably the biggest motivator to go digital. With the advent of digital modes, one can avoid the queue for ATMs, transact 24*7 and save time. Additionally for service providers, with the emergence of e-KYC, it is no longer necessary to know your customer physically as the payments model has overcome limitations related to physical presence.
- Tracking spends: Spending done via mobile or computer applications can be easily tracked with a simple click. This allows users to keep track of all their spending and manage their budgets effectively.
- Increase in tax base: Traders, small businesses, shopkeepers, and consumers regularly use cash as a means to avoid paying service tax, sales tax, etc. However, in a cashless economy where all transactions will be done through an organized channel, through banks and financial institutions, they can be monitored by the government and proper actions could be taken against the evaders. This will result in more transparent transactions which in turn lead to a fall in corruption in the economy of the country.
- Containment of parallel economy: In a cashless economy it is easier to track the black money and illicit transactions, unlike the cash-based economy in which money does not come into the banking system. In the case of digital transactions, it is easy to track and monitor suspicious transactions as all the records are available with the banks.
- Financial Inclusion: At present, India’s low-income households access to credit through informal systems, through relatives or private lenders. Forcing them to shift to cashless payment platforms instantly formalizes this world of informality and includes them informal economy.
- Discounts: A lot of e-commerce websites offer huge incentives in terms of discounts, cashback, loyalty points to the customers for making digital transactions for shopping online.
