In today's world, more and more businesses are moving towards a cashless economy, especially in India. But for many Indian SME manufacturers, this shift can be confusing and challenging. Without a clear understanding of how a cashless economy works, they may face issues like managing digital payments, worrying about online security, and missing out on the benefits that come with going cashless. These challenges can slow down their business growth and create unnecessary headaches.
In this blog post, we'll break down what a cashless economy is, difference between cash and cashless economy, needs and significance of cashless economy, the history of cashless economy in India and how it can benefit your business.
What Is a Cashless Economy?
A cashless economy is one where transactions are done using digital methods like cards, mobile wallets, and online banking, instead of paying with cash. The objectives of cashless economy is to create a system where money flows digitally, through tools like debit/credit cards, UPI, or net banking, without the need for physical cash.
In India, the government's demonetization move in 2016 turned out to be one of the many causes of cashless economy in India. Later, with the pandemic, digital payment methods like UPI grew even more popular, as people quickly adopted cashless transactions for safety and convenience. This change made digital payments an important part of how businesses and individuals operate today.
Also read Enhancing Inventory Management with Cashless Transactions in India.
Cashless Payment Modes
One of the most important things to understand is the different modes of payment that you might use. Let's learn the various options:
1. Mobile Wallet: A mobile wallet, like Paytm or Google Pay, is a virtual wallet on your smartphone for easy payments. It removes the need for cards and is widely accepted for everyday transactions.
2. Plastic Money: Plastic money, such as debit and credit cards from banks like HDFC or SBI, is used for cashless payments. It reduces paper use and helps track spending without needing cash.
3. Net Banking: Net banking, like ICICI or SBI's online banking services, lets you transfer money directly between bank accounts. Transactions are done via RTGS, NEFT, or IMPS at low costs.
Understand [How SMEs Can Transition to a Cashless Economy: A Step-by-Step Guide]/blogs/how-smes-can-transition-to-a-cashless-economy-a-step-by-step-guide)
Let’s now learn about the advantages and disadvantages of cashless economy.
Advantages of a Cashless Economy
A cashless economy is a relatively new concept in India. But it has grown recently, and despite initial challenges, it has witnessed high acceptance. Let's look at the advantages of going cashless.
1. System Transparency: Digital transactions increase transparency by tracking money flow, and reducing financial fraud, and tax evasion. This is the biggest benefits of cashless economy.
2. Payment Convenience: Cashless systems make payments quick and easy, allowing money transfers anytime, anywhere, without visiting banks.
3. Reduced Crime: Digital transactions help block counterfeit money and black market practices, creating a more secure financial system.
4. International Ease: Government-regulated digital payments have simplified international transactions, making them smoother and more accessible.
5. Lower Currency Costs: Digital payments reduce the need for physical currency, lowering production costs and easing the burden on the RBI.
These are some of the many impact of cashless transaction on Indian economy.
Disadvantages of a Cashless Economy
While there are many advantages of cashless society, there are definitely some difficulties attached to it. Let's look at some concerns of cashless economy:
1. Cyber Security: Digital payments increase ease but also open doors to online fraud and data theft risks.
2. Rising Expenses: The convenience of digital payments can lead SMEs to overspend and lose track of their budgets sometimes.
3. Identity Theft: Lack of financial knowledge causes identity theft, leading to the loss of confidential information and money.
4. Financial Illiteracy: Many in India, especially in tier 3 towns and villages, struggle with understanding and adopting digital payment systems.
These are some of the top reasons how does a cashless society affect the economically disadvantaged.
Challenges in Transitioning Into a Cashless Economy
The need of cashless economy is undeniable but there are several challenges to overcome. The country's population, poverty graph and other demographic factors are some of the many challenges in India making a cashless economy. We have listed a few challenges to understand these better:
1. Cash Dependency
Indian SMEs have used cash for decades. This makes it hard to adopt digital payments despite the benefits. Cash feels more tangible and easier to control, creating resistance to fully change to digital systems.
2. Weak Digital Infrastructure
Frequent frauds and scams in digital transactions destroy trust, highlighting the need for stronger, secure infrastructure. Without a stron system, businesses fear risking their finances and data security in digital payments.
3. Skeptical Population
Despite government campaigns, many remain unconvinced of cashless systems. This makes it challenging to shift away from cash. This is due to a lack of trust in digital systems and fears of losing financial control.
4. Control Concerns
SMEs fear losing control over finances with digital transactions. They prefer the certainty and tangibility of cash. Cash transactions provide a psychological sense of control that many businesses find lacking in virtual systems.
5. Connectivity Issues
Inadequate high-speed internet, especially in rural areas, limits the ability of businesses to fully transition to digital payments. Poor connectivity slows down or disrupts transactions, causing frustration and inefficiency.
6. Digital Literacy Gap
Many SME owners lack digital payment knowledge. These gaps create barriers to understanding and adopting cashless systems. Without proper education, businesses risk misusing technology or falling victim to fraud, slowing adoption.
Government Initiatives for Cashless Economy in India
The government is taking several steps to overcome the above challenges and establish a cashless economy. Let's understand more about these cashless India initiative and the role of RBI in cashless economy:
1. Digital India: This program promotes digital payments and e-commerce, helping manufacturers reduce costs and improve efficiency.
2. UPI System: Unified Payment Interface allows real-time bank transactions, aiding manufacturers in streamlining B2B payments.
3. BHIM App: BHIM helps with easy UPI-based transactions, encouraging SMEs to adopt cashless payments in their daily operations.
4. Jan Dhan Yojana: This initiative provides banking access to all, reducing cash dependence and promoting digital payments for manufacturers.
5. Aadhaar Payments: Aadhaar-based transactions help manufacturers and customers to use easy digital payments using unique identification.
6. GST E-Invoicing: Mandating electronic invoices for B2B transactions, GST e-invoicing promotes digital record-keeping and reduces cash usage.
7. RBI Initiatives: RBI’s NEFT and RTGS systems improve digital payment speed and efficiency, benefiting manufacturers with faster transactions.
8. Demonetization Push: The 2016 demonetization move reduced liquid cash, pushing businesses towards digital wallets, cards, and online payments.
9. Direct Benefit Transfer: DBT transfers subsidies directly to beneficiaries’ accounts, encouraging rural populations to use digital banking.
10. Aadhaar Payment System: AEPS helps with cashless transactions at point-of-sale centres using Aadhaar numbers, simplifying payments for all users.
11. Financial Literacy: Government literacy centres educate people on the advantages of a cashless economy, encouraging wider adoption among SMEs.
Is India Ready for a Cashless Economy?
India has made good progress towards a cashless economy with government efforts and new digital payment solutions. However, challenges remain, especially for Indian SME manufacturers. The government needs to continue educating people about digital payments and make online banking easier to use.
Lowering transaction fees will also help businesses feel more comfortable using digital payments. While issues like financial literacy and technology access still exist, the benefits of a cashless economy are greater than the challenges. With the right steps, India can move closer to becoming a successful cashless economy.
Transforming India by Embracing a Cashless Economy with TranZact
As India transitions to a cashless economy, SME manufacturers need to adapt and grow. TranZact is designed to help them do just that. This software is specifically made for Indian SME manufacturers, helping them digitize and automate processes from enquiry to dispatch.
Read How to Transform Business Operations With Tranzact's Digital Payments In A Cashless Economy
With TranZact, manufacturers can easily manage digital transactions, reduce cash dependency, and streamline their operations. This not only simplifies tasks but also improves transparency and efficiency. Using TranZact, manufacturers can focus on their core strengths—producing quality products—while leaving the digital transformation to a reliable partner.
FAQs on Cashless Economy
1. What is digital rupee?
The digital rupee is a digital currency that would be issued by the RBI, the central bank and regulatory body of the Indian banking system. It would be a type of digital currency that could be used for transactions between individuals and businesses, as well as for government services. A digital rupee may be similar to other digital currencies, such as Bitcoin, but it would be backed by the government and regulated by the RBI.
2. Which country has a cashless economy?
Many countries across the globe today have become cashless including Sweden, Finland, Hong Kong, New Zealand, and more.
3. Which country is a leader in digital payment?
India leads the world in digital payments, thanks to innovations like UPI and Aadhaar. The pandemic further accelerated global digital transactions, with the fastest growth seen in Asia and Africa.
