Targeted incentives will encourage consumers and merchants to consider moving away from cash. This might be achieved by reducing the cost of digital payments, introducing cash-handling charges or restricting the use of cash above certain thresholds
There is a lot of ground to be covered for India to become completely cashless
The steps and the global case studies India can undertake to move towards a cashless society
Increased penetration of internet and banking system: Approximately 45% to 50% of the Indian population still doesn’t have internet access, and approximately 20% of the population does not have access to a bank account. There is a lot of ground to be covered for India to become completely cashless, and steps need to be taken to increase the penetration in both these areas.
Establish the right incentives: Targeted incentives will encourage consumers and merchants to consider moving away from cash. This might be achieved by reducing the cost of digital payments, introducing cash-handling charges or restricting the use of cash above certain thresholds (the EU is currently considering this measure).
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For example, in Sweden, a consortium of banks launched a free mobile payments app, which was adopted by almost 50% of the population within four years of launch.
PromptPay, the electronic payment service under the Thai government’s e-payment plan, encouraged usage by removing charges for online banking. Governments and companies might also consider consumer-friendly schemes such as weekly prize drawings based on transaction IDs or systems with specific demographics in mind.
Strong data security and regulations: The year 2020 saw one of the largest numbers of data breaches in the world and in India. The total number of brute force attacks against remote desktop protocol jumped from about one million during early 2020 to about three million mid-2020.
By early 2021, the average jumped to about nine million attacks. Organisations in India lost about $2 million per breach on an average in 2020. Hence, in order to truly go cashless, a strong data security infrastructure is the key enabler and should encompass all the internet, mobile, and e-payment technologies.
Further, targeted and proportional regulation can strengthen confidence in electronic payments and enforce financial inclusion. Initiatives such as rapid dispute resolution mechanisms, licencing schemes, and fee caps have typically been highly effective in boosting the uptake of cashless solutions.
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The measures adopted by a few of the global economies that are moving towards a cashless society are as follows: –
Sweden: Sweden has the most aggressive policy to become cashless. Many Swedish retailers do not accept cash and only 20% of all transactions in Sweden are made in cash. There is also a popular payment application called Swish, which enables instant money transfers between people.
Sweden has also rolled out an array of policies encouraging cashless payments, from eliminating infrastructures such as ATMs to establishing enabling measures such as electronic know-your-customer (e-KYC) capabilities and real-time payments to granting stores the right to refuse cash. A tangential impact has been a surge in tax receipts, with the value-added tax rising nearly 30% over five years.
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Poland: Cashless Poland, the public-private foundation in Poland aims to popularise cashless payments in the country. The foundation offers free point of sale (POS) devices through partner banks to business owners in order to encourage the latter to accept cashless payments. The foundation has already helped over 200,000 companies to start accepting cards and mobile payments.
South Korea: South Korea saw accelerating adoption of digital payments after introducing end-of-year tax credits for up to 30% of spending on debit cards.
Australia: The Reserve Bank of Australia has taken action to address the high cost of digital payments, capping interchange fees and putting a ceiling on card surcharges for small businesses.
The moves led to a $11 billion decline in merchant payment costs and an acceleration in the growth of card transactions. A similar cap in the US in 2011 led to an 8% rise in credit card usage.
(The author is Managing Director, Duff & Phelps.)