CASHLESS ECONOMY - CHALLENGES - QUICK POINTS
Essential for All Upcoming Bank Exams
Digital revolution started in India in the 90's with the rise of IT and ITES sectors. After the radical measure of demonetization by government on November 2016 the idea of cashless economy got a serious push. But India does face serious challenges.
- Some slowdown of digitization of Indian economy was inevitable as CDT has not yet become a mass movement.
- Data has evidenced signalling decreasing transactions since February 2017.
- The public seem to have gone back to cash transactions following the rapid re-monetisation since December 2016.
- Cash-less digital transactions (CDT), are increasing under compulsion of various avenues.
Key Challenges Faced:
For an economy with a vast rural base India faces critical challenges w.r.t. cashless digital transactions. Some of them are –
Cost to users –
- The benefits of CDT are immense and therefore the cost of providing CDT service should be subsidized.
- Banks can also bear this cost as they also benefit due to decline in transaction costs.
- Cash transactions involve both direct and indirect costs.
- The government should subsidies such cost to begin with as it can save a lot of expenses arising out of cash transactions in case of B2G, G2B, G2C and C2G transactions.
- Besides, service providers such as Paytm gain, as they have access to float funds depending upon the magnitude of digital activities.
Customer protection -
- Presenting the Budget, finance minister Arun Jaitley had proposed to create a Payment Regulatory Board in the RBI.
- Customers’ interest needs to be protected, failing which the very purpose of digitization shall be defeated.
- Further, the dispute resolution system relating to the payment systems need to be strengthened through legal reforms.
- The proposed Board should have customer protection in the back of its mind while formulating policy for payment and settlement systems.
Cyber security -
- E-wallets and mobile-based payments are gaining ground. Cyber security is important for a customer covering confidentiality, interchangeability, privacy, availability (24×7), non-repudiation, incident response and customer protection.
- Digital services are currently provided by multiple institutions/agencies such as banks, Idea Money, NPCI, Mobikwik, Paytm, mPesa and such other agencies authorized by the RBI.
- Unless cyber security covering these aspects is reasonably robust, it will be difficult to gain customers’ confidence in CDT.
- Service providers are expected to prevent data theft, hacking, loss of money, denial of service and software malfunctioning.
Government has to take all challenges into serious consideration if the idea of cashless transactions has to spread boundless. To bridge the digital divide as the idea of cashless transactions has immense potentiality for the economy.