Cashless Economy: A Comparative Study

Kundrapu Mahesh
Desidi Siva Prakash
D Venkatesh Babu
Kongari Rajashekar

Table of Contents
Introduction
Background and Motivation
Literature Review
Research methodology
References

Introduction

In Cashless economy most of the transactions are done via cards or digital means such as
National Electronic Fund Transfer (NEFT), Immediate Payment Service (IMPS), and Real
Time Gross Settlement (RTGS) or by mobile wallets thus making the flow of cash
nonexistent.
There is swift increase in the number of cashless transactions all over world as people are
more and more moving towards faster payment options to save time and effort.
Even Governments across countries are inclined to turn the countries to cashless economies
as burden of cash usage on governments is substantial .It accounts for as much as 1.5 percent
on GDP.
The industry worldwide is presently going through a wave of infrastructure modernization
that is required to compete effectively to cater the growing customer needs. As of now, more
than 15 countries have modernized their all payments gateways and infrastructures in the
previous few years, and many others are in the planning stage.
Sweden is steadily moving towards cashless economy with majority of its public willing to
do digital transactions. In the year 2015 85 percent of the transactions are cashless .Similarly
in Hong Kong the octopus card which was launched as electronic purse for public
transportation which is now processing over 13 million transactions a day of value 169
million HK$ with the presence over 17000 retail outlets from 7700 service providers .
While in India, there is too much use of cash for day to day transactions .It is the one of the
countries with one of the highest Cash to GDP ratio standing at 12.42 percent. Less than 5
percent of all payments happen electronically in India

Background and Motivation

For businesses, paper money has to be managed that is it must be protected, stored,
accounted and transported .So it becomes difficult in handling the money and costs

are involved in circulation of cash in economy. The cost for currency operations in
India is very high and according to a study ,RBI and commercial banks spend around
21,000 crore ($3.5 billion) alone in currency operations cost in India.

The reasons why India has to pay such a price for its payments are:
1. Frequent re issue of notes due to poor handling .low value notes are replaced
almost in less than a year
2. Need to frequently upgrade security features and replacement of old notes. The
cost involved pulling notes out of circulation is very high.
3. There is problems in logistics also .To some places the notes have to be
transported in helicopter

A report on 'Cost of Cash in India' issued by MasterCard in 2015 and brought out by
the Institute of Business in all Global Context has emphasized how much of a drag the
overdependence on currency in payment is turning out to be. Only reason for such
increased dependence on cash is the lack of access to banking with a third in total
population for 15 years not having used a bank account. The finance ministry has
appointed a committee in April 2015 for recommendations on how to completely
increase the use of alternate payment gateways such as plastic modes of payment such
as debit and credit cards in commercial transactions. This is followed by remarks
made by Indian finance minister Arun Jaitley on encouraging the use of plastic money
to tackle the menace of black money. Jaitley also pointed out the decreasing usage of
cash as a medium of day to day transaction in developed countries. So government of
India is striving to turn India towards cashless economy

Literature Review
Payment systems implemented in different countries
BACS Payment System - UK

Bacs since 1968 has been maintaining the integrity of services related to payment, with
responsibility for the schemes behind settlement and clearing of UK automated payment
methods, Direct Debit and Bacs Direct Credit, the Cash ISA Transfer Service, and also the
development, management and ownership of the Current Account Switch Service.

Account Switching Service

The Account Switching Service offers small businesses, consumers and charities a reliable,
simple and stress-free way of switching current accounts. Current Account Switch Guarantee,
which helps to reimburse account holders if they incur any charges or fees as a result of the
switch over backs this service.

Cash ISA Transfer Service

This was introduced to improve the ease and quality of transfers, reduce paper flow and
increase efficiency. With this service consumers can benefit from an improved experience, as
it is easier and faster to transfer than before, due to a standard process that all providers
follow.

Biller Update Service

The Biller Update Service is operated by Bacs on behalf of Payments UK, provides
organizations with a centrally-managed facility to change and disseminate biller information.
It also allows receiving organizations to update and maintain their own biller lists which they
provide to users via internet banking channels and telephone.

Training
Bacs offers a wide variety of courses and materials, to help organizations train their
customer-facing staff properly in all elements of payment products, processes and procedures.

APCA- Australians Payment Clearing Association

APCA provides the rules, procedures and decision-making structure that allows the transfer
of value between providers of payment services.

APCA administers six payment frameworks, four of them are payment systems known as
clearing systems. These systems relate to

a. Direct entry - Electronic payments such as direct debits, direct credits and other bill
payment services are simple, easy and convenient way to transfer funds and pay bills.
In Australia about one third of all non-cash payments are direct credits and direct
debits and these types of payments grow 10% each year. Access to these services can
be made through your financial institution.
b. Cards and accepting devices - There are around 55 million credit and debit cards on
issue in Australia. Each day on average, 19 mn transactions are made at Australia's
ATMs and in-store terminals.
c. Cheques - In Australia, like many other countries, cheques are in long-term decline.
Cheques were the main non-cash payment method until the1980s. However, cheque
use has dropped by 70% over the past ten years and is continuing to drop at a rapid
annual rate. The reason for this is that payment cards and electronic payment systems
have taken over. Today, cheques account for <5% of all non-cash payments made by
consumers and businesses each day.
d. High value - High value payments are made between financial institutions either for
corporate customers or for themselves including overseas banks.
High value payments are typically for large amounts and are time critical. On
average high value payment is close to $5m, but smaller-medium sized payments are
also done through the high value system. Around $100bn or 70% by value of total
non-cash payments made each day are high value payments.
Each of them are managed by a committee reporting directly to APCA's board. The
Regulations and Procedures for these systems have the effect of a contract under seal between
each participant and APCA, as well as each participant in that system.
The remaining two frameworks administered by APCA are

e. Cash distribution system and

f. Core infrastructure system.
All the frameworks are administered in a similar way to the payment systems.

OCTOPUS CARD Hong Kong

This card is used in Hong Kong for making electronic payments in online or offline systems,
it is a reusable contactless stored value smart card. Launched in September 1997 to collect
fares for the territory's mass transit system and has since grown into a payment system widely
used for all public transport in Hong Kong.
There are more number of cards in circulation that is more than 20 million octopus cards in
circulation in 2010, nearly three times the population of Hong Kong. 95% of the population
of Hong Kong aged 16 to 65 use these cards, generating over 12 million daily transactions
worth a total over HK$130 million.
There are two main types of Octopus card: On-Loan and Sold

On-Loan cards
On-Loan cards are used for day-to-day functions, mainly for fare payment in transport
infrastructure. They are more classified into Child, Adult, Elder, and Personalized categories
Child This is pink in color and it is for children between 3 and 11. The card is sold for
HK$70 with an initial value of HK$20.
Adult This was previously in gold color and it is standard card. This card is sold for HONG
KONG$150 with an initial value of HONG KONG$100
Elder - This is green in color and it is only usable by senior citizens. If elder fares are not
available, adult fares are deducted. This card is sold for Hong Kong $71 and with an initial
value of Hong Kong $21.
Personalized - This card looks similar to an adult cards and available on registration. This
card is sold for HONG KONG$100 having an initial value of HONG KONG$30 and a
handling charges of HONG KONG$20. Students can also purchase this card at discounted
price of HONG KONG$90 with their pictures, names.

Sold cards
Sold cards are sponsored and also branded cards that are usually released by Octopus Cards
Limited. The designs come from fictional characters in popular culture. These cards are sold
at a premium, no initial or have limited stored value which cannot be refunded.They can be
used as ordinary cards though

Analysis of payment industry in India

A.Mobile wallets
TOP MOBILE PAYMENT APPS in 2015
45%
40%
35%

39%

30%
25%
20%
15%
10%
5%
0%

26%
17%
10%

7%

6%

5%

4%

This is Nielsen report on the Indian mobile wallet market for the year 2015.
PAYTM is leading ahead in the top mobile payment apps with 39% of usage. Free charge app
stays at the 2nd position with 26% usage. Mobikwik stays at 3rd position with 17% usage.

Mobile Wallets
Number of Transactions
80
70
67.1
60
50

In Millions

40

53.6
47.3
40

48.9 49.5849.83

53.7

53.44
48.7449.02
48.76

42.8

30
20
10
0

10

11

12

13

6
5
4
3
2
1 42125
42186
42248
42309
42370
42430
42095
42156
42217
42278
42339
42401
42461

This graph shows the trend in mobile wallet transaction month wise. The mobile wallets
transactions in India showed a decrease of 8.8% in the ending month of April 2016. The trend
reveals that the number of transactions are almost of same number so the customers are
becoming more and more loyal towards the mobile wallets.

Mobile Wallets
Amount of Transactions
2500
2000
1500

In Crores

1000
500
0

42125
42186
42248
42309
42370
42430
42095
42156
42217
42278
42339
42401
42461

This shows the mobile wallet transaction in terms of value in crores of rupees, month wise.

Average Amount per Transactions

2500
2000
1500

Rupees

1000
500
0

42125
42186
42248
42309
42370
42430
42095
42156
42217
42278
42339
42401
42461
Prepaid Cards

Mobile Wallets

This is the average amount per transaction which showed stability in mobile wallets but
varied in case of prepaid cards.

B.Credit cards

The credit cards showed a significant increase in the number of transactions per card per
month.
The transaction value has been doubled in the last four years.
There is a huge growth in transaction value 1535 increase.

Credit Cards
200
180
160
140
120
100
80
60
40
20
0

40634

41000

Number of cards (in Million)

Transaction Value (in Billion)

41365

41730

42095

Number of transactions (in Million)

C. Debit cards
Debit Cards
2500
2000
1500
1000
500
0

40634

41000

Number of cards

41365

Number of Transactions

41730

42095

Transaction Amount

The debit cards account for 96.4% of the total cards that are in circulation.
The number of debit cards increased from 230 million to 564 million in four years.
Debit cards accounts to 92% in terms of the value of transactions.

Research Methodology:
Our secondary research included of study of various research papers to have data on trends of
various countries regarding their trends in turning towards cashless economies and present
payment scenario in India and the hurdles faced in turning cashless. Our primary research
included collecting samples of data on the questionnaire prepared to gauge the interest of
public in going cashless for their day to day transactions

Future objectives:
1. Trend analysis of countries on macro parameters such as GDP, Poverty with respect
to the change in payment habits of the people i.e. going cashless from cash
2. Gauging the public interest towards cashless payments with respect to the primary
research done using 300 samples near the Delhi university area
3. Provide feasible solutions for improving cashless payment penetration in India with
respect to the analysis done

References:
https://www.researchgate.net/.../236869058_Impact_of_Cashless_Economy_in_Nigeria

https://hbr.org/2014/06/the-hidden-costs-of-cash
http://www.livemint.com/Opinion/lJ0ikMJGeIl8QYNV1T3viM/Moving-towards-a-cashlesseconomy.html
https://hbr.org/2016/05/the-countries-that-would-profit-most-from-a-cashless-world

http://fletcher.tufts.edu/~/media/Fletcher/Microsites/Cost%20of%20Cash/COC-Indialowres.pdf
http://indianexpress.com/article/business/business-others/debit-cards-transactions-slowcredit-cards-grow/