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PROJECT REPORT ON

A CASHLESS SOCIETY
BACHELOR OF COMMERCE
(MANAGEMENT STUDIES)

SEMESTER V
2016-2017

SUBMITTED BY
RIJUL. S. PATEL
ROLL NO. TMS-16009

S.I.C.E.S. DEGREE COLLEGE OF ART,


COMMERCE AND SCIENCE.

UNIVERSITY OF MUMBAI
2016-2017

DECLARATION

I RIJUL. S. PATEL, student of T.Y.B.M.S Bachelor of management


studies semester V (2016-2017) hereby declare that I have completed the
project on A CASHLESS SOCIETY.
I further declare that the information imparted is true and fair to the best of
my knowledge.

SIGNATURE
RIJUL. S. PATEL
ROLL NO. TMS-16009

CERTIFICATE
This is to certify that the dissertation submitted in partial fulfillment for the award of
BMS degree of University of Mumbai to S.I.C.E.S DEGREE COLLEGE is a result of
the bonafide research work carried out by Ms. RIJUL. S. PATEL under my supervision
and guidance, no part of this report has been submitted for award of any other degree,
diploma or other similar titles or prizes. The work has also not been published in any
journals/Magazines.

Date
Place: AMBARNATH

Project Guide

(PROF.MR. ROHIT PATIL SIR)


DUTTA MAM)

Director

(MS. SUPARNA

ACKNOWLEDGEMENT

Preparing the project on (A Cashless Society) has given me


extensive practical knowledge related to the course.
I would like to first thank our principal Dr Satish Bhalerao sis,
for his valuable support in preparing this project.
I express my deep sense of gratitude to the course coordinator,
Ms. Suparna Dutta mam for the valuable guidance and support
during my project work
I am thankful to my prof. Mr. Rohit Patil sir for providing me
the guidance throughout the course of this project. I am also
thankful to him/her for patiently critically evaluating the content
of this project.
I would like to take this opportunity to express my gratitude to all
the staff of the library and the computer lab for their support.

A
CASHLESS

SOCIETY
Sr no.

Content

1.

Introduction to Cashless Society

2.

History of Cashless Society

3.

Cashless Society Instruments:


Credit Card
ATM/Debit Card
Smart Card
Smartphones as Mobile Wallets
Stored-value Cards
Electronic Cash
Point of Sale Terminal

Page no.

Implants
4.

Impact of Current Monetary System and its Drawback

5.

Growth of Cashless Society in India

6.

Possible Impacts of Cashless Society

7.

Negative Impacts of Cashless Society

8.

Going Cashless Around the World

9.

Questionnaire

INTRODUCTION
Akin to the proverbial fish that has no idea of what water is, we swim in an economy
built on money in the form of currency notes and coins, a monetary system that only a
few of us are fully able to comprehend.
There goes a clich about change being the only thing that is constant. We see change in
almost every sphere of life surrounding us. Trade and exchange of goods and services
has also come a long way from the times of the barter system to the modern currency
systems.

A CASHLESS SOCIETY

The implementation of electronic commerce based on e-cash as the main engine driving
global economic activity will determine the future shape of society. Virtual shopping, the
digital economy, e-cash, e-commerce - these are just a sample in the range of
economically-laden terms that have cropped up in recent years to accompany the
plethora of new vocabulary spawned by the development and commercialization of the
Internet. While most people either know or can guess at what these terms mean, fewer
realize the motivations and implications that lie behind the expressions which are being
thrown at us by the western world- and even by us. For centuries, coins, notes and
cheques were the only options to make purchases and to transfer money between people
and organizations. The second half of the last century witnessed the introduction of
plastic cards, Electronic Fund Transfer, Internet banking, and pre-paid payment cards all
aimed at making payment more efficient. With advances in information technology a
number of new payment solutions has emerged, including premium SMS payments, M
PESA, PayPal, Google Wallet, and Bit Coin, Flatter, and Square-Up. Many of these
innovations offer advantages in terms of costs, security, and convenience. They also pose
a number of challenges and risks related to, at least, technical standards, data security,
legal issues and consumer behaviour. Overall, these innovations are changing peoples
perception and experience of money and paying. The innovation process in payments is
promoted by different groups of actors (such as financial institutions, star-up software
companies, merchants, and mobile operators) and by international governmental
agencies (for example the World Bank). Not only new payment solutions attract a lot of
attention in media and press, but they also trigger a debate regarding the cashless society.
Throughout history there has been much speculation about a cashless society. With a
cashless society in the near future there are many benefits, as well, as many negative
implications. The development towards a cashless society affects our life. It will have an
impact on the actors in the payment ecosystem, leading to a number of both anticipated
as well as unanticipated consequences on individual, organizational and society level.
These consequences are of critical importance and need to be explored.

A cashless society as a community in which all payments are electronic; a society in


which all bills and debits are paid by electronic money media such as bank and credit
cards, direct debits, and online payments. It is a society where no one uses cash, all
purchases being made by credit cards, charge cards, cheques or direct transfer from one
account to another. Paper money revolutionised the economy when it was introduced (In
Europe during the 17th century) however now it is getting old. We are increasingly
moving towards a cashless society. Money will change hands using cards, the internet
and mobile phones. Gradually, Africa is moving into cashless economy. ATM cards are
also there for people to withdraw money anytime and anywhere in the country. Money is
becoming much more of a concept than a physical entity. In developed countries, people
are using credit and debit cards in more and more everyday situations, from meals
purchased at fast-food restaurants and fuel purchased at gas stations to movies,
groceries, sundries, highway tolls and clothing. Increasingly, pay checks are
electronically deposited, and the money for the bills they pay mortgages, utilities,
cable and phone--are paid electronically as well. Banks offer incentives to consumers for
using these direct-pay options, which allow them to keep better tabs on their customers
and their money. Welfare and food stamps are issued on cards, which can be downloaded
at the register or through an automatic teller machine.

HISTORY OF CASHLESS SOCIETY


The WAY we used to PAY.
6000

Bartering big and small


Before money; cows, salt, human
skulls and smaller commodities
such as dried corn and fur were
all used as a form of payment.
Coinage the coin
Elsewhere in the world, coins
were already freely exchanging
hands, but it wasnt until 100 BC
that we saw the first coins
produced in Britain.

100

Cash for gold


Goldsmiths became earliest bankers.
Goldsmith-bankers started to take
in gold and offer receipts or
running cash notes for its value
that could be redeemed in gold.

150
0s

Cheque, please!
The first cheque was written
at a goldsmiths bank in
London. Cheques were made
out for large amounts and only
really used by merchant traders.

160

Paying with paper


Before 1759, banknotes came in large
values, but gold shortages meant that
bankers couldnt redeem their full value.
The solution? Smaller value banknotes
we could exchange instead of gold.

175
179

A licence to print money


Handwritten and signed banknotes
became a thing of the past as

185

cashiers could now distribute


printed money.
Charge cards arrive
A few businesses provided charge
cards so people who travelled
around didnt have to visit
their hometowns bank for cash.

192

Cardboard credit cards


Based on an American Dinners Club
card, which allowed dinners to pay
off their meal receipts in a monthly
bill, was this when the first sign of
credit cards appeared.

195

Internet banking and


SMS-enabled payments
By 1997 we could access our
finances online and the first
contactless payment arrived.
Coca-Cola created vending
machines that would vend a
drink after receiving a text
message payment.

19

The debit boom


By the year 2000 80% of people in the
UK had debit cards- but they werent
using them very often. Mainly because
we were a little attached to cash and
cheques and not many places accepted
debit cards. But things were about to
change rapidly.

20

Money is always regarded as an important medium of exchange and payment tool.


Initially barter system was used as the significant mode of payment. Over the years,

money has changed its form from coins to paper cash and today it is available in
formless form as electronic money or plastic card. Hence, the major change in banks
which has been brought in by technology is through introduction of products which are
alternative to cash or paper money. Plastic cards are one of those types of innovations
through which the customers can make use of banking services just by owning the card
issued by bank and that too without restricting himself in the official banking hours.
Plastic cards as the component of e banking have been in use in the country for many
years now. However, the card-based usage has picked up only during the last five years.
Payment by cards is now becoming a much preferred mode for making retail payments
in the country (Report on trend and progress of banking in India 2006-07, RBI). Thus,
plastic cards are such payment tool which gives a customer an opportunity of non-cash
payment of goods and services and are designed to facilitate small value retail payments
by offering a substitute for bank notes and coins and thus to complement traditional
payment instruments.
Citibank and HSBC were the pioneers in the Indian credit card market in the
1980s. Over the next two decades, the number of players increased to more than ten
in 2000. The credit card market registered a healthy annual growth rate of over
25% during 1987-2001...

CASHLESS SOCIETY INSTRUMENTS:


In this section, we describe briefly some of the electronic instruments facilitating driving
the force of electronic society. Card-based alternatives to cash payments are now well
established, with credit and debit cards in popular usage. Additionally, new technology
has enabled the development of so-called smartcards where additional data can be
stored on a microchip.
1. CREDIT CARD

Credit cards are typically a plastic card with data stored on a magnetic stripe
and, increasingly, a microchip. The majority of cards are the same size of 85.60
53.98 mm, as set forth by the ISO 7810 international standard. Between 1971
and 2001, the number of cards per household in the United States grew from 0.8
to 7.6. Similar in appearance and usage to credit cards, debit cards are a further
popular alternative to the use of cash when making purchases. The major
difference, as the name suggests, is that in this case funds are withdrawn directly
from the purchaser s bank account, rather than accumulating credit which then
has to be paid off at a later date, potentially with interest.

History of Credit Cards

Legend has it that Frank McNamara (founder of Diners Club) forgot his wallet when he
had dinner in a New York restaurant. When the bill arrived, Frank had to send his wife
home to pick up the wallet and wait for her at the restaurant to settle the bill. He decided
there should be an alternative to cash and thus the first modern credit card was born
sometime in 1950. Within a couple of decades, it had become a big business in the
Western hold.
Citibank and HSBC were the pioneers in the Indian credit card market in the
1980s. Over the next two decades, the number of players increased to more than ten
in 2000. The credit card market registered a healthy annual growth rate of over
25% during 1987-2001...
In the late 1980s, very few merchant establishments accepted payments by credit cards,
so there was very little demand for them. In fact, the concept of loans by organised
lenders to individuals were just beginning to establish itself.
In the 1990s credit cards were still meant only for the elite and the upwardly mobile and
were still a status symbol to be flashed while taking your business associates to a meal in
an upscale restaurant or for settling your hotel bill.
A combined effort by various banks ensured that shopkeepers realised the potential of
the credit card in increasing sales. Thus, credit cards started getting accepted at many
more establishments and that in turn fuelled demand for the credit card from individuals.
Banks beefed up their issuance systems and by around 2003-04 the number of new
credits issued touched 2,500,000 to 3,000,000 a year. Soon banks started a war to poach
on the credit card holders of rival banks by offering balance transfer facilities at low to
zero cost. Smart customers started transferring balances from one card to another almost
indefinitely at no cost. Unscrupulous consumers defaulted with one bank but still
managed to get credit cards from other banks in the absence of the credit bureau.
By 2008, defaults had started piling up and suddenly the card issuers' balance sheets
were in the red. The party officially ended when the markets suddenly turned bearish in
2008 due to the global crisis and job losses started piling up. By this time the Credit
Bureau had become quite effective and the size of the problem became apparent. Banks
almost stopped issuing new credit cards and also started weeding out existing credit card
holders or dropping their credit limits. The number of credit cards issued dropped from a
high of about 27.5 million in 2007-08 to around 17.6 million in 2011-12.

Due to the entry of credit bureaus, consumers also realised that they could not afford to
default on their credit cards as their future access to any credit (car/bike loans or home
loans) was certain to be affected. Today the market has returned with fresh credit card
issues estimated at two million a year. And the total number of operational credit cards
has risen to 19.48 million in June 2014. HDFC Bank is today the lead issuer of credit
cards though the lead issuer tag has changed from time to time with ICICI Bank
and SBI Credit cards holding the largest issuer tag in earlier years.

Features of credit card:

Alternative to cash
Credit card is a better alternative to cash. It removes the worry of carrying
various currency denominations to pay at the trade counters. It is quite easy and
way fast to use a credit card rather than waiting for completion of cash
transactions.
As an alternative, credit card helps a cardholder to travel anywhere in the world
without a need to carry an ample amount of cash. It also reduces the possible risk
of money theft and gives its user a complete peace of mind.

Credit limit
The credit cardholder enjoys the facility of a credit limit set on his card. This
limit of credit is determined by the credit card issuing entity (bank or NBFC)
only after analysing the credit worthiness of the cardholder.
The credit limit is of two types, viz.,
Normal credit limit, and
Revolving credit limit.
Normal credit limit is usual credit given by the bank or NBFC at the time of
issuing a credit card.
Revolving credit limit varies with the financial exposure of the credit
cardholder.

Record keeping of all transactions


Credit card issuing entities like banks or NBFCs keeps a complete record of all
transactions made by their credit cardholders. Such a record helps these entities
to raise appropriate billing amounts payable by their cardholders, either on a
monthly or some periodic basis.

Regular charges

Regular charges are basic routine charges charged by the credit card issuing
entity on the usage of credit card by its cardholder. These charges are nominal in
nature.
The regular charges are primarily classified into two types, viz.,
Annual charges are collected on per annum or yearly basis.
Additional charges are collected for other supplementary services
provided by the credit card issuing entity. Such services include, add-oncard (an additional credit card), issue of a new credit card, etc.

Grace period
The grace period is referred to those minimum numbers of additional days within
which a credit cardholder has to pay his credit card bill without any incurring
interest or financial charges.

Higher fees on cash withdrawals


Credit-card issuer makes charges on cash withdrawals made through credit card
at the ATM outlets and other desks. Generally, cash withdrawal fees are quite
higher than fees charged by the bank or NBFC for the other regular credit
transactions. On cash withdrawn done through a credit card, interest is charged
from the same day. That is, interest is charged since the day on which cash is
withdrawn. Usually, no grace period is provided for cash transactions.

Additional charges for delay in payment


The credit card payment is supposed to be made within a due date as mentioned
on the bill of a credit card. If payment is not paid on time, then a credit-card
issuer charges some additional costs, which are resulted due to delay in payment.
These charges are charged to compensate (recover) the interest cost,
administration cost and any other related costs bared by the credit card issuing
entity.

Service tax
Service tax is included in the total amount charged to the credit cardholder. This
mandatory service tax imposed by the government also increases the final end
cost bared by a credit cardholder. Many credit card providers (issuing entities)
have policies of reversing the service tax charged on the purchase of gas, fuel
and other similar goods.

Current credit card interest rates


3-month trend

fixed

variable

01/06/2016

12.52%

16.03%

08/06/2016

12.52%

16.02%

15/06/2016

11.06%

16.02%

23/06/2016

11.06%

16.03%

29/06/2016

11.06%

16.03%

06/07/2016

11.06%

16.03%

13/07/2016

11.06%

16.06%

20/07/2016

11.06%

16.05%

27/07/2016

11.06%

16.05%

03/08/2016

11.06%

16.05%

Advantages of credit cards

Purchase protection
Under Section 75 of the Consumer Credit Act, credit card issuers and retailers
take joint responsibility for faulty purchases.
This means that if you pay for something valued between 100 and 30,000 with
your credit card your purchase will be protected in the event that it's faulty or you
do not receive the goods or services you've paid for. In such cases, you can claim
a refund from your card provider.

Incentives
Some providers will offer incentives for using your plastic, such as loyalty
points, cashback or donations to charity.

Flexible credit
Most cards offer an interest-free period, meaning you can benefit from free,
short-term credit if you clear your balance in full by the due date. They offer
flexibility and convenience, allowing you to make emergency purchases or pay
for more expensive items by instalments.

Disadvantages of credit cards

It's easy to run up large debts


Whilst it's easy to run up a large debt on your plastic, it can be much harder to
repay it, and this can take a considerable amount of time.

Interest charges
If you incur interest charges it can take longer to clear your balance, and will
probably end up costing you more.

Credit card charges


Most credit card providers will charge a fee if you:
Fail to make the minimum payment by the due date.
Exceed your credit limit.
Have a direct debit or cheque returned unpaid.

Types of credit card

Standard Credit Cards


Standard credit cards are the general purpose cards that have revolving credit
lines. They are marketed to people above the age of 18 who meet or exceed the
financial institution's minimum credit criteria. No deposits are needed and the
credit limit is established by the credit card issuer.

Reward Cards
Many credit cards have reward programs that can influence your spending. The
perks may come in the form of cash, points or discounts. Points that accumulate,
for instance, can be traded off for free hotel stays, merchandise, air travel car
rentals and certificates. However, these credit cards can come with complex
rules, limits and restrictions. The key is to try to make sure that annual fees don't
end up eliminating all the benefits. Rewards cards are typically best for people
who pay their balances off every month.

Airline/Frequent Flier Miles:


Using these cards can earn airline miles.
The miles accumulate and can be put
toward future flights. Some programs
partner with hotels, car rentals and other
travel services. However, you don't want
to hold on to the tickets for too long.
You will need to stay aware of the
expiration date on the miles offered.
Cash Back:
Cash back cards literally give some of the money you have spent back to
you in cash. Credits range from 1-5%. However, this is usually capped at
$500 of spending in "appropriate" categories, depending on the card.
When you collect a minimum amount of cash or credit, such as $20 to
$50, you can ask to receive it through a check or use the money for a
purchase at a designated store. Some cards give a flat amount of money
based on all your purchases regardless of how much you spend, while
other have tiers with different levels of rewards depending on how much
you spend and where the money is spent.
Points Cards:
These cards let you earn reward points that can be redeemed for
merchandise, entertainment and gift cards. These include points that can
be put toward gas, hotel stays and home improvement purchases.

Premium Credit Cards:

These are the "gold" and "platinum


cards". They are generally referred to
as "upscale". They are offered to
consumers with excellent credit, which
means they've retained this standing
for few years, and can afford
high credit limits of at least $10,000.
These consumers typically have huge salaries and are heavy spenders and
travellers. Some cards are offered by invitation only. The interest and
annual fees, however, tend to be high. The cards' perks may include 24hour concierge services or a personal assistant, access to exclusive airline
lounges, and worldwide travel and auto assistance.

Secured Credit Cards


Secured credit cards are known as pay-asyou-go cards. Upon opening the account, the
card holder deposits a few hundred to a
couple of thousand dollars. This determines
the card holder's credit line. This limit is
often based on a percent of the deposit, which
is usually 50-100% of what you put into the
account. The cards have an annual fee and
higher annual interest rates. Most often, these cards are used to re-establish
credit. A person can use the card to make small purchases that they can easily
repay. Getting a card with a conversion option makes it easier to switch to a
standard credit card, which should be possible after several months of good
payment history.

Specialty Credit Cards


Specialty cards typically are offered through
affiliations, partnerships, major brand
retailers or service providers. Many specialty
credit cards share a partnership between
organizations that support a social cause,
professional organization or an alumni
association. A small portion of the purchase
goes toward the intended organization.

2. ATM/ DEBIT CARD:

A debit card (also known as a bankcard or check card) is a plastic payment card that can
be used instead of cash when making purchases. It is similar to a credit card, but unlike a
credit card, the money comes directly from the user's bank account when using a debit
card. In-store purchases or refunds with an ATM card can generally be made in person
only, as they require authentication through a personal identification number or PIN. In
other words, ATM cards cannot be used at merchants that only accept credit cards.
However, other types of transactions through telephone or online banking may be
performed with an ATM card without in-person authentication. This includes account
balance inquiries, electronic bill payments or in some cases, online purchases.
Debit cards became popular later than credit cards, but are particularly favoured by the
banks over alternative more traditional payment methods, such as cheques, which are
much costlier for them to process.
The debit card had limited popularity in India as the merchant is charged for each
transaction. The debit card was mostly used for ATM transactions. RBI has announced
that such fees are not justified so the transaction has no processing fee. Most Indian

banks issue Visa debit cards, though some banks (like SBI and Citibank India) also issue
Maestro cards. The debit card transactions are routed through Visa or MasterCard
networks in India and overseas rather than directly via the issuing bank.
The National Payments Corporation of India (NPCI) has launched a new card
called RuPay.

History of debit card


The history of debit card implies that the concept of debit card is not new. History of
debit card dates back around 20 years ago which highlighted the introduction of ecommerce and alternative means of payment.
Credit cards paved the way for debit cards. Many people used credit cards to pay for
transactions. This also put in place the infrastructure that debit cards needed to be
practical as a method of payment. Seattle's First National Bank offered the first debit
card to business executives in 1978. Initially they were like a check signature or
guarantee card, with which the bank would guarantee that the fund would be paid, but
you did not need a check to do the transaction. They also required a large savings
account be kept at the bank to cover the funds. These cards were only issued to people
who had a long and good standing with the bank, because the funds were not directly
debited from the account. These types of cards generally come with the Visa or
MasterCard symbol on them.
In 1984 Landmark created the first nationwide debit system, using ATMs and other
networks that allowed debit cards to be used nationwide. This allowed the smaller
banking systems within states to connect with banks systems outside of states. As
technology improved the debit cards moved to a system that was able to directly debit
the money from a checking account. When this happened the debit cards became
available to more and more consumers. These types of debit cards may have the Plus
symbol or other similar symbols on them. However, many banks will also use the Visa
or MasterCard symbol for a direct debit card because they are accepted at so many
different places around the country.
In 1990, the count of debit cards in circulation was around 19 million. The initial years
of the debit card era witnessed steep growth and by the year 2006 there were as many
as 27.8 million debit cards. In India, ATM was introduced first by HBSC bank.
The increase in the number of debit cards have sharply declined owing to the fact that
the market is reaching a saturation point but that has not stopped debit card usage
completely.
Statistically, debit card usage has followed a trend where one can expect the debit
card usage to rise by 9.2 billion with the spending capacity to go up by 400 million. The

use of debit card boomed to 28.8 million in 2006 and is expected to reach 34.4 million in
2016.
History of debit card has shown that food and drink has dominated the scenario of the
majority of the transactions involving a debit card. History of debit card indicates that
the last 20 years have witnessed a radical change in the payment options and the plastic
card has replaced cash.
.

Types of Debit Cards

Visa Debit Cards


These debit cards are issued with the banks tie-up
with VISA payment services providing the Verified
by Visa (VbV) platform for online transactions.

Visa Electron Debit Cards


Visa Electron debit cards are very similar to Visa
debit cards but these cards do not provide the
overdraft feature.

MasterCard Debit Cards


A MasterCard Cirrus Card or a MasterCard Maestro Card gives customers access
to their funds worldwide and they can perform
online transactions using their bank accounts on the
MasterCard SecureCode platform.

Contactless Debit Cards

Customers can make payments with just a tap or wave of their contactless debit
cards near POS terminals, with the cards working on Near Field Technology
(NFC) thereby making electronic payments safer.

RuPay Debit Cards


Introduced as a domestic card scheme by the
NPCI, RuPay debit cards facilitate online
purchases and transactions on the Discover
network and ATM transactions under the National
Financial Switch network.

Maestro Debit Card


Founded in 1992, Maestro from MasterCard is a
premier, international debit card service that has been
popularly adopted at over 13 million locations spread
across 100+ countries around the world. Maestro, as
easily identified by the signature logo on all partner
cards, helps the customer gain immediate access to his/her money through a
robust, international network of compatible ATMs, POS outlets and online
resources.

Advantages of Debit Cards

Extremely Convenient
The biggest draw for debit cards is how simple they are to use. Since the
payment is taken directly out of your bank account, where the money already
exists, it can be done instantly. This is much faster than having to wait for a
credit transaction to go through, or having to worry about having enough cash to
cover your expenses. It is especially faster than writing out a check, which many
people no longer take.

Its A Cash Card Too


Sure, debit cards are nice, but sometimes cash is a necessity. If you are going
garage sale-in or to the flea market, you may have to have cash to make the
purchases that you want to. Debit cards still have the ability to give you cash,
you can take them to an ATM and use them there to withdraw the cash. In
addition to ATM use, the majority of stores offer cash back options at checkout.

Your Pin Protects You


Debit cards are protected by a four-digit pin number that you set yourself. This
pin is needed to make almost any purchase with your debit card. This gives you a
great deal of protection against theft. These cards can also be cancelled very
easily and quickly, so if you lose it, you can prevent anyone from being able to
do any damage.

Anyone Can Have One


The only thing that you must have to have a debit card is have a bank account.
Anyone can open a bank account with a small minimum deposit. This makes
debit cards much different than credit cards, because approval for a credit card
largely depends on your credit score and payment histories. None of these things
are taken into account when getting a debit card.

Strong Budgeting Tool


One of the best things about a debit card is that you cannot spend more money
than you have, which means you cannot go into debt. This helps you to only
spend the money that you have to spend because you cannot accumulate new
debt, like with credit cards.

Disadvantages of Debit Cards

Your Credit Score Isnt Helped


A persons credit score impacts them for their entire life, whether it be negative
or positive. With a debit card, you do not impact your credit score at all, which
means that you cannot build it up. Having a higher credit score gives you lower
interest rates and increased lines of credit.

Fees Galore
When you have a debit card, fees are likely a part of your life as well. Banks
inflict a wide variety of different fees to debit card holders, which can add up
very fast. Some of these include monthly use charges, major overage fees, and
transaction fees or limits.

Merchant Blocks

Depending on where you are using your debit card, or what you are buying, the
merchant can put a hold on your money. For example, if you are filling your
tank up with gas, the gas station will likely put a hold up to 100 dollars on your
card, this is because they want to ensure that you have the funds to pay for the
gas before you pump it. The bank can take up to 48 hours to free this money up
again.
Fees may be charged
Debit card transactions are not always free. Here are some costs to watch out
for:

Out-of-network ATM fee:


This occurs if you use an ATM that isnt in your banks network. Many banks
charge $2 to $3 per ATM transaction.

Foreign transaction and ATM fees:


These generally occur if you make purchases or use ATMs outside the U.S.
International ATM fees are small fixed costs, while foreign transaction
fees usually range from 1% to 3% of the purchase.

Debit card replacement fee:


If you misplace your card, theres a small fee to have another one mailed to you.
But most banks dont charge you when they reissue your card after it expires.

Overdraft or non-sufficient funds fee:


A bank charges you one of these two fees if you try to buy something but dont
have enough money in your checking account. If you have a form of overdraft,
your bank will cover the transaction but youll owe that amount plus an overdraft
fee. If you dont have coverage, the transaction usually gets declined and youll
get charged a non-sufficient funds fees.

3. SMART CARDS

A smart card is a plastic card, similar in appearance to a credit card, and


containing one or more embedded semiconductor chips. Smart cards typically
have a storage area in EEPROM and may also include a microprocessor able to
process any data stored. Recent technological progress has seen the development
of a contactless smart card, in other words one in which the chip
communicates with a card reader using radio frequency identification. Smart
cards have significant potential over magnetic-stripe swipe cards, not only can
more data be stored, but it can be processed in some way as well. Despite privacy
concerns, it seems likely that smart cards are the way forward, with increasing
systems merging together. In an article for Credit Union Magazine, Schacklett
(2000) predicts that as smart cards gain momentum in the financial services
marketplace, its likely that other forms of plastic like credit, debit, and ATM
cards will all meld into one universal, multifunctional smart card. The first major
use of smartcards was by French banking association Cartes Bancaires who saw
advantage of using the technology in reducing fraud. By replacing magnetic
striped cards with smart cards fraud rates in France dropped.
Smart cards serve as credit or ATM cards, fuel cards, mobile phone SIMs,
authorization cards for pay television, household utility pre-payment cards, highsecurity identification and access-control cards, and public transport and public
phone payment cards.The German Geldkarte is also used to validate customer
age at vending machines for cigarettes.

History of Smart Card

Invention
In 1968 and 1969 Helmut Grottrup and Jurgen Dethloff jointly filed patents for
the automated chip card. Roland Moreno patented the memory card concept in
1974. An important patent for smart cards with a microprocessor and memory as
used today was filed by Jurgen Dethloff in 1976 and granted as USP 4105156 in
1978. In 1977, Michel Ugon from Honeywell Bull invented the first
microprocessor smart card with two chips: one microprocessor and one memory,
and in 1978, he has patented the self-programmable one-chip microcomputer
(SPOM) that defines the necessary architecture to program the chip. Three years
later, Motorola used this patent in its "CP8". At that time, Bull had 1,200 patents
related to smart cards. In 2001, Bull sold its CP8 division together with its
patents to Schlumberger, who subsequently combined its own internal smart card
department and CP8 to create Axalto. In 2006, Axalto and Gemplus, at the time
the world's top two smart card manufacturers, merged and became Gemalto. In
2008 Dexa Systems spun off from Schlumberger and acquired Enterprise
Security Services business, which included the smart card solutions division
responsible for deploying the first large scale public key infrastructure (PKI)
based smart card management systems.The first mass use of the cards was as
a telephone card for payment in French pay phones, starting in 1983.
Smart cards are also being introduced for identification and entitlement by
regional, national, and international organizations. These uses include citizen
cards, drivers licenses, and patient cards. In Malaysia, the compulsory national
ID MyKad enables eight applications and has 18 million users. Contactless smart
cards are part of ICAO biometric passports to enhance security for international
travel.

Advantages of Smart Cards

More Secure
This simple technology has revolutionized the payment card industry and
increased the level of card security. These cards use encryption and
authentication technology which is more secure than previous methods
associated with payment cards. The microprocessor chip embedded at the heart
of the smart card requires contact to the card reader and certain areas of the chip
can be programmed for specific industries.

Safe to Transport
Another advantage to having a smart card is their use in the banking industry
(and many other sectors). These cards give the holder freedom to carry large
sums of money around without feeling anxious about having the money stolen.
In this regard, they are also safe because the cards can be easily replaced, and the
person would have to know the pin number to access its stored value. This takes
care of the problem with cash; once it is stolen it is nearly impossible to trace and
recover it.

Double as an ID Card
A third advantage of using a smart card is that they can provide complete
identification in certain industries. There are numerous benefits of using smart
cards for identification. A driver's license that has been created using smart card
technology can give the police the ability to quickly identify someone whose
been stopped for speeding or reckless driving. These cards can be used by health
professionals to identify someone who is brought in by an ambulance but
unconscious or unable to speak.

Prevents Fraud
Other benefits of using smart cards for identification can be used by governments
to prevent benefits and social welfare fraud to ensure the right person is receiving
the welfare benefit. Some countries are using the smart cards to identify
temporary workers who have been given work permits. This has the potential to
reduce immigration fraud.
Smart cards are just as easy to use as a credit or debit card, but considerable more
secure. They are lightweight and easy to carry. This makes it easy to have one
card to pay for parking, access to the office, and for buying lunch at the office
cafeteria.

Disadvantages of Smart Card

Easily Lost
Like a credit card, smart cards are small, lightweight and can be easily lost if the
person is irresponsible. Unlike credit cards, smart cards can have multiple uses
and so the loss may be much more inconvenient. If you lose a card that doubles
as a debit card, bus pass and key to the office, you could be severely
inconvenienced for a number of days.

Security
A second disadvantage of the using smart cards is their level of security. They are
more secure than swipe cards. However, they are not as secure as some in the
general public would believe. This creates a false sense of security and someone
might not be as diligent as protecting their card and the details it holds.

Slow Adoption
If used as a payment card, not every store or restaurant will have the hardware
necessary to use these cards. One of the reasons for this is since the technology is
more secure, it is also more expensive to produce and use. Therefore, some stores
may charge a basic minimum fee for using smart cards for payment, rather than
cash.

Possible Risk of Identify Theft


When used correctly for identification purposes, they make the jobs of law
enforcement and healthcare professionals easier. However, for criminals seeking
a new identity, they are like gold, based on the amount of information it can
contain on an individual.

List of smart cards in India:

STATE

CARD

PROVIDER
Delhi Metro Rail Corporation

New Delhi

Delhi Metro
Smart Card

INTRODUCTIO
N YEAR
2005

More Card

Government of India

2011

Namma Metro
Smart Card
Kolkata Metro
Smart Card
Bus Pass Smart
Card

Bangalore Metro Rail Corporation


ltd (BMRC)
Kolkata Metro Rail Corporation

2011

Bangalore
Kolkata

Mumbai

_
Brihan Mumbai Electric Supply
and Transport undertaking (BEST)

2007

Mumbai
Suburban
Railway
Mumbai Metro

Indian Railways

Mumbai Metro

2014

Mumbai
Monorail

Mumbai Metropolitan Region


Development Authority
(MMRDA)

2014

2007

4. SMART PHONES AS MOBILE WALLETS


Mobile wallet is a very young concept in India that has taken on consumer
psyche rapidly. Everyone is loving mobile wallets and embracing them with open
arms. Today, mobile wallet is one of the successful business ideas for start-ups.
The evidence lies in the fact that it has surpassed credit cards in terms of the
number of users in just a fraction of time. Vijay Shekar Sharmas venture Paytm
alone has 20 million active users. The number is higher than the cumulative
number of credit cards in India. At present, there are 10-12 mobile wallet
companies operating in the country.
The top mobile wallet companies in India are as follows:

PayTM
PayTM is one of the fast
growing companies in
the mobile wallet space
in India. According to
Vijay Shekhar Sharma,
chairman and managing
director
of
One97
Communications, which
operates Paytm, which
received the mobile
wallet service licence from the Reserve Bank of India last year, aims to cross the
100-million users mark by 2016.
With its mobile first strategy, Paytm does more than 30 million orders of various
digital and physical goods every month. Launched in 2014, Paytm wallet is
Indias dominating mobile payment service platform.

MobiKwik
Started in 2009, MobiKwik claims to have 12 Million users. The MobiKwik
Wallet claims to enable users to pay in a flash for their recurring mobile recharge,
bill payments and online purchases on popular e-commerce websites (and apps)

including
eBay,
Snapdeal,
ShopClues,
MakeMyTrip, redBus,
BookMyShow,
Dominos
Pizza,
Fashionandyou,
American
Swan,
Abhibus,
Purplle,
HomeShop18, Naaptol, Pepperfry, Yepme and Infibeam.

Oxigen
Oxigen is one of the
oldest players in the
payment market while
the company jumped
into the mobile wallet
space just last year. With
its service, people can
share money with their
friends and family over
their preferred social
networks and messaging
platforms like Facebook,
WhatsApp,
Google+,
and Twitter. It allows users to use their wallet to recharge their mobile phones,
pay bills and shop across a large number of online merchants.

Citrus Pay
Another key player in the
mobile wallet space is Citrus
Pay which has quickly garnered
attention from users in India. It
claims to have completed
transactions on its platform to
the tune of 1bn dollars. In
addition, the company has
attracted funding from investors
such as Sequoia Capital,
Beenos, and E-Context Asia, among others.

mRupee
mRupee, a Tata Teleservices offering in the mobile wallet space, this semi closed
wallet is licensed by
Reserve Bank of India.
Over the last couple of
years
of
operations
mRUPEE has enabled
customers pay bills,
recharge mobile and
send money to their near
and dear ones through a
wallet platform which
operates on a Customer Self-Initiated as well as a Retailer Assisted Model thus
catering to a wide spectrum of users. The company looks to create use cases for
the customer to use the wallet over traditional payment methods (like cash, cards
etc.,) creating a portfolio of frequently transacting customers.

Freecharge
Founded
in
2010,
FreeCharge claims to be
strong in the mobile
space with 20 million
registered users. It is not
a mobile wallet but a
mobile
recharge
platform. The company
recently was acquired by
Snapdeal for $400. Freecharge is not a wallet service but is a mobile recharge
tool. It has raised $113 million so far from investors like San Francisco-based
Valiant Capital Management and Hong Kong-based Tybourne Capital
Management. Its investors have decided not to exit following the transaction by
Snapdeal. Though the companies will work separately, there will be a crosspollination of services to help FreeCharge customers buy products from
Snapdeal, and vice versa.

5. STORED-VALUE CARDS

A stored value card is like a universal gift card. It is issued in a given amount of
money, and it is not associated with any individual name or person. Instead, this
card can be used at any time in order to make a purchase; it is like cash.
Stored value cards are typically similar in appearance to debit cards and either
employs a magnetic stripe or smart card technologies in order to store data.
Under this scheme, using an appropriate reader an amount can be electronically
added or deducted from a balance on the card.

Stored-value cards can be divided into two categories:


Closed-loop cards have a one-time limit; merchant gift cards and prepaid phone
cards are two examples.
Open-loop cards, on the other hand, can be reloaded with cash and used again.
Open-loop cards can be branded or unbranded:
Unbranded cards are linked to point-of-sale and ATM networks and use
PIN-based technologies for sales and withdrawals. Examples include
grocery store PIN networks and public benefit cards.
Branded cards carry the Visa, MasterCard, Discover or American
Express logo and use signature-based technologies that allow users to
make purchases anywhere the brand is acceptedretailers, restaurants,
auto-repair shops, online retailers, etc.

Advantages of Stored-value Cards

Use in "Credit Card Only" Scenarios


For an individual without a credit card, it can be very challenging to complete
certain purchases. For example, credit cards are required to book plane tickets
and hotel rooms and to make other reservations. If you find yourself in one of
these scenarios, having a stored value card can save you from failure to make a
payment.

Control Costs and Expenses


You may find a situation where you need to control your costs and expenses with
a firmer hand than usual. For example, you may be traveling or giving a credit
card to your children or employees. In this type of situation, having control over
just how much can be spent is important. You can purchase a stored value card in
nearly any grocery store or convenience store today. Once you do, you no longer
have to worry about carrying cash, overcharging on your credit card or giving
into unnecessary expenses. Your card will work only until you have spent all of
the stored value.
Disadvantages of Stored-value Cards

High Fees

The card you purchase costs money. For example, a $200 stored value card may
cost $220. The additional $20 goes to pay for the physical card, the packaging,
and the fees associated with the card's usage. Ultimately, if you compare using a
stored value card to using cash on each purchase, you will find you spend more
money by using the stored value card. For example, if you want to give your
child a gift, you may think $100 is appropriate. You could give him or her $100
in cash, or you could provide a $90 stored value card.

"Like Cash"
Since the card is not associated with any individual name or account, it is like
cash. You can spend it anywhere cards are accepted without unique charges and
fees. If you lose the card, you cannot retain its value. The card is not associated
with you or your bank account. Any person who picks up the card can use it for a
purchase. The cashier accepting the card will not even ask for identification. You
cannot call the card issuer to have the card replaced. You have simply lost the
money.

6. ELECTRONIC CASH

Several companies have taken this idea further and developed cards which can be
used in multiple retail outlets, effectively as electronic cash. One such system
is Mondex, developed by the National Westminster Bank in the UK and later
sold to MasterCard International. Mondex was originally developed in 1996 as a

smart card alternative to cash. Graham Higgins, a banker and co-inventor of


Mondex, had been quoted as explaining that the scheme would help alleviate
the burden of counting, storing, as well as the security associated with,
physical cash.
History of Electronic Cash
In 1983, a research paper by David Chaum introduced the idea of digital cash. In
1990, he founded DigiCash, an electronic cash company, in Amsterdam to
commercialize the ideas in his research. It filed for bankruptcy in 1998. In 1999,
Chaum left the company.
In 1997, Coca Cola offered buying from vending machines using mobile
payments. After that Paypal emerged in 1998. Other system such as egold followed suit, but faced issues because it was used by criminals and was
raided by US Feds in 2005. In 2008, bitcoin was introduced, which marked the
start of Digital currencies.

Uses of Electronic Cash worldwide

Hong Kongs Octopus card system: Launched in 1997 as an electronic purse for
public transportation, is the most successful and mature implementation of
contactless smart cards used for mass transit payments. After only 5 years, 25
percent of Octopus card transactions are unrelated to transit, and accepted by
more than 160 merchants.

London Transports Oyster card system: Oyster is a plastic smartcard which can
hold pay as you go credit, Travel cards and Bus & Tram season tickets. You can
use an Oyster card to travel on bus, Tube, tram, DLR, London Overground and
most National Rail services in London.

Singapores FeliCa: A contactless RFID smart card, used in a variety of ways


such as in ticketing systems for public transportation, e-money, and residence
door keys.

Netherlands Chipknip: As an electronic cash system used in the Netherlands, all


ATM cards issued by the Dutch banks had value that could be loaded via
Chipknip loading stations. For people without a bank, pre-paid Chipknip cards

could be purchased at various locations in the Netherlands. As of January 1,


2015, you can no longer pay with Chipknip.

Belgiums Proton: An electronic purse application for debit cards in Belgium.


Introduced in February 1995, as a means to replace cash for small transactions.
The system was retired in December 31, 2014.

7. POINT OF SALE
REGISTER (ACR)

TERMINALS AUTOMATED

CASH

Point of sale (POS) or checkout is the location where a transaction occurs. A


"checkout" refers to a POS terminal or more generally to the hardware and
software used for checkouts, the equivalent of an electronic cash register. A POS
terminal or machine manages the selling process by a salesperson accessible
interface. The same system allows the creation and printing of the receipt. Point
of Sale (POS) Terminals are the preferred way of processing credit cards, debit
cards, cheques, smart chip cards, electronic benefits transfer (EBT), and other
electronically submitted transactions in a traditional retail environment. The
terminals are used in "face-to-face" transactions. The merchant will swipe the
customer s card through the terminal or key-in payment information and the
terminal does the rest. No doubt, POS terminals are already installed in some of
retail outlets in Nigeria.

History of POS terminals

Electronic Fund Transfer at Point of Sale (EFTPOS) technology originated in


the United States in 1981 and was rolled out in 1982. Initially, a number of
nationwide systems were set up, such as Interlink, which were limited to
participating correspondent banking relationships, not being linked to each other.
Consumers and merchants were slow to accept it, and there was minimal
marketing. As a result, growth and market penetration of EFTPOS was minimal
up to the turn of the century. Since 2002 the use of EFTPOS has grown
significantly, and it has become the standard payment method, displacing the use
of cash. Subsequently, networks facilitating the process of money transfer and
payment settlement between the consumer and the merchant grew from a small
number of nationwide systems to the majority of payment processing
transactions. For EFTPOS, US based systems allow the use of debit cards or
credit cards.
In a short time, other countries adopted the EFTPOS technology, but these
systems too were limited to the national borders. Each country adopted various
interbank co-operative models. In New Zealand, Bank of New Zealand started
issuing EFTPOS debit cards in 1985 with the first merchant terminals being
installed in petrol stations. In Australia, the major Australian banks started
issuing debit or EFTPOS cards (each under a different brand name) starting in
1986 and merchants started installing EFTPOS terminals at the same time. Debit
cards issued by all banks could be used at all EFTPOS terminals nationally, but
debit cards issued in other countries could not. Prior to 1986, the Australian
banks organized a widespread uniform credit card, called Bankcard, which had
been in existence since 1974. There was a dispute between the banks whether
Bankcard (or credit cards in general) should be permitted into the proposed
EFTPOS system. At that time several banks were actively promoting MasterCard
and Visa credit cards. Store cards and proprietary cards were shut out of the new
system.
In recent years, MasterCard and Visa have introduced a debit card which is
widely accepted internationally. International transactions are generally in the
local currency, requiring a currency exchange by the card company to the
currency of the primary account. Other charges may also apply.

Advantages of POS Terminal

Financial Accuracy
One advantage of EPOS systems is the increased financial accuracy when
charging customers. Traditionally, businesses rely on their staffs competence to
correctly calculate sales transactions, which can lead to mistakes and omissions.
This can result in customers being overcharged, reducing the likelihood of them
returning, or undercharged, resulting in a loss of profit. EPOS systems greatly
reduce the possibility of such staff errors, ensuring that a business's pricing and
charging structure remains consistent.

Accountability
Electronic point of sale systems allows businesses to accurately monitor and
record staff activity. Being able to pinpoint which staff members were
responsible for specific transactions can prove extremely useful for employers.
For example, employers can identify employees with the strongest sales figures,
encouraging a spirit of competition within the business. In contrast, those with
particularly poor sales figures, or those displaying unusual sales activity, such as
unusually high levels of voided transactions, can be easily identified.

Speed & Efficiency


EPOS systems greatly improve the speed and efficiency of transactions, which
will appeal to customers and help your employees focus on serving more people.
This can improve your customers' overall experience and encourage repeat
custom in the future.

Stock Management
Modern EPOS systems can also be used to manage stock. Businesses have the
ability to quickly review their current levels of stock, and easily identify areas in
which a greater level of stock is required. The advantage of an automated EPOS
system is that it can save a noticeable amount of time compared to traditional,
manual stocktaking operations.

Reporting
A final advantage of EPOS systems is their ability to produce a variety of
business performance reports. Such reports can range from a basic analysis of
daily or annual profit margins, to an identification of the top selling products or
services in a company's range. Such information can provide a business with a
useful picture of their overall performance, and can help influence marketing
campaigns. For example, you can apply discounts to less popular sales items at
certain times in the year.

Disadvantages of POS Terminal

Cost
Overall cost is likely to be at the forefront of a business owner's mind when
considering an EPOS system. Standard EPOS packages, including digital
touchscreen, cash register and other peripherals, often cost around 2000 or
higher in the UK.
As a result, EPOS systems can be quite an expensive purchase, particularly for
small businesses, or businesses requiring a large number of systems. When more
advanced EPOS capabilities or additional systems are required, prices can
increase noticeably. However, there are several options to lower the cost of
investing in an EPOS system, specifically renting or leasing a system or
identifying the core business needs and then choosing the most basic and
therefore cheapest system that fulfils all requirements.

Maintenance
An additional issue associated with the use of EPOS systems is the regular
maintenance requirement. Although some suppliers offer free maintenance for a
period of time to incentivise purchase, the effect of regular maintenance can
often prove to be time consuming and disruptive to operations.
EPOS systems may also require regular software and/or hardware updates in
order to maintain optimum performance, and owing to the constantly developing
nature of IT based systems, these updates can prove to be an ongoing expense.
However, if renting or leasing an EPOS system, upgrades and maintenance are
often included in the price.

8. IMPLANTS
Possibly the most frightening aspect of the movement toward a cashless society
is the emergence of technology that would allow a microchip to be placed in the
human hand that would identify every human being on the planet and allow them
to buy and sell without coins, paper or a card. A human microchip implant is an
integrated circuit device or Radio Frequency Identification (RFID) transponder
encased in silicate glass and implanted in the body of a human being. A subdermal implant typically contains a unique ID number that can be linked to
information contained in an external database, such as personal identification,
medical history, medications, allergies, and contact information.
Theoretically, a Geographical Positioning System (GPS)- enabled chip could one
day make it possible for individuals to be physically located by latitude,
longitude, altitude, speed, and direction of movement. This GPS-enabled chip
would be able to work with the microchip implants. Though, such implantable
GPS devices are not commercially available at convenience or conspiracy, you
decide. But like it or not the cashless society is on its way.

THE CURRENT MONETARY SYSTEM AND ITS


DRAWBACKS
Most economies in the world have a central bank or an authority that reserves the right
to manufacture paper and metal currency bank and is responsible to assure the bearer of
its assigned value. While this might come across as a fairly easily understandable
system, there is a lot more that goes into money creation. The amount of cash in an
economy at any instant is guided by the market forces of demand and supply and the
central authority in charge regulates the flow of cash into or out of the market.
Cash, however is only the physical instantiation of money. The reason why cash has
been a popular form of exchange for such a long time is because of the tangibility that it
provides to the entire idea of money.
The reason being that money in the form of cash has more that it takes away from us
than it gives us. Outlined here are some major drawbacks of cash:
At an individual level, cash is inconvenient to carry and manage. It cannot be
traced or insured as cash once lost or stolen cannot be recovered.
Cash is expensive to print, inspect, move, store, and guard.
Counterfeiting is always going to be a problem as long as paper currency exists.
Hand-to-hand currency is favoured by criminals as it does not leave a paper trail.
Cash transactions are not trackable in nature, thus providing no transparency.
This leads to corrupt practices and financial crimes such as excessive money
laundering.
Monitoring of tax compliance is difficult for the government.
High cash usage results in a substantial amount of money outside the formal
economy, thus stunting the effectiveness of policies aimed at managing inflation
rates.
In wake of the issues highlighted above, some governments are already viewing the use
of cash in a negative light, in fact, according to the U.S. government, cash payments are
now thought of as suspicious activity that needs to be replaced to the authorities

GROWTH OF CASHLESS SOCIETY IN INDIA


The government and the Reserve Bank of India (RBI) have been working on how to
reduce cash transactions in the economy. In this regard, they formed a committee last
month, of seven members, chaired by a ministry official, Neeraj Kumar Gupta.
This group is looking at how to ensure the acceptance of card payments is increased.
This will require more of point-of-sales (POS) machines.
RBI data at end-March shows 24.5 million credit cards and 661.8 million debit
cards in the country, compared to 1.3 million POS terminals.

A committee was also formed last year on the same issue; the new panel is to also see
that the formers suggestions are implemented. These include reducing the interchange
fee charged on credit cards and bringing these at par with debit cards. Currently, 1.98 per
cent in the case of credit card spending and 0.5-1 percent in debit card spending of the
total amount is interchange fee by the bank and the card players.
This amount is paid by the merchant and is split between the bank that issued the card,
the lender whose POS machine is being used and the payment system RuPay, Visa or
MasterCard.
Most of the merchants fail to distinguish the difference between credit and debit card at
the time of swiping it. As a result, they charge a flat two per cent for both debit and
credit cards, which has been proving a bit of a deterrent. Therefore, the charges for credit
cards have to be brought at parity to change that impression, said an official, present at
the latest meeting of the committee.

The taskforce is also working at ways in which card payers neednt pay a surcharge for
fuel, utility bills and railway bookings, a move approved earlier by the government.
Indias cash-to-gross domestic product proportion was a little over 12 per cent in 2014,
higher than several other economies. According to a 2015 report, RBI and commercial
banks annually spend around Rs 21,000 crore in currency operation costs.
Many consumers in metros have seen their cash transactions go down significantly
because of growing e-commerce, expansion of mobile wallets and online banking. This
is only the start of a march towards becoming a cashless society. Things are expected to
change dramatically in a few years for urban consumers. Many entities are working on
different electronic payment mechanisms that can usher in a digital payment revolution.
Wallet companies are aggressively tying up with retailers to let customers use mobile
payments. National Payments Corporation of India (NPCI), a company promoted by
banks, is working on a mechanism that will allow consumers to transfer money and
make payments almost as easily as they send a text message.
The Reserve Bank of India (RBI) has allowed 11 payments banks and 10 small finance
banks to open shop. RBI also wants to make it cost-effective for banks to provide point
of sale (POS) terminals (for using credit and debit cards) at small merchant
establishments. And, to incentivise consumers for more electronic transactions, the
government has withdrawn the surcharge, service charge or convenience fee on digital
payments on cards and online payments for any government service.
Need for change
While digital payments are on a rise in metros, they are only five per cent of all
transactions in the country. The cash to gross domestic product ratio is one of the highest
in the world - 12.4 per cent in 2014, compared to 9.5 per cent in China and four per cent
in Brazil. Even the number of currency notes in circulation is high: the US has 34.5
billion notes in circulation, India has 76.5 billion.
The amount of currency in circulation stood at Rs 1,283 lakh crore in 2013-14. Of this,
only a small amount is with banks, but this is changing. Electronic payment methods
such as credit, debit and pre-paid cards added about Rs 40,000 crore to the economy
between 2011 and 2015 and created 336,000 jobs, according to a Visa study by Moody's
Analytics.
Going cashless brings better tax revenue, more financial inclusion and benefits
individuals too. It gives the convenience of banking from anywhere by smartphones,
funds are on tap and money in the bank earns interest. Also, there is no risk of carrying
currency notes and once your spending pattern is known, banks can offer you
customised benefits.
Changes to come
One of the biggest hindrances in growth of digital payment is merchants' reluctance to
take POS terminals, as these are costly, take more time than cash payments and also
make business owners accountable. According to Sunil Kulkarni, deputy managing

director of Oxigen Services, there are 15 million retail shops but only 0.6mn have POS
terminals.
Digital payment players are making POS either more efficient or eliminating the need
for any physical infrastructure. Most of the next-generation payment systems use
smartphones for transactions. Dilip Asbe, chief operating officer at NPCI, says: "An
individual will be able to transact across banks on a smartphone using his Aadhaar
number, mobile number and a virtual payment address. Each person gets a unique
identity and doesn't need to enter any bank account information. It's interoperable and
will work across payment channels, devices and institutions."
The Paytm app can be used for offline payments. It has already tied up with retailers
such as Cafe Coffee Day and Barista. App-focused payments reduce the need for
physical infrastructure and, therefore, can enrol retailers faster. "By 2020, our goal is to
cover three times the POS terminals that exist today and have half a billion customers on
our platform. We want to be present for all possible transactions a customer does," says
Nitin Misra, vice-president, products, Paytm. The company has also received a licence
for a payments bank.
Other wallet players have a similar aim. Kulkarni of Oxigen says other than using the
wallet to send and receive payments at merchants, the company is also implementing a
'universal' POS terminal that not only allows transactions through cards but can be used
for recharge and also be a payment wallet. "Our services are interoperable," he says.
India is largely a cash-happy nation. Individuals find transacting in cash easy, fast and it
is now a habit. People are not moving quickly towards adopting digital payments. Even
now, 60 per cent of e-commerce business is cash on delivery. "One key thing that needs
to be done is to bring down the transaction time and many are working on various
solutions. Also, merchants need to be incentivised," says Vijay Mani, senior director,
Deloitte. Kulkarni of Oxigen says there will be growth but it will be slow and steady. A
large part of the population still doesnt have bank accounts.

PRIYANKA BOSE
Investment advisor to start-ups
Digital payments have made life easier for the 29-year-old, who helps start-ups raise
funds. Of her total monthly expenses, only 15 per cent of transactions happen in cash.
The rest are online or through use of cards. Most of her day is spent in travelling for
meetings. She uses an app to book a taxi and pays using her e-wallet. The venues of
meetings are mostly coffee shops or restaurants, where she uses her credit card. Most of
her other transactions such as payments for mobile, broadband, satellite television, credit
card, groceries, outstation travel and shopping are done online. She pays cash for home-

delivered food, milk and laundry and to her maid and mechanic. For this, she maintains
only Rs 2,000 in her purse and visits her bank ATM once a week.
"Things have changed drastically since 2010 when I first transacted online to recharge
my mobile phone with my debit card. At that time, my parents got upset when I
informed them that I had applied for a credit card, which was supposed to be for the rich.
Middle-class families thought it will always lead to bad debts," she says. Recently, her
grandfather wanted to get a credit card issued, as he wanted to transact online.
There are occasions when retailers charge her two per cent extra for transacting by using
cards or offers discounts if she pays by cash but she mostly prefers using her card, as she
doesn't keep a lot of cash. "I stopped keeping cash after a thief snatched my purse," she
says.

KAPIL DEV BHAGAT


Tourism professional
As Kapil Dev Bhagat, 46, leaves home for office at 9 am, his first job is to fill petrol in
his car. Anyway, the needle is nearly pointing to the empty mark. "Couldn't have
happened at a worse time," he fumes, for he needs to be in office by 10 am for a review
meeting with his boss. After reaching the petrol pump, he realises that he does not have
enough cash. The credit card comes to his aid, as usual.
Bhagat's job with Jet Air Tours is a hectic one and entails a lot of travelling. Earlier, he
used to carry wads of notes but he has increasingly learnt to depend on cards, both credit
and debit. The best part: He has abandoned standing in lengthy queues to pay utility bills
like before. Earlier, he'd make these payments from his home computer. Now, he has
downloaded his bank's app on his smartphone and uses it to pay his bills. When his boss
is not around, he indulges in a bit of online shopping on the office computer as well.
Visits to malls during the weekend and forays to fine dining restaurants are all paid for
by the credit card.
On the way back from his office in central Delhi's Connaught Place to his home in South
Delhi's Mehrauli, he remembers it is his marriage anniversary the next day. He takes a
small detour to the South Extension market and buys ear studs, which his wife had
helpfully pointed out to him when they were earlier doing a bit of window shopping in
this market. Once again, his trusted card comes to his rescue for paying the bill. His final
stop for the evening is his neighbourhood Mother Dairy, where, having purchased the
daily quota of toned milk, he makes the payment with the card the dairy owner has
issued recently. On the whole, he barely uses any cash during the day, except for that
occasional snack or tea that he has in the office canteen. Life has almost become
cashless for him.

POSSIBLE IMPACTS OF CASHLESS SOCIETY


Removal of currency notes and coins is likely to be the biggest monetary reform since
the inception of the former itself.

Banks are likely to be in favour of a cashless society as it saves them the cost of
printing, inspecting, storing, and guarding paper money. Costs also include the
security and labour involved in processing and transporting cash, maintaining
automated teller machines, and regulating the amount of cash in circulation.
According to an estimate, European banks could save between 45bn and 90bn
annually if they get rid of cash from their systems.

Prohibition on the use of cash could restrict criminals such as drug dealers and
people involved in possible unregistered activities like prostitution and betting
from doing business.

Eliminating cash could also mark an end to bribery and other such corrupt
motives as authorities would be able to track virtually all transactions. Tax crime
would also stop.

Restriction on the possession of currency would remove the zero nominal


bound as a constraint on counter-cyclical monetary policy.

Countries could save about 1% of their GDP annually by switching over t


electronic currencies.

NEGATIVE IMPACTS OF CASHLES SOCIETY


Every reform has some pros as well as cons. There are more than a few challenges to our
proposed cashless system, which are as follows:

People still rely on the idea of money being physically realisable. For some
psychological reason, paper money is revered more than plastic money or
digital money. Cash keeps a check on peoples spending habits.

Anything thats technological comes with baggage of risks and security threats. A
very high and unbreachable degree of security would be needed as a deterrent to
hackers and cyber criminals.

The idea of a cashless society wont be readily popular among a certain section
of our demographics. While a user-friendly model might not necessarily require
consumers to be a tech-savvy, there would still be some sort of digital awareness
required to understand the working of a society with no cash. People who have
grown up and lived through times when a substitute for cash wasnt even thought
of might face some difficulty in adjusting to a world without currency notes.

All the existing cash in the world cannot be removed or deemed abandoned at
one go. Also, when it comes to money, reassurance is the thing that matters most.
For a complete switch-over to the new monetary model, the voluminous amount
of cash presently circulating in the market would have to be converted into an
equivalent number of digital points.

Developing economies have an added challenge in the form of high levels of


illiteracy among the masses. For example, in India itself, there are large sections
of rural population who havent seen a bank in their lifetimes, let alone owning a
bank account. The only way they recognise money is through currency notes and
coins.

An ideal cashless society should look to incorporate all the benefits of a digital monetary
system and to find solutions to the above mentioned challenges, in order to achieve wide
acceptance among the people who earn, spend and consume.

QUESTIONNAIRE
Basic information:
Gender:

Male
18-25

Age:

Profession: student

Female
25-35

35-50

Business service

above 50 yrs.
Government Employee

other, specify___________

Please Tick () in the box given below the questions to answer: Q1. Do you use cards?
Credit card

Debit card

Other

Q2. According to you, which is the most convenient way to pay?


Cash

Cards

Both

Q3. Which mode of transaction you mostly prefer?


Cash

Cards

Q4. How do you prefer to pay your utilities Bills?


Cash

Cards

Both

Q5. How do you make payment for purchases of household consumables?


Cash

Cards

Both

Q6. How do you make payment for purchases of luxury and Durable goods?
Cash

Cards

Both

Q7. Which you consider more reliable and secured?


Cash

Cards

Q8. Which can be carried and kept easy and has more life?
Cash

Cards

Q9. While travelling, according to you which is the preferred way of payment?
Cash

Cards

Q.10 Do you feel, there should be a cashless society in future?


Yes

No

QUESTIONNAIRE FILLED BY 50 PEOPLE, IN MUMBAI

Following are the conclusion comprehended after interpretating the


data

Q.1 Do you use cards?

22%
34%

Credit Card

Debit Card
44%

Usage of debit card is more which is 44%, while


credit card is less which is 34% and
other is only 22%.

Other

Q2. According to you, which is the most convenient way to pay?

4%
36%

Cash

Cards

Both

60%

60% of people feels cards is most convenient way to pay, while


36% of people feels cash is most convenient way to pay, and
4% of people feels both ways are convenient, cash and cards.

Q3. Which mode of transaction you mostly prefer?

46%

Cash

54%

Cards

54% of people mostly prefer cash as a mode of transaction, and


46% of people mostly prefer cards as a mode of transaction.

Q4. How do you prefer to pay your utilities Bills?

4%

40%

Cash

56%

Cards

Both

56% of people prefer to pay their utilities bills by cards, while


40% of people by cash, and
4% of people prefer both, cash and cards.

Q5. How do you make payment for purchases of household


consumables?

4%

41%

Cash

Cards

54%

Both

54% of people make payment for purchase of household consumables


by cash, while
41% of people make payment by cards, and
5% of people make payment by both, cash and cards.

Q6. How do you make payment for purchases of luxury and Durable
goods?

4%
30%

Cash

Cards

Both

66%

66% of people make payment for purchase pf luxury and durable


goods by cards, while
30% of people make payment by cash, and
4% of people make payment by both, cash and cards.

Q7. Which you consider more reliable and secured?

22%

Cash

Cards
78%

78% of people feels cards are more reliable and secured, while
22% of people feels cash is more reliable and secured.

Q8. Which can be carried and kept easy and has more life?

18%

Cash

Cards
82%

82% of people feels cards can be carried and kept easy and has more
life, while
18% of people feels cash can be carried and kept easy and has more
life.

Q9. While travelling, according to you which is the preferred way of


payment?

42%
58%
Cash

Cards

58% of people prefer cards as a way of payment while travelling, while


42% pf people prefer cash as a way of payment while travelling.

Q.10 Do you feel, there should be a cashless society in future?

42%

Yes

58%No

58% of people agrees with the idea of cashless society in future, while
42% of people doesnt agrees.

CONCLUSION
It can thus be concluded that with the increasing popularity of transactions through
cards, cash is slowly but surely expected to die a natural death. In a world where
payments go online, cash serves very little purpose apart from creating a burden on the
state. Doing away with cash addresses a very wide spectrum of problems, starting from
counterfeiting, money laundering and bribery ti tax dodging and criminal businesses.
While a cashless economy might take some time to get fully realized, it is something
thats surely coming our way in the near future. Like everything else, cashless society
has its own set of pros and cons. But the positives that we can get out of it outweigh any
negative impact that it might have.
The distribution of power between a central bank and the smaller banks is an important
aspect in becoming a cashless society. The role of the central bank as a money-maker
would cease to exist and its new found role would be to supervise the smaller parties
who get enabled to be a part of the money, point-issuing process. A switch over to the
cashless economy thus decentralizes the power from a central hand at the top of the
hierarchy, which is what is needed.
Overall in a nutshell, a cashless society has an innumerable number of benefits over the
current monetary system. The paper currency stays on because it is the only form of
money that is built in our psyche. The future generations though will live through a time
when the idea of money creates an image of credit and debit cards inside their head. That
will be the time when cash will have to give way to a world where exchange will take
place as it does now, but without the money being visible to us.