Wednesday, August 21, 2013

Cashless society still a long way off

Majority of Indians still prefer good old Cheque or Cash which remain the dominant modes of payment. 

By Neeraj Mahajan

Despite all out efforts by the RBI and financial sector including banks to proactively encourage electronic payment system--- a truly cash-less society remains a distant dream in India.

Majority of Indians still prefer the good old cheque which remains the dominant mode of payment. Though the share of cheque payments has declined to 52 percent and non-cash electronic payments have shown an upward trend -- a safe, easy to use efficient, interoperable, inclusive and compliant payment settlement system in the country – complaint with international standards is a long way off.

Significantly the number of non-cash transactions per citizen in India is very low – just 6 transactions per citizen as compared to other emerging markets.



Cash remains the predominant payment mode in the country. This requires a very high number of banknotes and coins --12.04% of GDP—to be in circulation higher than other emerging markets like Brazil, Mexico and Russia.

An analysis of the payment landscape in India reveals that the benefits of modern electronic payment systems are yet to reach the length and breadth of the country. Modern electronic payment products and services are largely concentrated in tier-I and tier-II cities and accessible to those citizens who already have access to the formal banking channels.

These unbanked and under-banked people constitute a significant portion of the country’s population.

(i) Of the six lakh plus villages in India, there were 1.47 lakhs banking and 34,000 RRBs outlets in villages.


(ii) Those sections of society who do not have any access to electronic payment systems obviously prefer cash dealings. 

(iii) There is a huge potential of migrating government transactions (payments and receipts) to electronic mode. Government subsidies alone constitute more than Rs. 2.93 trillion, these payments itself may translate into 4.13 billion electronic transactions per year.

(iv) Just 0.6 million of the 10 million plus retailers in India have e-payment terminal at the 'point of purchase.'

 (v) As per the report on E-commerce released by the Internet and Mobile Association of India (IAMAI), the potential of ecommerce was estimated to be Rs.465.20 billion at the end of 2011. Electronic bill presentment and payments of insurance, utility bills, taxes, and school fees also present a huge opportunity.

(vi) The number of non-cash transactions per person stands at just 6 per year. If every citizen undertakes minimum one transaction in month, the total transactions in the country would reach an astronomical 12 billion per annum.