India’s Cashless Economy: UPI Contribution

As more Indians switched to mobile phones, the urgent need for connectivity led to the widespread adoption of data servers and an increase in internet penetration across cities and suburbs. These two changes have resulted in a cashless economy.

 

Smartphones in the low-cost range can now provide adequate access to the digital world. Furthermore, factors such as ever-changing customer demand for innovation and government initiatives to regulate and limit the flow of cash are propelling India toward a cashless economy. Furthermore, dynamic growth in the number of customer service providers across diverse channels such as manufacturing and eCommerce is a key factor in increasing the adoption of a cashless economy.

 

What is a Cashless Economy?

 

A cashless economy is one in which transactions are conducted using cards, payment wallets, and other digital modes rather than traditional payment methods such as cash or coins.

 

In other words, a cashless economy is one in which the flow of money is facilitated through digital means (mobile wallets, debit cards, credit cards, or net banking) rather than cash. As a result, the types of cashless economies in each country will be determined by the dominant digital payment method in the country.

 

This economic system is based on credit cards, debit cards, digital wallets, and modes of payment. Cashless economies have a limited number of cash transactions. In this type of economy, electronic money is preferred over transactions involving coins or physical notes.

 

Countries such as Denmark, Sweden, and Norway are paving the way for a global cashless economy.

 

The government's demonetization initiative in 2016 paved the way for India to transition to a cashless economy. Soon after, while the rest of the world was dealing with the pandemic, the government established Unified Payment Interfaces (UPI) and quickly established e-payment startups. The onset of the pandemic prompted a paradigm shift in people's attitudes toward leveraging available technology by adopting a cashless mindset.

 

During COVID, economists, business owners, and financial analysts discussed the possibility of a cashless economy. Businesses have chosen to go cashless in order to avoid unnecessary physical contact with customers and to promote a faster form of payment, limiting exposure to the highly contagious virus. While individuals prefer this secure and convenient method of payment, it may not have the best economic implications.

 

There are advantages and disadvantages to a society based entirely on a cashless economy. Because of its efficiency and simplicity, it has become the preferred option among millennials and younger generations. However, there are some risks associated with this new type of digital currency.

 

Why is India moving towards a cashless economy?

 

India is a land of contradictions, and the existence of two distinct worlds within the same country is the best example of this.

 

While India is technologically and Internet-savvy, our Bharat lags far behind. It even lacks basic necessities. While India is talking about bullet trains and hyper-loops, people in 'Bharat' are still making a living from cycle rickshaws. Given such a wide range of disparities, it is no surprise that 90% of our workforce is in the unorganized sector.

 

The Indian economy is based on cash. So much so that MNCs like Amazon had to incorporate 'cash on delivery' in order to enter the Indian market.

 

India has the highest cash-to-GDP ratio, at 12.42%. Other large economies have an average cash-to-GDP ratio of 5%. In fact, in 2015, 78% of all consumer payments in India were in cash, compared to 20% in the US and 25% in the UK. India is the world's fourth-largest user of cash. And in this day and age, this is not only outdated but also unscientific and uneconomic.

 

To put it simply, cashless economies are less corrupt and have lower levels of black money. Let's take a closer look at these reasons.

 

1. Cash is expensive:

 

It takes a significant amount of time and effort to get them through the system and into the hands of the consumer. The Reserve Bank of India has spent Rs.32.1 billion on currency printing alone. 

 

Add to that the costs of installing and maintaining ATMs. The paper currency also has a shelf life after which it is replaced. The direct cost of running a cash-based economy is estimated to be close to 0.25% of India's GDP.

 

2. Cash fuels the shadow economy:

 

No other mode of payment provides the same level of anonymity as cash transactions. They are difficult to locate. This leads to a variety of evils such as tax evasion, black money, and so on.

 

Currency in circulation was nearly equal to bank deposits in 2007. However, in the last three years, currency with Indians has exceeded bank deposits by 50%. According to government data, India's black money totals Rs.15-16 lakh crores. 

 

This is unaccounted money that was being used to fund a shadow economy, effectively running a parallel government that funded all illegal transactions. The majority of it is used to fund terrorist activities, illegal election funding, purchasing political decisions, betting, trafficking, and hijacking democracy.

 

3. Future benefits:

 

A cashless or digital economy will necessitate the opening of a bank account by all residents. This will increase financial inclusion rates and help to build a bridge between Bharat and India. 

 

Furthermore, because digital transactions can be easily tracked, the incidences of tax evasion will decrease dramatically, benefiting the general public in the long run through better implementation of government policies.

 

Top Digital Wallet used in India:

 

Have you ever considered how many debit and credit cards you carry in your pockets every day? Have you considered an alternative measure? A centralized platform where you could consolidate all of your accounts? This is where a digital wallet app can help.

 

These apps, which can be downloaded to your smartphone, are linked to your bank account, debit card, or credit card information. You can then complete transactions by tapping your phone, entering a few details, or scanning a code.

 

Again, by installing reputable, trustworthy apps, you ensure that the percentage of illegal transactions is kept to a minimum. Here are outlined the best digital wallet apps in India that provide a secure, seamless transaction experience below.

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Top Digital Wallets in India

 

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1. PayTM: 

 

PayTM, the most popular app among India's current millennial generation, allows you to transfer money into a digital wallet and use it to make payments. It was launched in 2010 and follows a semi-closed model that capitalizes on the massive mobile and smartphone market.

 

Any user can use the app to make payments in stores where the company has a partnership. PayTM can also be used to make bill payments, transfer money, and access travel and entertainment websites. It is now also used to make cashless fee payments in educational institutions.

 

2. Amazon Payments:

 

The next entry on our list is Amazon Pay, yet another of the best digital wallet apps in India owned by none other than the e-commerce behemoth Amazon.

 

It was first made available internationally in 2007 and is widely used by Amazon's massive customer base. You can use it to easily make payments while using the balance in your Amazon account. It is secure and extremely efficient. It can also be used on external merchant websites.

 

3. Google Wallet:

 

Google Pay is currently available as a payment option in almost all physical and online stores. It has a large user base and can be used to send money to friends, pay bills, buy anything online, order food, recharge your phone, or go shopping. It connects to your existing bank account and does not require you to load wallets or verify KYC because it is directly linked to your bank.

 

4. PhonePe:

 

PhonePe, another digital wallet app launched in India in 2015, has been downloaded by over 100 million users to date. It can be used to make UPI payments, recharge phones, ensure secure money transfers, and pay bills online. It is one of the most popular apps in India because of its simple user interface.

 

5. Mobikwik: 

 

MobiKwik is a popular digital wallet app for online retailers. You can load money into your mobile wallet using your debit, credit card, or net banking account, and then use it to recharge, pay bills, and shop online.

 

Several grocery stores and food establishments use MobikWik, particularly for its expense tracker feature, which provides the unique option of monitoring spending and maintaining a budget.

 

6. SBI's Yono:

 

Surprisingly, when SBI launched the Yono app, it quickly became one of India's best digital wallet apps. This software allows you to send money to other users and bank accounts. Yono can also be used to pay bills, recharge your phone, book movies, make hotel reservations, and shop online.

 

It is a semi-closed prepaid wallet that is available in a variety of languages and can be used even if you do not have an SBI account.

 

7. HDFC PayZapp:

 

PayZapp by HDFC is extremely popular because it allows users to make all payments with a single click. It can be used to recharge your phone, DTH connection, and data card, pay utility bills, book flight tickets (after comparing prices), make bus and hotel reservations, shop, buy movie tickets, and shop at music and grocery stores. It can also be used to send money to anyone on your contact list.

 

8. JioMoney: 

 

Jio SIM users will have the JioMoney app installed on their smartphones automatically. If you are not a Jio customer, you can use it by downloading it from the app store on your device. To recharge JioMoney, you do not need to have a bank account.

 

You can also pay cash to a Jio dealer, who will load the money into your digital wallet. This feature is especially important given the widespread use of Jio smartphones in rural India. When you use this e-wallet app, you can get exclusive discounts and offers from select merchants, as well as earn multiple cashback benefits on various transactions.

 

9. Airtel Payments Bank:

 

You can use the Airtel Thanks app to manage your Airtel mobile accounts and use the Airtel Payments Bank and Airtel Money Wallet. Money is deposited into the Airtel Payments Bank account by the Airtel Money Wallet. It also pays out a small amount of interest.

 

You can spend the money on online shopping, recharging your prepaid account, paying your postpaid bills, and sending money to others. It also provides discounts, cashback, and special offers on hotel, bus, flight, and movie ticket reservations.

 

The app also provides free access to platforms like Amazon Prime, Wynk Music, HOOQ, and Airtel TV, among others. All transactions are secure and require a four-digit mPIN.

 

Final Note:

 

Over the years, the government's initiatives have helped to equip people to use a variety of fintech solutions. However, while India has made significant progress toward becoming completely digital, we still have a long way to go. In addition to literacy centers and digital banking education, the government must engage in ongoing and widespread digital education campaigns. This will help to spread information about e-transactions and virtual currency.

 

Transaction fees must be controlled, and digital banking must be simplified further. These factors will ensure that people are not hesitant to use digital transactions in their daily lives. The challenges and concerns associated with transitioning to a cashless economy do not outweigh the benefits. With the right strategies and implementation, India can quickly transition to a cashless economy.