Towards a cashless society

With several policy initiatives seen in the last decade, the society is moving towards electronic payment system. The statistics of 2013 indicate, globally, the cash in circulation to GDP ratio has ranged from 2.5% to 8%. For India, it is around 13% due to the continuing usage of cash. This ratio is set to be brought down. It is heartening to note that the incremental rise in issue of bank notes is on the decline indicating the changing habits and confidence of the people in electronic mode

In the year 2013, about 154 billion currency notes were issued globally out of which China issued the largest number of 54 billion but India could manage with 20 billion notes. It is encouraging that India also withdraws more currency notes from circulation than the number of currency notes collectively produced by all countries taken together with the exception of China. Holding more cash in the society is open to (i) physical risk (ii) rise in cost of printing currency notes, (iii) cost of transmission of physical cash from currency chests to banks and back (iv) vulnerability to misuse/conduct benami transactions and so on.

RBI, banks and government are coordinating to discourage cash transactions and channelise them through banking system. Enabling infrastructure for electronic payments Led by the strategic initiatives to reduce cash in the society, there has been seminal change in the culture of conducting financial transactions in India. In terms of its vision, RBI had set up National Payment Corporation of India (NPCI) in 2008 as an umbrella institution for Retail Payment Systems with the core objective of consolidating and integrating the multiple systems with varying service levels into nation-wide uniform and standard business process for all retail payment systems. The other objective was to facilitate an affordable payment mechanism to benefit the common man across the country and help financial inclusion.

NPCI has brought about several enabling innovations to promote retail electronic payments; the most prominent being the introduction of Rupay card that has the potentiality to bring about the culture change in payment and settlements.As part of infrastructure, payment enablers have been set up. As on April 30, 2014 the number of RTGS enabled bank branches stood at 109,506 and the National Electronic Funds Transfer (NEFT) facility was available at 1,11,619 branches of 158 banks. Similarly, the pace of cheque clearing has been made electronic with the gradual expansion of the regional electronic clearing service (RECS). The clearing system of cheques at many ECS centres have completely hooked to RECS centres to enable faster processing. The number of ECS centres now stands at 34 in addition to the 12 RECS centres and the national electronic clearing service (NECS) in Mumbai.

Surge in Plastic card transactions

It is noteworthy that the number of ATMs has outpaced the number of bank branches. As on September 2014 the number of bank branches has reached 120344 whereas the number of ATMs has inched up to 172460. The number of Point of Sale (POS) terminals has also reached 1097323. The number of debit/credit cards issued works out to 433 million, a good number to accelerate the number of electronic transactions/online payment mode. As a result, during FY14, 509 million transactions valued at Rs 1,539 billion were transacted through credit cards, while 619 million transactions valued at Rs. 954 billion were undertaken through debit cards. During the year, mobile banking services handled 95 million transactions valued at around Rs. 60 billion.

Imperative to the greater adoption of electronic payments are speed, efficiency and security, as also creating trust and safety of operations in the minds of the users.Way forwardThere has been obviously a two pronged strategy to inculcate habit of using electronic mode. Building infrastructure such as increasing alternate delivery channels, issue of debit cards and creation of robust payment gateways can promote the culture shift. Sensitising customers to use the electronic mode by issuing debit cards to every bank account holder and promoting Direct Benefit Transfer (DBT) and routing government transactions through it can help fulfill the objectives.

Moreover, the introduction of differentiated banks facilitating opening of Payment banks and Small Finance banks can further transform the banking space. The increase in mobile usage, demographic shift with the entry of youngsters in field and impact of financial/technology literacy can definitely bring about reduction in usage of currency though not too soon.(The author teaches at the National Institute of Bank Management (NIBM) Pune. The views are his own.)

By Dr K Srinivasa Rao