The past few years have been a rollercoaster ride for the Indian economy, starting with the demonetization, the economy going digital, the onset of the pandemic, recession hitting the global markets. There has been a lot to deal with. However, the nation has managed to maintain the position of the fifth largest economy in the world, and a lot of this has to do with the adoption of technological advancements and significant industry reforms by the country’s financial sector. India is fast growing on the path of becoming cashless, but what exactly is a cashless economy, and how does it operate?
The irony behind going cashless is the existence of an abundance of cash because implementing a cashless economy and being cashless are two opposite things and should never be used interchangeably. A cashless financial environment is devoid of physical money payments, such as notes and coins. Still, it promotes online funds transfer through debit or credit card paying and other prepaid financial services such as UPI. The cashless economy has thrived and expanded ever since the advent of these technologies, and it has paved the way for the establishment of digital India.
How does India function in a cashless mode?
Multiple business sectors in the country have a lot to do with the cash dealings, such as agriculture, automobile, cement, industrial businesses, banking, transportation, etc. Following are the ways how they can adopt cashless transactions.
- Mobile wallet: A virtual wallet in the smartphone that holds cash, which can be used to transfer money through credit/debit cards, UPI payment systems, can be used for mobile recharge etc
- Plastic Money: It refers to the payment by credit card or debit card in the place of actual cash.
- Internet Banking: All forms of online transfer of funds from one bank account to another or a third party come under this category. One needs to log in to the bank account and use one of the standard money transfer methods, such as NEFT, IMPS, RGTS, etc.
Cashless transfer of funds is promoted through multiple applications launched by the government, also referred to as prepaid payment instruments. These applications include Bharat Interface Money (BHIM), Bharat QR, UPI (Unified Payment Interface), magnetic stripe cards like a sbi credit card, internet accounts, and mobile wallets. These modes of payment are further classified into the following categories depending on the features and benefits of such platforms.
- Open Wallets: In this format purchase of goods and services is possible only through the application such as a debit or a credit card app, which is jointly launched in association with the specific bank.
- Semi-open Wallets: The applications which, once credited with the funds, cannot return those funds to use somewhere else, for example, ola money.
- Closed wallets: eCommerce platforms behold such wallets that lock the user’s money in a secured internal wallet in case of the cancellation of any product the user purchased. For example, BookMyShow.
- Semi-closed Wallet: The payment apps provide payment options for the goods and services bought from their specified list of vendors. For example, Paytm and PhonePe.
By introducing such incredible financial reforms, the government has managed to curb the growing menace of corruption in society to a large extent. It has also helped to reduce other nefarious activities, such as extortion, terrorism funding, money laundering, etc.