CASHLESS ECONOMY

INTRODUCTION
Definition :
A cashless economy is an economic system in which financial transactions are
carried out through electronic or digital modes instead of using physical currency
like coins and banknotes.
In such an economy, money is transferred using tools such as debit and credit
cards, mobile payment apps, digital wallets, internet banking, and Unified
Payments Interface (UPI) systems.
These methods allow individuals, businesses, and governments to make
payments, transfer funds, and manage finances quickly and securely without
handling cash.
The aim of a cashless economy is to promote convenience, transparency, and
financial efficiency. It also helps in reducing corruption, black money, and the
costs involved in printing and distributing currency. With advancements in
technology and digital infrastructure, more countries are moving towards
becoming cashless societies.
Examples of Cashless Economy
 Sweden – One of the most advanced cashless societies in the world. Most
stores, buses, and even churches prefer digital payments. Many banks in
Sweden don’t even handle cash anymore!
 India – After the demonetization in 2016, India has seen a big push
towards digital payments through platforms like UPI (Unified Payments
Interface), Paytm, Google Pay, and PhonePe. The government's Digital
India initiative also supports this shift.
 China – Widely known for using apps like WeChat Pay and Alipay for
nearly every transaction—from street food to shopping malls.
 South Korea – A leader in technology, where over 90% of transactions are
made digitally.
Some other examples include ,
 Buying vegetables from a local vendor using Google Pay or PhonePe.
 Paying school fees online through net banking.
 Booking movie tickets using apps like Paytm or BookMyShow.
 Using a smart card or mobile app to pay for metro rides or buses.

Objectives of a Cashless Economy

1. To reduce the circulation of cash – Encouraging people to use digital
payments instead of coins and notes.
 2. To increase transparency in financial transactions – Digital payments
leave a record, which helps prevent black money, tax evasion, and
corruption.

3. To improve the efficiency of the economy – Faster and smoother

transactions save time for individuals, businesses, and banks.

4. To promote financial inclusion – Digital payments help bring banking

services to remote and rural areas, where physical banks may not exist.

5. To support government digital initiatives – A cashless economy supports

programs like Digital India, making the country more tech-driven.

6. To reduce the cost of printing and managing currency – Handling

physical cash involves printing, distributing, and securing it, which costs
the government a lot.

7. To encourage innovation in fintech (financial technology) – A digital

system promotes the growth of apps, tools, and services that make financial
management easier.

Advantages of a Cashless Economy

1. Convenience
People can make payments anytime and anywhere using mobile phones,
cards, or computers—no need to carry cash.

2. Faster Transactions
Digital payments are quick and save time compared to counting and
handling cash.

3. Transparency
All digital transactions are recorded, which helps reduce corruption, black
money, and illegal activities.
 4. Lower Costs for the Government
Printing, storing, and transporting physical money costs a lot. Going
cashless saves money for the government.

5. Financial Inclusion
People in remote or rural areas can access banking services through mobile
phones and internet banking, even without a nearby bank branch.

6. Improved Tax Collection

Since digital payments leave a clear trail, it becomes easier for governments
to track income and collect taxes fairly.

7. Eco-Friendly
Less use of paper money means reduced demand for paper and ink, which
is better for the environment.

Disadvantages of a Cashless Economy

1. Digital Illiteracy
Not everyone knows how to use digital payment apps or online banking,
especially the elderly or people in rural areas.

2. Internet and Technology Dependence

A stable internet connection and digital devices are required, which may
not be available everywhere.

3. Cybersecurity Threats
Online transactions can be at risk of hacking, fraud, phishing, and other
cybercrimes if proper precautions aren’t taken.

4. Technical Issues
Sometimes, payment apps or banking systems go down due to server issues
or technical errors, causing inconvenience.

5. Privacy Concerns
All digital transactions are recorded, which can raise concerns about
personal data and privacy.
 6. Exclusion of Some Groups
People without smartphones, bank accounts, or access to technology may
be left out of the system.

7. Over-Spending
Using digital money may make people spend more easily than they would
with physical cash, leading to poor money management.

CURRENT AFFAIRS
Cashless Economy Faces Setback as UPI Outage Disrupts
Payments
India experienced a significant disruption in its digital payment ecosystem when
the Unified Payments Interface (UPI) suffered a nationwide outage.
As UPI is the backbone of over 80% of the country’s digital transactions, the
breakdown caused widespread inconvenience. Users across cities reported failed
transactions while attempting to make payments at shopping malls, retail stores,
restaurants, parking lots, and even for essential services. In several cases, users
were alarmed to receive debit alerts from their banks even though the payments
didn’t go through successfully.
The National Payments Corporation of India (NPCI), which operates the UPI
system, acknowledged the issue and attributed it to "intermittent technical
problems" that led to partial transaction declines. This incident served as a stark
reminder of the challenges that come with a fully cashless economy.
While digital payments offer speed and convenience, they also bring
vulnerabilities—especially when technical glitches or outages occur. It
emphasized the urgent need for more robust infrastructure, better system
redundancies, and public awareness to handle such disruptions effectively in an
increasingly digital financial landscape.
History of the Cashless Economy
The concept of a cashless economy has evolved over centuries,
gradually shaped by technological innovation and changing
economic needs.
While the earliest forms of trade involved bartering, the
invention of coins and later paper currency revolutionized
commerce.
However, the journey toward a cashless system began in the
20th century, with the introduction of payment cards—first
credit cards in the 1950s and then debit cards in the
1970s.These innovations laid the groundwork for non-cash
transactions.
The real shift began in the 1990s, when internet banking and
electronic fund transfers became accessible to the public,
allowing individuals to conduct financial activities without
visiting a bank.
By the early 2000s, the rise of e-commerce and online shopping
platforms led to widespread use of digital payments through
cards and online gateways.
The development of mobile banking apps, digital wallets, and
contactless payment technologies in the 2010s further
accelerated this trend.
In countries like Sweden, China, and India, government
policies and technological advancements fuelled rapid adoption
of cashless systems.
In India, for instance, the 2016 demonetisation and initiatives
like Digital India and UPI transformed the landscape of digital
payments.
Today, the cashless economy continues to evolve, driven by
smartphones, fintech innovations, and growing global efforts to
create secure, efficient, and inclusive digital financial
ecosystems.

VARIOUS NON CASH PAYMENT METHODS

1. UPI (UNIFIED PAYMENT INTERFACE)

Unified Payments Interface (UPI) is an advanced digital payment system

introduced by the National Payments Corporation of India (NPCI). It enables
individuals to send and receive money instantly from one bank account to
another using a smartphone.
UPI was launched in 2016 as part of India’s push toward a cashless and
digitally empowered economy, especially after the demonetization in
November 2016, which made digital payments more necessary and popular.

FEATURES
 Widely Accepted
 Used for Daily Expenses
 24/7 Availability
 Fast and Secure
 Simple Interface
 Multi-Language Support
 Trusted Across All Age Groups
 Useful in Urban and Rural Areas
 Suitable for Small and Large Payments

EXAMPLES OF UPI :
 BHIM – Official UPI app by NPCI, simple and secure
 PhonePe – Widely used for UPI, bill payments, and shopping
 Google Pay (GPay) – Easy interface, supports direct bank transfers
 Paytm – Combines wallet, UPI, and online shopping features
 Amazon Pay – Built into Amazon India for quick checkouts

2. PLASTIC MONEY
Plastic Money refers to payment cards such as debit cards and credit
cards that are used instead of cash for making payments. These cards
are made of plastic and are issued by banks and financial institutions.
They are called "plastic money" because they look like plastic cards but
are used like digital cash. They can be swiped, tapped (contactless), or
used online.
Types of Plastic Money
 Debit Card –
A debit card is a type of plastic money that allows users to make payments or
withdraw cash directly from their bank account. It is linked to your savings or
current account, and every time you use it, the amount is deducted instantly
from your balance.
Popular banks offering debit cards in India include State Bank of India (SBI),
HDFC Bank, ICICI Bank, Axis Bank, Punjab National Bank, and Kotak
Mahindra Bank.
 Credit Card –
A credit card is a type of plastic money that allows users to borrow money
from the bank to make purchases or payments. Instead of using your own
money like a debit card, you use the bank’s money and pay it back later, usually
at the end of the month.

A credit card is a type of plastic money that allows users to borrow money
from the bank to make purchases or payments. Instead of using your own
money like a debit card, you use the bank’s money and pay it back later, usually
at the end of the month.
Features of Plastic Money
 Easy to Carry
 Used for Online & Offline Shopping
 ATM Withdrawals
 Global Acceptance
 Secure with PIN and OTP
 Offers & Cashback
3. NET BANKING TRANSFER

Net banking, or internet banking, is an online service provided by

banks that allows customers to access their bank accounts and carry out
various transactions over the internet. It offers a safe, paperless, and
convenient way to manage money without visiting the bank physically.

Types of Fund Transfers in Net Banking

1. NEFT (National Electronic Funds Transfer)
o Transfers are settled in batches.

o Suitable for regular transfers.

o Usually completed within a few hours during banking hours.

2. RTGS (Real-Time Gross Settlement)

o Used for high-value transactions (₹2 lakh and above).

o Settled instantly and individually.

o Ideal for businesses or urgent payments.

 3. IMPS (Immediate Payment Service)
o 24/7 instant transfer, even on holidays.

o Used for small and medium transactions.

o Fast and ideal for personal use.

Features of Net Banking

 Access to account details anytime
 Fund transfers within and between banks
 Bill payments (electricity, water, internet)
 Online shopping and ticket booking
 Statement downloads and service requests
 No need to visit the bank
GOVERNMENT INITIATIVES AND ITS IMPACT ON
CASHLESS ECONOMY

1. DEMONETISATION
Demonetisation is the process where a government declares certain currency
notes as no longer legal tender. In India, this happened on 8th November 2016,
when the ₹500 and ₹1000 notes were suddenly banned by the Government of
India.
The objectives of demonetisation were to fight black money, curb corruption,
eliminate counterfeit currency, and promote digital payments to move towards a
cashless economy.
Impact of Demonetisation on the Cashless Economy
1. Surge in Digital Transactions
After demonetisation in November 2016, there was a sudden and massive
increase in digital payments. With cash becoming scarce, people turned to
digital alternatives like UPI, debit/credit cards, and mobile wallets (such as
Paytm and PhonePe) to continue their daily transactions.
2. Digital Adoption by People and Businesses
Both individuals and businesses—big and small—started accepting and using
cashless payment modes. From local tea stalls and grocery shops to large retail
outlets, digital QR codes became common. This shift made digital payments a
mainstream habit, not just a modern convenience.
3. Growth of Fintech Startups
Fintech companies (financial technology companies) saw huge growth during
and after demonetisation. Apps like BHIM, Paytm, PhonePe, Google Pay, and
others rapidly gained millions of users. The digital payment market became
highly competitive and innovative.
Conclusion
Demonetisation played a key role in accelerating India’s shift towards a cashless
economy. It acted as a major turning point by forcing people to explore and adopt digital
alternatives. While it had challenges, the long-term effect was a more digital, transparent,
and financially inclusive economy.
2. DIGITAL INDIA
Digital India is a flagship campaign launched by the Government of India in 2015 to
transform India into a digitally empowered society and knowledge economy. It focuses
on providing digital infrastructure, delivering services digitally, and increasing digital
literacy.
The objectives of Digital India are to ensure internet access for all (especially in rural areas),
promote cashless transactions, connect government services through e-Governance, improve
digital literacy, and create job opportunities in the IT sector.
Key initiatives under Digital India include Aadhaar for identity verification, UMANG for
accessing government services, DigiLocker for digital document storage, , e-platforms for
health and education, and the promotion of UPI, BHIM, and RuPay for digital payments.
Impact of Digital India on the Cashless Economy
1. Boost in Digital Payment Usage
The Digital India campaign significantly boosted the use of UPI, mobile wallets, and net
banking across the country. With government support and easy access to technology, people
started choosing faster, safer, and more convenient digital payment methods over cash.
2. Inclusion of Small Vendors and Rural Areas
Even small shopkeepers, street vendors, and people in rural areas began accepting
digital payments. Thanks to simplified apps and regional language support, cashless
transactions became accessible to those who had never used a smartphone for banking
before.
3. Increased Awareness of Safe Online Payments
Through educational campaigns and digital literacy drives, people learned how to use online
payment tools securely, protect their data, and avoid fraud. This helped build trust in digital
systems.
4. A Strong Step Toward a Less-Cash Economy
Digital India helped strengthen the country’s shift toward a less-cash society. With digital
options becoming common in markets, schools, offices, and homes, India is steadily moving
towards a future where cash is no longer essential.
Conclusion
Digital India has accelerated the shift towards a cashless economy by promoting digital
payments, empowering rural areas, increasing financial awareness, and reducing reliance on
cash.
Impact of COVID-19 on the Cashless Economy
POSITIVE IMPACT
 Increased Reliance on Digital Payments
The COVID-19 pandemic brought about social distancing measures, lockdowns, and
restrictions on physical transactions. As a result, there was an explosive growth in the
adoption of digital payment systems, including UPI, mobile wallets, contactless cards,
and QR code payments. People shifted to cashless methods to avoid handling physical
money, which could potentially carry the virus.
Small Businesses and Local Merchants Going Digital
To stay open and continue business during the pandemic, small vendors and local
shopkeepers began accepting digital payments, especially through UPI, Paytm, and
PhonePe. Many businesses, even in rural areas, started using QR codes for contactless
payments, which made it easier for customers to pay without handling cash.
Rise of E-Commerce and Online Transactions
With physical stores closed due to lockdowns, there was a surge in e-commerce
transactions, especially for essentials like groceries, medicines, and personal protective
equipment (PPE). This shift towards online shopping led to an increase in the use of digital
wallets and credit/debit cards, as these methods were more secure and convenient for both
buyers and sellers.
Growth in Mobile Wallet and UPI Transactions
The Unified Payments Interface (UPI) saw a massive increase in usage during the
pandemic. UPI allowed for instantaneous and contactless payments between people and
businesses. Apps like PhonePe, Google Pay, and Paytm became the preferred platforms for
making payments for everyday purchases, bill payments, and even donations to COVID-19
relief funds.
Government Support for Cashless Transactions
The Indian government also supported the cashless transition by encouraging digital
payments for various services. For instance, government relief packages and financial aid
were transferred directly to bank accounts, promoting the use of banking services and
digital wallets. Similarly, government portals for vaccine registrations and health-related
services also facilitated cashless transactions.
Increased Digital Literacy and Awareness
The pandemic helped boost digital literacy as people were forced to learn how to use
smartphones and digital platforms for everything from grocery shopping to attending
online classes. This increased familiarity with digital platforms helped overcome initial
hesitations and enabled a wider demographic to adopt digital payments.

CHALLENGES AND SETBACKS

Despite the increase in cashless transactions, the pandemic also

highlighted certain challenges:
 Digital Divide: Not everyone has access to smartphones or reliable

internet, especially in rural areas.

  Cybersecurity Risks: The rise in online payments led to an
increase in cybersecurity threats, with incidents of fraud and
phishing attacks.

 Lack of Infrastructure in Remote Areas: While the urban

population embraced digital payments, rural areas still faced
challenges in adopting the digital economy due to poor internet
connectivity and lack of infrastructure.

Conclusion
The COVID-19 pandemic acted as a catalyst for the acceleration of cashless
payments in India, encouraging individuals, businesses, and even government
services to adopt digital payment methods. While it helped expand digital literacy
and promote a contactless economy, there are still ongoing challenges that need
to be addressed, such as cybersecurity concerns and ensuring digital access for
everyone, especially in rural areas.

WITHDRAWAL OF ZERO MDR ON UPI AND RUPAY (2020)

In January 2020, the Government of India announced a zero Merchant

Discount Rate (MDR) policy for UPI and RuPay transactions. This meant that
merchants were no longer required to pay fees to banks or payment service
providers when accepting payments through these platforms.

The goal was to encourage wider adoption of digital payments by making

them completely free for both customers and merchants.
Unintended Negative Impact on Cashless Economy
1. Loss of Revenue for Banks and Fintech Companies
Banks and payment apps stopped earning fees from UPI and RuPay transactions, making it
difficult to invest in innovation, security, and infrastructure.
2. Slowed Down Innovation
Many fintech startups and private companies became reluctant to invest further in UPI
technology due to the lack of revenue generation.
3. Reluctance from Small Merchants
Some merchants, especially small business owners, saw no incentive to promote UPI
payments since they received no extra benefit and had to bear setup or support costs.
4. Strain on Infrastructure
Without the revenue stream from MDR, maintaining and upgrading payment
infrastructure became a challenge for banks and service providers.

Conclusion
While the zero MDR policy was introduced with good intentions to promote
cashless payments, it ended up discouraging private investment and
innovation in digital payments. For a truly sustainable cashless economy,
balancing incentives for all stakeholders—users, merchants, and service
providers—is essential.

PRADHAN MANTRI JAN DHAN YOJANA (PMJDY)

Launched on 28th August 2014, the Pradhan Mantri Jan Dhan Yojana
(PMJDY) is a flagship financial inclusion program by the Government of India.
It aims to provide universal access to banking facilities by opening zero-
balance bank accounts for the unbanked population, especially in rural and
remote areas.
The Jan Dhan Yojana aims to provide every Indian household with access to
formal banking, promote digital transactions, and offer financial services like
savings, credit, and insurance, while empowering citizens economically through
linked bank accounts, Aadhaar, and mobile numbers.
Impact on the Cashless Economy
1. Financial Access for the Poor
Millions of Indians, especially in rural areas, gained access to formal banking. This helped
them participate in digital transactions and move away from cash-based systems.
2. Boost in Digital Literacy and Usage
With bank accounts linked to mobile numbers and Aadhaar, people learned how to use
ATMs, UPI, and mobile wallets, increasing digital literacy and adoption.
3. Direct Transfers and Reduced Leakages
Government subsidies and welfare benefits started being transferred directly to Jan Dhan
accounts, reducing corruption and ensuring transparency.
4. Empowerment through Cashless Transactions
Even people in villages could now pay bills, shop online, and send/receive money using
digital methods, thanks to having a functional bank account.
 Conclusion
Jan Dhan Yojana laid a strong foundation for India’s cashless economy by giving
millions of people their first access to digital financial services. It bridged the
gap between urban and rural India, made digital payments more inclusive, and
supported the government’s broader vision of Digital India.
Sweden's Transition to a Cashless Economy: A Case Study
A Shift Towards Digital Payments
Sweden stands as a global leader in the transition to a cashless economy, with the
use of cash dramatically declining over the past decade. This shift has been
driven by the Swedish government’s policies, along with the active participation
of financial institutions and technology providers. The country’s financial
landscape has seen a profound transformation, thanks to systems like BankID
and Swish, which make digital transactions secure and accessible to most of the
population. By 2018, only 13% of payments in Sweden were made using cash,
with mobile payments and contactless cards becoming the go-to methods for
transactions, even in small local businesses and for day-to-day purchases.
Widespread Adoption of Digital Payment Platforms
A major reason for Sweden’s success in the move towards cashlessness has been
the widespread adoption of digital payment platforms. Swish, a mobile payment
app, has become a cornerstone of Sweden's digital economy, enabling fast and
secure money transfers directly between individuals and businesses. With
smartphones being a common tool for almost all Swedes, mobile payments have
become second nature. In addition, contactless cards further contribute to the
ease of making purchases, with many Swedish citizens preferring the quick and
efficient nature of these digital options. This shift not only streamlined daily
financial transactions but also pushed Sweden to the forefront of global
innovation in digital payments.
Challenges in the Cashless Transition
However, this transition has also presented challenges. One of the most notable
issues has been the elderly population, many of whom face difficulties in
adapting to digital payments due to a lack of digital literacy and limited access to
smartphones or the internet. While the government has implemented programs to
boost digital literacy, these efforts have not been sufficient to fully integrate older
citizens into the cashless ecosystem. Additionally, the rapid decline in cash usage
has led to the closure of local bank branches, particularly in rural areas,
creating concerns about financial inclusion for those who remain dependent on
traditional banking methods. The move towards a cashless society has, therefore,
left some segments of the population vulnerable and marginalized.
Economic and Social Impacts of Going Cashless
Despite these challenges, the transition to a cashless society in Sweden has had
significant economic benefits. The reduction in cash handling has streamlined
banking processes, lowered costs for businesses and government, and reduced
the need for physical currency production. Moreover, the shift has helped
decrease crimes related to cash, such as robbery and money laundering, since
digital transactions are more easily traceable. Financial institutions have also
benefited from the increased volume of digital transactions, which has boosted
the adoption of contactless cards and mobile payments. Sweden’s cashless
revolution has not only brought efficiency to its economy but has also fostered
greater financial inclusion, allowing underserved populations to access banking
services via mobile phones and further integrating them into the financial
ecosystem.

CONCLUSION
The rise of the cashless economy marks a transformative shift in how
financial transactions are conducted worldwide. Moving away from
coins and currency notes, societies are increasingly adopting digital
tools such as UPI, credit and debit cards, mobile wallets, and net
banking. This transition offers significant benefits—faster
transactions, greater transparency, improved tax compliance, and
wider financial inclusion. With every payment leaving a digital
footprint, governments and institutions can better regulate the economy,
reduce corruption, and lower the costs associated with printing and
managing physical currency.
Countries like Sweden, China, South Korea, and India have made
remarkable progress in reducing cash dependency. India, in particular,
saw a surge in digital payments after the 2016 demonetisation,
followed by the strong push through initiatives like Digital India and
Jan Dhan Yojana. These government-led programs helped increase
access to banking, especially in rural and semi-urban areas, and
promoted digital awareness across the population. Tools like UPI have
become central to India’s financial ecosystem, enabling quick, secure,
and free money transfers across the country—benefiting both
individuals and small businesses.
The COVID-19 pandemic further accelerated the shift to cashless
transactions. To reduce physical contact, people relied heavily on
contactless payment methods, mobile wallets, and online banking.
Small vendors and local businesses started using QR codes, and
government relief was distributed digitally, proving the effectiveness
and resilience of cashless systems during a crisis. The pandemic also
improved digital literacy, as more people learned how to navigate
online payment apps and platforms.
However, challenges remain. Digital illiteracy, especially among the
elderly and rural populations, continues to hinder universal adoption.
Limited access to smartphones, internet, and reliable digital
infrastructure creates a digital divide. Additionally, the withdrawal of
Merchant Discount Rate (MDR) fees for UPI and RuPay transactions
reduced the incentive for banks and fintech firms to innovate and invest
in infrastructure, threatening the long-term sustainability of these
systems. Cybersecurity risks, fraud, and privacy concerns also need to
be addressed through stronger policies and user education.
In conclusion, the journey toward a cashless economy offers many
benefits, but it must be inclusive and secure. Governments, financial
institutions, and technology providers must work together to bridge the
digital gap, promote financial literacy, and ensure data safety. The goal
should not just be a cashless economy, but a convenient, trustworthy,
and accessible financial environment for all citizens. As the world
embraces digital transformation, a well-implemented cashless economy
can drive sustainable growth and empower individuals across all
sections of society.