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Comparing digital payments to cash and other modes
Digital payments have taken off quite strongly in India. The data from the Reserve Bank of India (RBI) seems to confirm this fact. During the year 2020-2021, the adoption of digital payment methods has shot up considerably, with the total volume of non-cash payments skyrocketing to 98.5% from 92.5% during 2017-2018.
In this chapter of smart money, we’re going to take a look at digital payments and how they stack up in comparison with the age-old tradition of paying cash. Let’s first kick off with the benefits that you get to enjoy by adopting cashless payment methods.
The benefits of digital payments over cash payments
Adopting digital payment methods to pay for goods and services instead of cash comes with a plethora of different benefits. Here’s a brief look at a few of them.
This is by far the biggest advantage that you get to enjoy by adopting cashless payment methods. When you go fully digital, you won’t have to carry huge piles of cash on your person at all times. You can simply make do with carrying your credit or debit card, or maybe just your phone, which you will anyway have with you at all times.
Purchasing big ticket items like home appliances or even grocery shopping can be made easier and more convenient considering you don’t have to worry about carrying the right amount of cash.
Speed is another one of the benefits of digital payments that you get to enjoy by renouncing cash. Cash payments tend to waste a lot of time and energy of both the customer and the merchant.
Imagine having to carry bundles of cash to purchase an expensive product and then having to count them out before handing it out to the merchant, who would again have to count the notes out before approving the sale. It could take more than a few minutes, by which time other customers of the merchant may already be lining up behind you.
However, all of this can be avoided if you simply adopt digital payment methods like paying through UPI or debit or credit cards. It takes no more than a couple of minutes for you to initiate and make the payment. And best of all, the merchant gets an immediate confirmation of the payment from their bank.
Contrary to popular opinion, digital payments are more secure than cash. Wondering how? Let’s think about it for a minute. Carrying bundles of cash on your person is clearly not the way to go since it can either get lost or stolen. Even for businesses, holding large amounts of cash can be problematic.
That’s not all. With cash, there’s always the problem of encountering fake notes. While you can to a large extent identify fake notes, doing so for a large number can be impractical. With digital payments, however, there’s no question of your money getting lost or turning out to be fake. Businesses also benefit from their customers choosing to pay digitally since they can rest assured of the authenticity of the transaction.
Ability to keep track of the expenses
With cash payments, having to keep track of where all you spent it can be time consuming, impractical, and in some cases impossible even. With digital payments, keeping track of all your expenses is extremely easy and takes only a few minutes.
That’s not all. You can also choose to revisit your expenses at any point in time by simply going through your bank account or credit card statement. When it comes to budgeting your expenses, paying digitally is the best.
The challenges associated with digital payments
While cashless payments are a great way to pay for goods and services, there are certain challenges that need to be recognized and dealt with. Let’s take a brief look at a couple of major challenges that seem to hold back the adoption of digital payment methods.
Scams and transaction failures
This is by far the greatest challenge that electronic payment systems have to contend with. With the increase in adoption of digital means of payments, many individuals are seemingly becoming victims to fraud and online scams. This tends to bring down the confidence that people have over digital payments.
Although efforts are underway to educate and warn customers of the various techniques that unscrupulous individuals use to swindle money, it may not be enough. On top of scams, there’s also the threat of failed transactions, which are also causing individuals to think twice about paying digitally.
Lack of operational knowledge
Despite efforts being made to bring digital payment to the rural masses, a large section of the people are still hesitant to adopt the measures. This reluctance can be attributed to their lack of knowledge on how to use digital payment methods. The lack of people’s understanding of how digital payments work and how one can use them effectively continues to be a major challenge in India.
Will digital payments replace cash?
Now that you’ve seen the benefits and challenges facing digital payment methods, let’s try to find the answer to the question that many have been asking ever since cashless payments started gaining traction in India.
While it is undeniable that there has been a marked increase in the number of digital financial transactions, it is also true that the usage of cash has also seen a huge increase recently. The statistics below can give you a good idea of where cash stands right now in our economy.
- According to the RBI, the circulation of cash has gone up from 10.7% of the GDP in FY18 to 14.5% of the GDP in FY21.
- According to a study by Frost and Sullivan, 90% of the e-commerce business in India takes place through the cash on delivery (COD) mode.
- The CMS Cash Index, which shows the cash requirement in the economy rose by 9 to 19 percent in the last three years.
Taking all of these statistics into account, it is clear that digital payment methods have a long way to go before they can replace cash altogether. But till then, cash is likely to remain the king of the Indian economy.
With this, we’re done with yet another chapter of this module. You should now know where digital payments stand in comparison with cash. In the forthcoming chapter, we’ll take a look at the various rules and regulations governing digital payments in India.
A quick recap
- During the year 2020-2021, the adoption of digital payment methods has shot up considerably, with the total volume of non-cash payments skyrocketing to 98.5% from 92.5% during 2017-2018.
- Adopting digital payment methods to pay for goods and services instead of cash comes with a plethora of different benefits such as convenience, speed, security, and the ability to keep track of expenses.
- While cashless payments are a great way to pay for goods and services, there are certain challenges that need to be recognized like scams, transaction failures, and lack of operational knowledge.
- While it is undeniable that there has been a marked increase in the number of digital financial transactions, it is also true that the usage of cash has also seen a huge increase recently.
It is unlikely that digital payment methods will unseat cash as the preferred method of payment in the near future
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