Being cashless, advantages Vs drawbacks. Know here.

As the country moves towards a cashless environment after demonetization, the initial responses of consumers and merchants have been mixed with some much enthused and some confused. The government’s move to make India a cashless economy has a clear vision to make circulation of money through the sources which can be tracked but task isn’t easy as some concerns have been there for people who have no knowledge about cashless process. Will the emphasis on online transactions provide convenience and tangible benefits or just add to stress and additional charges? To incentivize the move towards a cashless economy, the government has come up with a bunch of discounts and freebies on digital transactions. But will these be substantial enough and, along with other benefits, counter the higher risk of identity theft once the currency notes are back in circulation? What are the gains and drawbacks of financial digitization?

Advantages of digital transactions

Convenience – The ease of conducting financial transactions is probably the biggest motivator to go digital. You will no longer need to carry cash, and queue up in banks or ATMs for withdrawals. It’s also a safer and easier spending option when you are travelling. Government has connected various public sector undertaking with cashless channels and private sector has too connected their businesses with various cashless channels. The problem in paying in change and mutilated currency will also end.

Discounts – The recent waiver of service tax on card transactions up to Rs 2,000 is one of the incentives provided by the government to promote digital transactions. This has been followed by a series of cuts and freebies. It’s a good time to increase your savings if you take advantage of these. Add to these the cashback offers and discounts offered by mobile wallets like Paytm, as well as the reward points and loyalty benefits on existing credit and store cards, and it could help improve your cash flow marginally.

Tracking spends – If all transactions are on record, it will be very easy for people to keep track of their spending. It will also help while filing income tax returns and, in case of a scrutiny, people will find it easy to explain their spends. There is no evidence of something purchased through cash if bill not obtained but payment made through cashless channels can be tracked and records can be archived for reference in future.

Budget discipline – The written record will help you keep track of your spending and this will result in better budgeting. Various apps and tools helps people analyze their spending patterns and throw up good insights over a couple of years. Controlled spending could also result in higher investing.

Lower risk – If you lose your cash or it’s stolen, is there any way to retrieve your cash? Almost no. But with your card or e-wallet lost or stolen, it is easy to block the card or mobile wallet remotely. Besides, if the futuristic cards evolve to use biometric ID (finger prints, eye scan, etc), it can be extremely difficult to copy, making it a very safe option.

Small gains – It may not seem like much of an advantage, but being cashless makes it easy to ward off borrowers. Another plus is that you can pay the exact amount without worrying about not having change or getting it back from shopkeepers.

Drawbacks of digital transactions

Higher risk of identity theft – The biggest fear is the risk of identity theft. Since we are culturally not savvy to digital transactions, even well-educated people run the risk of falling into phishing traps. With the rising incidences of online fraud, the risk of hacking will only grow. Besides, the latest move by the government to remove the two factor authentication process for online transactions up to Rs 2,000, will not help. Irrespective of the size of transaction, the absence of this additional layer of security will expose thousands to the risk of identity theft.

No effective redressal system – With the poor redressal system in India, imagine what a poor rickshaw puller will do if he becomes prey of online phishing. Given the tedious process and poor grievance redressal, people will have no easy recourse if they lose money online. There is no stringent legal process to deal with this kind or scale of fraud. Add to it the mass identity theft from banks’ or companies’ databases and it can turn into a financial nightmare.

Difficult for new users – Elderly people who have spent their lives by doing cash transactions cannot transform themselves in days. Think about people who even haven’t used a samrtphone and are totally alien to mobile apps. Illiteracy is another barrier to make people cashless. People who even ask others to fill withdrawal forms and use thumb impression as signatures, will definitely face complications in understanding cashless process.

Tech unfriendly infrastructure – After demonetization, government has tried to connect cities, towns and even villages with cashless channels but overall percentage is very less. To make a cashless economy, a lot is required to be done to develop user friendly tech environment. In cities, internet and data speed in some extent is fine but villages and towns where data and internet services are poor definitely face challenges to adopt cashless environment.

Overspending – While there is no denying the convenience of card or e-wallets, it could open a spending trap. According to behavioural finance theorists, the pain of parting with money is felt more acutely if you use physical cash. Hence, using cash instead of cards or mobile wallet acts as a natural controller for people who find it difficult to control spending.

So, here are mentioned above benefits and drawbacks of being cashless. Analyze both and adopt the benefits and take note of drawbacks. It now depends on users how can they be cashless without being much affected of drawbacks.