Plastic Money-

From Less-Cash to
Cashless Economy

Plastic money signifies hard plastic cards that are used to facilitate cash-less transactions,
without requirement of physical paper currency. In India, banking sector has kept pace with the
advent of Liberalization, Privatization and Globalization and has seen many technological
advances in the form of innovative products and methods like plastic cards, mobile banking and
internet banking. Plastic cards have become a key element of electronic banking. Through
plastic money, the barter system which uses money as medium of exchange has been redefined
and exchange can be done electronically without requirement of hard currency. Some of the
important variants of plastic cards include ATM cards, debit cards, credit cards and other smart
cards.
ATMs facilitate withdrawal of money without visiting a banks branch. With the passage of time,
in addition to withdrawal facility, ATMs and cash recyclers also facilitate deposits of cash and
cheque, balance enquiry, payment of bills, making donations to charitable institutions.

Debit card is a magnetically encoded plastic card which allows the customers to pay for goods
and services without carrying cash with them. Debit card is one of the best online e-payment tool
through which the amount of purchase is immediately deducted from customers account and
credited to merchant's account provided if that much amount is available in customers account.
Credit card is a plastic card issued to a cardholder, with a credit limit, that can be used to
purchase goods and services on credit or obtain cash advances. Unlike debit cards, credit cards
also provide overdraft facility and customer can purchase over and above the amount available
in his account. Interest charges are levied on the unpaid balance after the payment is due.

Plastic money holds importance after the recent debacle of Demonetization in which currency
paper of Rs. 500 and Rs. 1000 has been ceased to be a legal tender and in turn a new currency
paper of Rs. 500 and Rs. 2000 has been introduced by the government. This move has led to a
huge hue and cry amongst the masses as the money which was in circulation has been stopped;
certain limits have been imposed on deposit and withdrawal of money into and from the account,
old 500 and 1000 notes to be deposited in bank accounts only which further cannot be
exchanged after December 31. Long queues can be seen outside banks and ATMs for withdrawal
of cash and most of the ATMs and bank branches wear a deserted look due to less-cash being
available for circulation.
Taking a dig at the problems being faced by the people due to demonetization or less cash being
available, a fact to be highlighted is that the people ignorant of the benefits of cashless
transactions have been the worst victims of less cash. The main reason behind the woes of
masses is not less availability of cash but ignorance to the digital aspect of banking. Post the
draconian step of demonetization, advertisements highlighting the use of mobile banking (m-
pay), e-banking, UPI are being broadcast and published in television, radio, social and print
media. Various banks are incentivizing their staff and third parties for boosting the usage of
cards and educating the masses about online payment gateways. All such tools enable payments
without exchanging cash and the amount is directly credited to ones bank account. Hence this is
an effective initiative towards making the country digital. In order to achieve this, the primary
step is to bring each and every individual of a family into the gamut of banking. The seeds to
reap this fruit were sown 2 years ago through Pradhan-Mantri Jan-Dhan Yojana (PMJDY) and
many such initiatives that were formulated with the sole motive to achieve financial inclusion
and financial literacy. Under the scheme, no-frill accounts were opened and RuPay cards were
distributed to all the account holders of PMJDY. The need of the hour is to leverage on the
platform by framing policies towards Digital Literacy which would make the masses aware of
the merits of cashless economy.

The bridge connecting Less-Cash viz (Demonetization) to Cash-Less viz (Plastic Money)
Demonetization initiative was taken with a motive to curb black-money and catch hoarders of
black-money. The motive of government seems to be successful as withdrawal of legal tender of
Rs. 500 and Rs. 1000 denomination bank notes has led to significant increase in bank deposits
within a span of 1 week of implementation of the initiative. Crores of black money has been
seized from big industrialists and business houses which gives an insight into the amount of
money that is kept idle in vaults of big businessmen and not put in circulation in the economy.
While corruption, black money and fake currency have been effectively dealt with, another long
term aim of the initiative was moving towards Digital India i.e to increase the circulation of
plastic money through use of debit and credit cards for payments and settlement. This can also
be termed as a transition from Branch-Banking to Electronic Banking or e-banking through
which transactions shall be done electronically, without involving the use of currency paper. E-
banking includes not just payment by cards but using other innovative techniques like mobile
banking, internet banking and the like. In the present scenario, affording a mobile is no longer a
dream for any citizen of the country. Mobile phones are available in all variants-from low cost
push button phones to smart phones, which again are tailor-made as per the affordability of the
masses. Similarly, telecom companies have made internet accessible at low cost and under the
initiative of Digital India, Wi-Fi facility is being provided at pocket-friendly prices. With
globalization, the economy had already become Boundary-Less but the initiatives being taken
in the present scenario would set the platform for a digital economy in which transactions would
become Paper-Less and Cash-Less.
Cashless transactions- A gateway for green and prosperous economy
The path to make the economy digital is full of hurdles and any change is bound to receive
resistance from the stakeholders involved. But the end result offers certain merits which can be
highlighted below:
- Generally, there is high cost involved in safeguarding physical cash in banks and safety vaults,
in terms of security measures to be adopted. Hence a huge booty goes in making security
measures which could otherwise have been used for other productive purpose. On the other
hand, cashless economy faces no hassles of security or theft; hence it is cost-effective.
- Cashless doesnt signify being poor because of less availability of paper currency, instead it
signifies smart, corruption free societies. According to a research by transparency international
[The Global Anti-Corruption Coalition] on corruption in countries, it was inferred that cashless
countries are in Top-30 amongst all nations. The research ranks Sweden on 3rd position as 70%
of the transactions in that country are cashless and another remarkable achievement is the
plunge in the number of bank robberies from 110 in 2008 to 16 in 2011. On similar grounds,
Norway ranks 5th, Singapore ranks 8th, Canada ranks 9th, United Kingdom ranks 10th,
Australia ranks 13th, United States ranks 16th.
- Another aspect of cashless economies is low levels of terrorism and corruption. The peace
restoration in Kashmir valley post demonetization is an instance to prove the fact. Due to decline
in activities financing terrorism in the valley (due to prohibition of 500 and 1000 denomination
bank notes), the life of the people in Kashmir valley has been restored to normal after months of
curfew and bandh.
- An important issue in front of the developing economies is the environmental impact of
industrial development. The concept of green-economy comes into picture while addressing the
issue of environmental degradation caused due to developmental activities in the economies. To
address such issues, concepts like Kyoto Protocol and conferences like Rio and Rio+20 take
place but the problem remains unresolved. Digital economies can be a change leader to address
this issue as cashless transactions do not require physical cash, hence the cost of cutting the
trees for paper and printing the paper currency is saved which could prove to be a small step
towards achieving environmentally sustainable economies. In nutshell, digital era would make
the economy economically as well as ecologically sustainable.

Challenges of going Digital

With every favorable impact come certain externalities that pose challenges in implementation of
any initiative. Some of the main challenges amidst going Digital are:
- Technological constraints such as providing ATMs, POS machines and cash recyclers
especially in remotest parts of the country to include every citizen in the gamut of cashless
economy. Providing internet facilities in certain areas like hilly terrains, areas prone to natural
calamities is also a major challenge which hinders cent percent achievement of making the
economy digital and cashless.
- Though mobile phone companies have followed disruptive innovation which has made smart
phones affordable for all, yet a large section of the society is deprived of this technological
advancement and many of those who have access to technology lack awareness. Hence framing
action plan for Digital Literacy is the need of the hour.
- Banking industry also faces acute threat of cyber security which is indeed a big challenge in
the digital era. Plastic money is more prone to cyber attacks in the form of password
compromise or sharing of PIN. The recent debacle of thousands of plastic cards being blocked
by banks due to security related issues highlights the gravity of the situation.
- Another important aspect to reflect upon is that in our country, still 40% of the population is
deprived of access to financial services. Even if this issue is addressed, the problem of spreading
awareness about use of plastic cards would be present. The section of the society that is deprived
of access to banking services would remain vulnerable to digital aspect of banking.

The facts highlighted with regards to the issue signify that the aim of making the country fully
digital cannot be achieved overnight. It requires proper planning and strategies to overcome the
resistance of people, spreading awareness about the positive impact of digitally induced
payments, making the masses digitally literate, and improving the technology to aid digital
payments and settlement. The input factor includes time and money- time from all the
stakeholders i.e. people to gain digital literacy, banks and telecom companies to provide the
necessary tools and technology to aid digital payments. The input cost may be high but the end
result would ultimately be cost-effective and would make the payment and settlement system
simpler, safer and faster.

This article has been authored by Aprajita Gupta