The pandemic has forced upon us many habits. One such habit is digital
payments. People who have never paid a bill online are paying online. The
COVID-19 epidemic has dramatically boosted the use of digital payments. The
outbreak has accomplished what measures like demonetization and GST have failed
to do. In the current scenario, digital payments play a vital role and provide
numerous advantages over cash, such as payment convenience, confidentiality, and
openness. However, in order to aid recovery and contribute to the emergence of
this new standard, it is critical that the digital payments ecosystem improves
promptly and assists in making digital payments a new normal for customers.
The purpose of this article is to explain the concept of a cashless economy, the
need for one in India, the challenges it faces, and how the covid outbreak has
boosted online payments, the regulations put in place by banks and legislators
to facilitate this abrupt change, and what could be the possible changes in
payment methods in post covid era.
The catastrophic COVID-19 epidemic fuelled a positive growth toward cashless
payments in India. The usage of digital payments for everything from groceries
to electricity bills to cab fares is on the rise. According to research by
fintech start-up Razor pay, digital payment transactions increased by 76% in
Jan-Feb-March (JFM) 2021 over JFM 2020. In this timeframe, India's digital
payments ecosystem has witnessed the type of growth that might have occurred
over a 3–5-year span if not for the outbreak. 
A cashless economy is one in which the flow of cash within an economy is
non-existent and all transactions must be conducted via electronic channels such
as direct debit, credit cards, debit cards, electronic clearing, and payment
systems such as Immediate Payment Service (IMPS), National Electronic Funds
Transfer (NEFT), and Real-Time Gross Settlement (RTGS). India strives to
become a cashless economy since the circulation of currency notes in an economy
allows for unauthorized transactions, resulting in the formation of unaccounted
money or black money among individuals. Transparency, efficiency, and the
movement of money through financial channels, as well as the imposition of
checks on black money in the hands of individuals, demand the use of cashless
transactions in an economy.
The fear that hard currency may transmit the coronavirus indicated a strong
preference for cashless payments, as well as an urgent need to change
regulations and protocols to protect the efficiency and stability of financial
institutions while accommodating the shift in consumer demand. 
Concept Of Cashless Economy:
A cashless economy is an economic condition in which financial transactions are
done through the transmission of digital information (typically an electronic
representation of money) between the transacting parties rather than through the
use of real banknotes or coins. The term "cashless economy
" does not refer to an
economic system in which goods and services are exchanged for goods and services
(the barter system), but rather to an economic evolution that discourages the
use of currency as a medium of exchange and encourages the use of digital modes
of exchange as an alternative. In a cashless economy, the complete elimination
of cash transactions in economic contexts is not required; rather, the necessity
for cash transactions should be minimized to a bare minimum.
Modes Used For Digital Payments:
Bank cards provide greater security, convenience, and control to
consumers than any other payment option. The availability of a wide range of
cards, including credit, debit, and prepaid cards, provides further flexibility.
These cards provide two-factor authentication, such as a secure PIN and an OTP.
Card payment systems include RuPay, Visa, and MasterCard, to name a few.
Unified Payments Interface (UPI):
It's a system that connects several bank
accounts to a single mobile app (from any participating bank), bringing together
a variety of financial services, easy fund routing, and merchant payments under
one roof. It also handles Peer to Peer collect requests, which may be
scheduled and paid according to need and convenience.
A mobile wallet is a device that allows you to carry cash in
digital form. You may link your mobile device's credit card or debit card
details to the mobile wallet application, or you can transfer money to the
mobile wallet online. You can use your smartphone, tablet, or smartwatch to make
purchases instead of your traditional plastic card. Most banks and some private
firms have their e-wallets. Ex: Paytm, Mobikwik
It's a service provided by a bank or other financial
institution that allows customers to do different financial transactions using a
device such as a phone or a tablet. It employs software, sometimes referred to
as an app, offered by banks or financial institutions for this purpose.
Need For Cashless Economy In India
- Increased Tax Collection:
Unlike physical money, card payments or
digital payments are easy to trace, making it easier for government agencies to
keep track of people's spending and bring more individuals into the tax fold who
were previously not paying taxes while having big earnings. Because there is
less physical cash available at houses and more in banks, there is less
opportunity to conceal income and evade taxation. When there are more taxpayers,
the overall taxation rate for the country is reduced.
- Prompt settlement of transactions:
E-banking simplifies transaction
settlement both locally and worldwide, with the bank acting as a paying bank to
clients for transaction settlement or as a collecting bank for payment on
- Transparency and accountability:
When cash trading is eliminated, the
system's transparency becomes obvious. With every transaction documented and
tracked, the risk of losing money or engaging in other illegal actions is
- Foreign Investors:
It would minimize fraud in cash transactions and
encourage international investors to invest in the country since this form of
payment is secure.
- Helps to control black money:
Digital transactions will let the
government keep track of things and, in the long term, will assist to stop the
circulation of black money and counterfeit notes. Aside from that, the cost of
minting currency may be reduced, which may benefit the economy.
- Lower physical theft rates:
Cash thefts would potentially cease if there
was no tangible money in anyone's pockets to steal. Muggings, store, and
residential break-ins, and handbag theft are just a handful of the crimes that
will most likely disappear.
Challenges Of Cashless Policy In India:
- Blocked Internet:
When there is a substantial law and order issue, like
in Jammu and Kashmir after the repeal of Article 370, the government frequently
bans internet access in such areas. One can only imagine what would happen if a
town switches to a digital platform for transactions, only to be cut off from
the internet the next day because the local government decides to turn off the
internet connection due to a law-and-order problem. As a result, the government
must endeavor to eliminate these stumbling blocks.
- Weak Data security laws:
Hacking and cyber theft are significant and complex issues that might arise
as a result of online transactions. Even tech-savvy individuals are cautious
about cashless transactions due to India's lax cyber laws against online
theft. Cyber security measures must be put in place to prevent money from
slipping into the hands of the wrong people.
- Digital Literacy:
More than half of the population is still unable to
operate a computer. Smartphones are still mostly unknown in rural regions.
Furthermore, internet access is scarce, and a country cannot go cashless without
it. There are still a lot of rural and urban locations, where getting a 2G
network is quite tough. Furthermore, as compared to developed countries, the
cost of an Internet connection is quite expensive.
- Language Barrier:
The internet is an English-based platform. The
information on the plastic card is likewise written in English. The transaction
notice received on smartphones is likewise in English. As a result, various
languages must be used in these procedures, or everyone must be able to learn
Digital Payments Are Booming In The Covid-19 Era
- Peer to Peer payments:
People were stuck at home for weeks after
unexpected lockdowns were enforced in most nations. Person-to-person payment
applications came to the rescue when it came to sending money to bereaved
relatives and friends, as well as paying rent to landlords. All of these
purchases may be completed with a smartphone instead of using cash. Payments may
be made online, which is remote, in a cashless world, and proximity payments can
be made for unattended or attended retail establishments. The proximity
technique may be used to make contactless mobile payments with credit and debit
cards saved in an e-wallet.
- Increased use of FASTag:
For commuters, cashless tolls are a blessing
since they allow them to continue driving without having to stop at toll booths.
During the outbreak, this was especially successful and useful since it reduced
the need for commuters to stop and engage with toll workers, contributing to
everyone's safety. Cashless toll payment is supported by transportation
organizations all around the world since it is secure, contactless, and saves
time. The number of cashless toll permits issued by India's national roads has
significantly grown in these covid times.
- Contactless Transactions at Grocery and Retail Stores:
With the arrival of Covid 19, the food retail industry rushed to adopt optimal cleaning and
sanitizing techniques. Customers were given cashless payment alternatives such
as wave payment and tap and go cards at grocery stores.
- Fear of spread of infection:
Since the outbreak of the coronavirus, many
people have begun to shun cash transactions in favor of contactless card
payments, which do not need a physical connection with a person or a machine and
are simple to use.
- Digital payments for donations and NGOs:
Digital payment gateways play
an important role in assisting NGOs in receiving donations from all around the
world. The Prime Minister of India launched the PM Cares Fund, which received
millions of rupees through digital gateways in a relatively short time.
- Digital Fee/Salary payments:
Fees are increasingly being accepted online
by schools, universities, and online educational organizations. Many businesses
and organizations have also adopted online wage payments for their personnel.
- Digital payments under Pradhan Mantri Garib Kalyan Yojana:
Under the Pradhan Mantri Garib Kalyan Yojana, digital payment channels were utilized to
distribute approximately Rs.280 billion to over 300 million impoverished people.
Measures Undertaken To Accommodate The Shift Towards Digital Payments:
In the aftermath of the COVID-19 outbreak, various payment-related procedures
have been implemented:
There are fears that the infection may spread through the exchange of actual
money. Banks have temporarily eliminated fund transfer costs on major digital
systems like NEFT, RTGS, and IMPS to discourage cash exchange and boost digital
Furthermore, to guarantee quick access, several banks have eliminated fees on
cash withdrawals from third-party ATMs using debit cards.
Reserve Bank of India (RBI)
National Payments Corporation of India (NCPI)
- The Reserve Bank of India has imposed a three-month suspension on loan
and credit card payments.
NPCI has accelerated the UPI or UPI-QR onboarding process to make it completely
frictionless and online. This is anticipated to assist small businesses (that
provide vital services) in establishing an internet presence in a short
- Digital Finance for Rural India:
Creating Awareness and Access through
Common Service Centres (CSCs): It aimed to turn CSCs into Digital Financial Hubs
by boosting public awareness of government policies and rural people's digital
finance options. The government put in a generous expenditure of 65.625 crores
to popularise various digital financial services like IMPS, UPI, Bank PoS
machines, and so on to propel the project forward at the required speed.
- Prime Minister's Digital India program:
The program, which began on July 1,
2015, provided new measures to guarantee that residents, even rural Indians,
could digitally access all government services via high-speed internet.
- Bharat Net Project:
It is the Government of India's main project to
promote internet services, e-banking, e-governance, and e-education among the
rural people. To achieve this, the proposal promised a 100 Mbps connection to
each of India's 2,50,000 Gram Panchayats. 
Post-Covid Future Of Digital Payments
Continued digital payments push: Governments, regulators, and banks will all
continue to press for the use of electronic payments. As digital methods become
more widespread and accepted, they will change from a convenience to a
necessity, there will be a significant shift away from cash.
People's worry over immediate survival, whether it's food or
medication, is counteracting long-held apprehensions about digital transactions,
which may have slowed acceptance up until this point. There will be a
substantial shift in consumer behavior, with many first-time users continuing to
use digital payments even after the present crisis passes.
Contactless payments in actual time will become
increasingly common. They will help move the needle on digital payments away
from the present low volume, high-value tilt and toward high-volume, low-value
transactions, eventually leading to a reduction in cash usage. People will want
to use contactless payment mechanisms; thus, wearables will gain popularity.
Because QR codes are both cost-effective and contactless,
they are projected to gain in popularity. Offline to online payment options will
also become more available. These will gain popularity since they will let many
small and individual company owners (such as milk and vegetable sellers) receive
payments when consumers are afraid to use cash, ultimately leading to a
reduction in cash usage.
As India recovers, DBT rails will see increased use, allowing for
immediate infusions of funds to the bottom of the pyramid. As a result, rural
spending will increase, assisting in the recovery of the economy.
Due to the potential delay caused by the COVID-19 pandemic, a
somewhat higher proportion of transactions may be converted to EMIs.
Increased online presence: Companies having a significant internet presence are
likely to suffer less as a result of the anticipated slowdown. Small companies
and players with little or no internet presence may need to consider partnering
with payment experts. Banks and other payment service providers may give such
companies discounted rates to get them online.
Companies having a significant internet presence are likely to
suffer less as a result of the anticipated slowdown. Small companies and players
with little or no internet presence may need to consider partnering with payment
experts. Banks and other payment service providers may provide lower rates to
such businesses to bring them online.
Because of the projected growth in digital transactions in
the future, they will be incentivized to spend on service quality as well as
infrastructure and capacity. EdTech, entertainment, telemedicine, pharma, and
other businesses that are moving to higher digital use will drive new growth for
both retail and corporate payments. An emphasis will be placed on omnichannel
payment services. Furthermore, as more businesses provide digital payment
systems, the resultant rivalry could assist to improve end consumers' overall
There will be a greater emphasis on consumer education to
decrease touch during purchases, such as requiring customers to enter their
cards into POS machines rather than handing them over to the salesperson, or
using the contactless function on cards for payments under INR 2,000.
The catalyst for innovation:
FinTech will be at the forefront of the present
crisis, which will function as a spur for innovation. In comparison to PoS,
there will be more e-commerce-based offerings. All payment players will be
forced to build multichannel functionalities quickly, which will connect
payments in any physical or digital place.
As the number of digital transactions grows, fraudsters will take
advantage of the increased online activity to target unwary customers and
businesses. All participants in the ecosystem will need to improve risk
monitoring, employ business intelligence tools, and scale-up real-time
monitoring systems, while also ensuring consumer education efforts are in
Payments industry consolidation:
As firms search for ways to stay afloat, the
trend of payment processors and acquirers merging will continue. Companies that
deal in digital payments are fundamentally cash enterprises that rely on their
risk capital. As the number of transactions declines, there may be more deals in
What Banks Must Do To Maintain A Cashless Economy In Post -Covid Era:
- Open data access and leverage analytics to design personalized offerings
Customers and companies will turn to financial institutions for guidance on how
to properly manage their money and prepare for future disasters such as the
COVID-19 pandemic. Banks must provide personal financial management (PFM)
services to customers and assist them in managing their changing financial
circumstances. To do so, banks will need to build up PFM solutions by leveraging
analytics frameworks to derive critical consumer insights, predict developing
demands in the post-COVID-19 period, and create products to satisfy those needs.
These efforts must be expedited, and banks must provide data access in areas not
covered by the Open Banking and Payment Services Directive 2 as soon as possible
(PSD2). As the world recovers from the epidemic, regulators throughout the world
must move fast by expanding Open Banking data sharing principles through the
Open Finance effort, especially because PFM solutions based on data analytics
will likely find increased worldwide adoption as the world recovers.
- Upgrade infrastructure to support growth in digital payments:
Stakeholders in the payments industry are already working on future-proof,
highly robust infrastructures and multi-currency clearing systems. These
programs, however, are still far from being completed, and remote working is
likely to add to the delay. In the post-pandemic period, however, banks must
fully adopt remote working solutions to guarantee that change programs stay on
track since infrastructure development projects are vital to effectively support
digital client engagement and digital payment volume growth.
- Step up cybersecurity, cyber surveillance, and financial crime controls:
The unpredictable times brought on by the COVID-19 epidemic provide
possibilities for fraudsters to strike at the organization's weakest points. To
detect risks across various organizational layers, banks must improve their
monitoring methods. Given the importance of being able to make payments quickly
and conveniently in the current scenario, banks must review and monitor the
efficacy of threat detection and management systems, as well as implement
Digitalization is a need of the modern world. With globalization reaching its
pinnacle, it is no longer possible to wait for the real currency to complete
every other transaction. There must be a method to expedite these processes. A
cashless economy is required immediately. In a world where money does not exist
in the form of paper, all that is required is a single click of a button. As the
COVID scenario unfolds, its influence on consumer behavior and expectations, as
well as corporate expectations, will become increasingly evident.
However, once the pandemic has passed, it is evident that we will return to a
new normal. The digital payments ecosystem must adapt rapidly and efficiently to
aid recovery, lead the transition to this new normal, and shape the post-covid
future. Otherwise, India would be in the same situation as it was before COVID
in terms of digital payments. 
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