Advantages and Disadvantages of Going Cashless or Digitisation
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Cashless Economy Advantages and Disadvantages

benefits and drawbacks if going cashless

Government is trying to create a cashless environment in the country. Demonetisation appears to be a stepping stone in that direction. To help facilitate this, government even launched its own app BHIM built for the same purpose. It even came up with a number of discounts and freebies on digital transactions. However, this poses several questions. What are the benefits? Is there any drawback? Here are the answers to these and several other questions.


Benefits of Going Cashless or Digitisation


Light but deep pockets

The ease of conducting financial transactions is probably the biggest motivator to go digital. You will no longer need to carry wads of cash, plastic cards, or even queue up for ATM withdrawals. It’s also a safer and easier spending option when you are travelling. The benefits are enormous if you leave out the low-income group, which will face a huge challenge. For the rest of the country, it is constructive and simple.

It will be especially useful in case of emergencies like in hospitals. You have the freedom to transact whenever and wherever you want. You don’t have to be physically present to conduct a transaction or be forced to do so only during office hours.

Discounts and freebies

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. Government also announced lottery scheme for people making digital transactions. 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. It’s a good time to take advantage of these and increase your savings.

Easy expense tracking & documentation

Making transactions digitally makes it easy to keep track of your finances. It can also make personal budgeting easier. It can also help in filing Income Tax Returns and, in case of a scrutiny, you will find it easy to explain everything to the taxman.

Reduced risk of losing money

If stolen, it is easy to block a credit card or mobile wallet remotely, but it’s impossible to get your cash back. In that sense, the digital option offers limited security. This is especially true while travelling, especially abroad, where loss of cash can cause great inconvenience. 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.

Disadvantages of Going Cashless or Digitisation


Increased risk of identity theft

The biggest fear is the risk of identity theft. Since we are culturally not attuned to digital transactions, even well-educated people run the risk of falling into phishing traps. With the rising incidence of online fraud, the risk of hacking will only grow as more people hop on to the digital platform.

Losing phone means losing all your money

Since you will be dependent on your phone for all your transactions on the move, losing it can prove to be a double whammy. It can not only make you susceptible to identity theft, but you could also be rendered helpless in the absence of physical cash or any other payment option. This can be especially problematic if you are travelling abroad or in smaller towns or villages with lack of banking infrastructure or other payment options. Another drawback is that you need to keep your phone constantly charged. If the phone dies on you, you will be stranded, particularly if you are in the middle of an important purchase or dealing with an emergency.


Adapting is difficult for tech-unsavvy

Digitisation has two major requirements, internet and smartphones. India has a low Internet penetration and smartphone users but this is just a practical roadblock. Besides this, a bigger hurdle is the psychological shift. You are suddenly jumping three generations to the digital medium. It’s a problem for the older people, who may suddenly find themselves locked out of their accounts if they can’t download an app or don’t have cash. The digital medium may prove a challenge for the tech-unfriendly people, who will need more time to adapt or the availability of other options to conduct transactions.

High chances of overspending

The convenience of net-banking, m-banking, card or mobile wallet transactions can make you a spendthrift. Behavioural finance theorists say that people find parting with physical cash more difficult than plastic money. So in a way, using cash actually helps us put a leash on our spending habits. Hence, there is a good chance that going digital may disrupt your budget or at least make it more difficult to keep a tab on your expenses.

The success of government’s digitisation movement highly depends on its ability to put cash out of circulation in the economy. People will choose the most comfortable way available to them for making transaction. So, digitisation can only be successful if government makes it widespread and convenient.

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Niteesh Singh
Niteesh Singh
Niteesh is a Tax Researcher and Content Lead at H&R Block (India). He holds an MBA with a specialisation in BFSI domain. In his career spanning over six years, he has helped thousands of people understand taxes in a simple and effective manner. Outside work, Niteesh is an astronomy geek who is also involved in wildlife conservation activities.