BFSI VISION | Virtualization


Anup Neogi

President & COO (Cash Management Solutions),
CMS Info Systems

Cash Losing Relevance? Not Much of an Argument

A lot is being written and said about virtualization of payments and developing a cashless eco-system. From my standpoint of running the country's largest cash management company, the prospect of a cashless economy doesn't really exist for many decades to come.

Consider this: with over INR 12,766 billion of cash in circulation, almost 96% of all transactions in the country today are conducted in cash (RBI). To start replacing this with virtual alternatives, two support systems need to become robust, efficient and all-pervasive: (a) infrastructure and synchronized technology platforms; (b) security systems to safeguard these transaction gateways and (c) laws governing the issue, recognition and conflict resolution with alternative methods, across different eco-systems have to be established, understood and accepted universally.

With a low literacy rate of 74% (2011, Census India), a significant population will find it tough to adopt credit cards and digital payment methods. This base is so large that any attempt to make cash irrelevant will actually disenfranchise a huge section of the population that is yet to be included into the mainstream financial network. A large number of transactions on a daily basis are small value transactions (under Rs. 100), which can only be made convenient using cash. Among the 10 million plus organized retailers in India, only a miniscule 0.6 million actually accept payments via non-cash modes (RBI).

Intuitively it may appear that the cost of printing and physically moving cash, guarding and processing it will be higher than any other virtual instruments. In reality due to its sheer volume, this cost once apportioned actually makes cash the most cost effective. Cash transactions are the only ones that can be conducted with zero dependency on any other resources or infrastructure, further reducing the cost of cash. At an individual level, withdrawing say Rs. 10,000 from an ATM over six transactions will cost Rs. 20. Spending the same amount, by using a credit card will attract a fee between 1.5-3% (Rs 150 - 300).

Cash remains the most anonymous, yet the most secure and guaranteed payment instrument. Its intrinsic quality as an all-weather, most liquid asset will be near impossible to substitute.