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Future of Cash: Impact of Covid-19 on Payments Cashless payments could become a permanent fixture in the economic exchange ecosystem hereafter

By Sonam Chandwani

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The intersection of global emergency and revolutionary changes in the ways of international payments and transactions has demanded a new path to maintain financial liquidity in the markets. Since the inception of the pandemic in December, businesses across the country have been facing volatile financial markets and growing concerns on the uncertainty of future cash flows and revenues. The entire world of small and middle-sized companies is on a constant struggle for survival due to the frozen demands and the contingent government declared lockdowns.

COVID -19 has resulted in a reduction of cash being used as a medium of exchange. The reason attributed is the inability to have a physical reach to execute such payments during the lockdown. The potential threat of money bills being a carrier of the virus made it further a discouraging choice. These have forced the individuals to switch to digital payments as urgency to acquire the essential goods. The cash processing agencies, such as banks, are operating in reduced hours or for important transactions only. Cashless payments could become a permanent fixture in the economic exchange ecosystem hereafter.

However, a robust digital payment system has yet not been achieved in the country owing to several structural challenges that hindered the boost in cashless transactions. The technological advancement, current emergency, and a need for cashless transactions have eradicated such boulders to a certain extent. Electronic payments that faced a number of barriers and obstacles in bricks and mortar shops, along with challenges like cybercrime, fraud, and privacy concerns seem. The widespread move to contactless, cashless payment systems raises concerns about the impact on low-income consumers, often mobile members, and members of minority groups who do not have access to credit or debit cards.

For now, the move away from cash remains clear and can not be ruled out completely. While a society that is not fully cashed may not be the outlook for the time being, the following factors are likely to affect market participants because the Covid-19 pandemic will likely have long-term effects on consumer behavior. The concerted effort from various stakeholders potentially facilitates the reduction of cash transactions in the system. The important considerations in this regard are-

  • A complex Digital Payment Setup

A variety of option available with different technological framework and regulations make it difficult to operate for an average citizen. Further, the lack of uniform technological advancement has kept consumers from adopting digital payment methods wholeheartedly. The rising rural population getting connected to high-speed internet and smartphones, digital startups have focused on developing secured consumer-friendly methods in order to build trust and drive adoption. Aadhar-based welfare delivery and a relentless drive towards formalization of transactions have been the cornerstones of the current government's policies. The introduction of the Unified Payment Interface (UPI) and the Bharat Interface for Money (BHIM) app is accelerating the move towards a cashless economy. This has given an impetus to the emerging digital transactions sector in India. Further, the government has come to the aid of distressed citizens announcing easier means of transaction, going cashless. The requirement of a minimum balance requirement fee remains no more along with reduced digital charges for transactions.

  • The Intermediary interference and charges

The costs associated with online payment through RTGS and NEFT systems have also created a hindrance. These methods are not only expensive but also time-consuming at a time when there are a number of technologies available that offer real-time fund transfer. Startups are now focusing on technologies providing quicker digital payment solutions to the consumers will have a better opportunity to get ahead, POS terminals, Biometric Authentication Integration, QR Codes are used by onboard merchants. One of the main challenges in digital payments is the interchange fee. The Finance Ministry has announced relaxations such as removal of debit card ATM charges to help increase the number of transactions.

  • Maintenance of Data Security

Data storage is one of the most critical and essential aspects of cashless payment methods. The high risks associated with cybersecurity have kept consumers threatened by adopting digital payment. Digital payments Banks and E-Wallet companies have set up safe, secure, and compliant data centers in their premises. For enhanced security measures, banks and wallets are now using Aadhar Based payment systems making use of Biometrics, OTP (One Time Password), EMV (Chip+Pin) technology for card acceptance. Collaboratively these have always helped in maintaining data security for companies as well as customers.

  • Adherence to Regulatory Compliances

For digital payments especially through wallets, there are guidelines issued by RBI in India. These guidelines get revised on a timely basis which makes way for a more transparent ecosystem in the payments space. Companies offering wallets are required to convert existing wallets that are without KYC to full KYC. KYC complaints can utilize the extended monthly limit. In the future, these limits need further relaxation to support the needs of the individuals.

  • Response time

There is another important challenge that these payment methods face response time to execute a transaction. The complex authentication method and attached chances of payment failure and frauds have disheartened the users in many instances. Irrespective of the reasons behind it, every failed transaction causes irritation to a customer. Repeated failures may even result in customers feeling frustrated about the bank's service quality and capabilities. These responses are identified immediately for corrective measures to be undertaken. The modern UPI system making the authentication in-built in the smartphone has removed the time taken to execute a transaction.

  • Cryptocurrency – The new era of digital transaction

A cryptocurrency is a digital "asset" that uses peer-to-peer networking making it decentralized and broadly accessible. The asset is a digital "token" with no backing or intrinsic value. The method used is new blockchain technology. Blockchain data is stored in groups or blocks of information. It is impossible to delete or modify information previously stored on the chain because blocks are replicated across multiple ledgers. For the above reasons, blockchain is highly secure. Every user has a unique public and private key. The public key acts like a username or an email address. It allows users to transfer a cryptocurrency to and from other users directly. The private key is akin to a personal password that gives individual users access to their cryptocurrency accounts or digital wallets.

Their end of this medical crisis is beyond anticipation, the primary implication of the same would lead citizens being habituated to the use of digital payment platforms, almost by force. The technological setup of smartphone penetration improving significantly, with almost 5.1 billion total unique mobile users and 3.7 billion unique mobile internet users, will surely help smooth adoption of digital platforms for payments. The opportunities that e-commerce and cashless transactions afford in terms of convenience, efficiency, and affordability will help them gain further ground in the years to come; their popularity among younger generations and strong government policy support for digital transformation are also helping boost their prospects. It need not be said that a direct consequence of Covid-19 we could witness a cashless ecosystem in the near future.

Sonam Chandwani

Managing Partner at KS Legal and Associates

Sonam Chandwani founded KS Legal & Associates in 2013 with the vision of having a client-driven firm which offers proactive and feasible legal solutions.  

She had an experience of working with a leading engineering and trading company, wherein she oversaw high-value disputes, advised company management and led the company's legal functions. Sonam has focused on complex litigation and advisory for over seven years, with extensive experience in the areas of Arbitration, Insolvency and Bankruptcy, Banking and Finance, Real Estate Disputes and Corporate Litigation, to name a few. Her combination of substantial litigation experience and in-house responsibility positions her to understand needs and earn the trust of clients, both in contentious disputes and proactive risk avoidance.

She is especially noted for her exacting attention to efficiency in litigation, both in controlling costs and in being selective about avenues to pursue in litigation.


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