DIGITALISATION OF ECONOMY, CASHLESS ECONOMY IN MY COUNTRY, PAKISTAN.
CONTENTS
1. INTRODUCTION TO DIGITAL ECONOMY
2. CASHLESS ECONOMY
3. OBJECTIVES OF BEING CASHLESS
4. ESSENTIALS FOR BEING CASHLESS
5. HURDLES IN MAKING A COUNTRY CASHLESS
6. BENEFITS OF A CASHLESS ECONOMY/GOVERNMENT BENEFITS
7. SUGGESTIONS
1. INTRODUCTION
A secure and convenient way of making payments is the cashless transaction. Cashless transactions are a way of making payments without the use of physical cash, a gateway to technological advancement in the field of the world economy. Cashless payment is a behavioral change in the people where people eliminate the usage of money as a medium of exchange for goods and services by allowing electronic transfer payments or non-electronic payment via cheques. The trend towards the use of non-cash transactions began in daily life during 1990, when electronic banking became popular. By the 2010 digital payment methods were widespread in many countries, with examples including intermediaries such as PayPal, digital wallets system operated by companies like Apple, contactless payment by electronic card or smartphone,
Electronic bills and banking all in widespread use. The electronic payments have led us to believe the cashless society is well within our reach. Most of the research suggests that even though cashless payments are growing rapidly across the world, the hard currency remains resilient. By adopting an electronic payment system an economy leads to a cashless society. A cashless transaction is a secure payment for customers, increases revenue and improves operational efficiency for sellers. However, despite all these benefits associated with e-payment, adequate ICT know-how among users and fear of
Security breach remains the most concern of individuals, organizations, and experts in the field of information systems.
2. CASHLESS ECONOMY
A cashless economy is defined as a situation where there is very little flow of cash in the society and thus much of the purchases are done by the electronic media. It does not refer to an outright absence of cash transactions in the economic setting but one in which the amount of cash-based transactions are kept to the barest minimum. It is an economic system in which transactions are not done predominantly in exchange for actual cash. It is not also an economic system where goods and services are exchanged for goods and services (the barter system). It is an economic setting in which goods and services are bought and paid for through electronic media. It is defined as ―one in which there are assumed to be no transaction frictions that can be reduced through the use of money balances, and that accordingly provide a reason for holding such balances even when they earn the rate of return‖ (Woodford, 2003). The cashless economy does not mean the total elimination of cash as money will continue to be a means of exchange for goods and services in the
foreseeable future. It is a financial environment that minimizes the use of physical cash by providing alternative channels for making payments. Valentine Obi, Managing Director/CEO e-Transact International Plc, a leading provider of mobile transaction services defines cashless society as one where no one uses cash, all purchases being made by credit cards, charge cards, cheques and direct transfers from one account to another. In other words, it refers to the widespread application of computer technology in the financial system.
3. OBJECTIVES OF BEING CASHLESS
The cashless transactions are the evolution of the cashless economy. It is the first step to buy and sell without physical cash. The study highlights various objective of being cashless which are as follows:
1. Modernization of Payment System: To drive development and modernization of payment system
electronic payment is the first step. An efficient and modern payment system is positively correlated with economic development and is a key enabler for economic growth.
2. Efficient Transaction: To reduce the cost of banking services (including the cost of credit) and drive
financial inclusion by providing more efficient transaction options and greater reach.
3. Managing Inflation and Driving Economic Growth: To improve the effectiveness of monetary policy in managing inflation and driving economic growth. Besides, the cash policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy.
4. The high cost of Cash: There is a high cost of cash along the value chain from the banks, to corporations and traders; everyone bears the high costs associated with volume cash handling.
5. High risk of Using Cash: Cash encourages robbery and other cash-related crimes. It can also lead to financial loss in the case of fire and flooding incidents. It can be reduced by cashless transactions.
6. Informal Economy: High cash usage results in a lot of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth.
7. Inefficiency and Corruption: High cash usage enables corruption, leakages and money laundering,
amongst other cash-related fraudulent activities that can be reduced by cashless payments.
4. ESSENTIALS FOR BEING CASHLESS
As the world moves towards a cashless environment, the initial awe and confusion have given way to a flurry of concerns. To move towards a cashless economy, the country needs essentials discussed as under:
1. Power: Power must be improved dramatically to accommodate for smooth operations of financial activities. The State of Infrastructures: The financial infrastructure of a country is essential for carrying the load of a cashless society. ATMs, point of sales system, mobile banking and other mediums have to dramatically expand to the whole economy before any meaningful effect can be achieved.
2. Availability of Real Data: Proper and accurate identification of account holders must be maintained and shared when necessary by all financial institutions. The collaboration of government and private agency responsible for the collection of identification of individuals for reconciliation of any identification.
3. Investments: Technology is not cheap and ever-changing at a very fast pace. Investments in billions of dollars made in infrastructure, training, marketing, security, maintaining its networks and so on will be yearly for the years to come and should be a collaboration of efforts by all invested parties.
4. Security: The security of the proposed and existing systems of payment must be enhanced to protect the users from malware, hackers, fraudsters, viruses, and identity theft. As it relates to laws, there are needs to enforce new methods of transactions and a changing culture, the government must partner and work with the National Assembly to ensure proper legislation is been formulated.
5.Online, Real-time, Every Time: These alternative means of payment requires that the different media used should be online real-time and every time. For those who have experienced downtime in banks, it is a frustrating experience. The devices must be online for the transactions to sail through. For POS terminals, it has been announced that dual-sim POS terminals will be used to minimize downtime.
6. Awareness and literacy among masses: Another very important factor in the successful implementation of a cashless economy is the levels of awareness and literacy, of the populace.
Security from internet-related crimes: The issue of security is very serious, with a country like India, having been described as the hub of internet scam; one can only wonder how the vulnerability of the cashless system to various forms of internet-related crimes will be addressed. The regulatory agencies in the financial sector ensure that service providers adhere to minimum security standards on their web-based platform, the current move by the country towards a cashless economy may end up being a fruitless exercise. Thus, security concerns on the web, the platform of the cashless economy, are massive. India is replete with cases of internet scam and this will only increase as we enter into the e-payment era if the issue of security is not comprehensively addressed. Another facet to the cybersecurity concerns is the recent spate of cyber-attacks worldwide. Can we guarantee a sufficiently sophisticated system to scale the hurdle of cyber-attacks that are capable of derailing the whole cashless system? If the case is so with the more organized economies, it can only be imagined what can take place in an unorganized and vastly lawless economy. As the saying goes — if gold rusts what will happen to iron?‖ If we must go cashless, cybersecurity must be guaranteed by the government first. There is a need for proactive measures by companies in
the country to put up a defensive mechanism against these attacks.
5. HURDLES IN MAKING A COUNTRY CASHLESS
A cashless economy is one in which all the transactions are done using cards or digital means. The circulation of physical currency is minimal. But there are many hurdles in making a country cashless.
A very important factor in the running of such an economy is the confidence that the people’s money is safe in banks. Also, going cashless is much more convenient.
First, a large part of the population is still outside the banking net and not in a position to reduce its dependence on cash. Even for people with access to banking, the ability to use their debit or credit card is limited because there are only a few points of sale which accept payments through cards. The absence of an additional layer of security will expose thousands of risk of identity theft. Another weak link in the inadequate redressed mechanism. There is no stringent legal process to deal with this kind of scale of fraud.
Most cards and cash users fear that they will be charged more if they use cards. Further, non-users of credit cards are not aware of the benefits of credit cards.
For cashless transaction you will be dependent on your phone for all the transactions on the move, losing it can prove to be a double problem. This can be more problematic if a person is traveling or in smaller towns or villages with a lack of banking infrastructure or other payment options.
Another drawback is you need to keep your phone constantly charged.
About 90% of the workforce, that produces nearly half of the output in the country, works in the unorganized sector. It will not be easy for the informal sector to become cashless, and this part of the economy is likely to be affected the most because of the ongoing currency swap.
There is a general preference for cash transactions in developing countries like PAKISTAN. Merchants prefer not to keep records to avoid paying taxes and buyers find cash payments more convenient.
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.
Using cash instead of cards or mobile wallet acts as a natural bulwark for people who find it difficult to control their spending. The overspending, due to easy to spend transactions throw budget into disarray.
Growing cyber-attacks and frauds, banking is still susceptible to cyber laws and a focused approach to developing safer systems.
The availability of internet connection and financial literacy is also a serious hurdle in making any economy cashless.
Although cashless transactions have gone up in recent times, a meaningful transition will depend on several things such as awareness, technological developments, and government intervention.
A cashless economy is not just an effort by the government bodies but a revolution which has to be brought about to make people understand the benefits and finally empower them to transact digitally in their everyday life. From one’s salary to their mobile recharge, all remittance if done electronically will lead to a more transparent and accountable society. The government should adopt a different strategy to educate the non-literates about the cashless economy and a framework should be worked out to provide cybersecurity in the country. Power is another key infrastructure that impacts the availability of POS and ATMs. However, as noted above, a material transition to a cashless economy will depend on several factors.
First, the availability and quality of the telecom network will play an important role. Presently, people face difficulties in making electronic payments even in metro cities because of poor network. Second, as one of the biggest beneficiaries of this transition, banks, and related service providers will have to constantly invest in technology to improve security and ease of transaction. People will only shift when it’s easier, certain and safe to make cashless transactions. Third, the government will also need to play its part. It will have to find ways to incentivize cashless transactions and discourage cash payments. The government will have to create conditions — not necessarily by creating cash shortages — to push cashless transactions to a threshold level after which the network effect will take over. Further, the cashless initiative needs comprehensive planned awareness, especially in more rural areas. Participation by rural and cooperative banks, post offices and other financial institutions to create awareness and education programs will ultimately pave the way for a cashless economy. Training will be a necessity in urban parts of the country, too. Awareness is all well and good, but some people will still need help to understand how to install and use digital payment systems. Although it would be impossible for any country to become a cashless economy in a short amount of time since it is something the country can look forward to.
The transformation of the current payment method to a total cashless one may not be possible shortly, but continuous innovation in a technologically aided payment system will certainly expand the society’s accessibility to cashless payment. Although the adoption of one type of cashless payment will affect another type of cashless payment in the short run, the consequences of adopting cashless payment on economic growth can only be significantly observed in the long run. Hence, any policy that promotes cashless payment will not affect the economy immediately. The study suggests the futuristic card should evolve to use the biometric ID (fingerprints, eye scan, etc), it can be extremely difficult to copy, making it a very safe option. The banks should work on two — factor authentication process for the online transaction. The measure suggested include encouraging the installation of point of sale (POS) machine by rationalizing the merchant discount rate (MDR) and allowing the first five interbank transactions free of cost to promote online money transfer. Further, more ATM should be set up so that people start using plastic money.
6. BENEFITS OF A CASHLESS ECONOMY
The ease of conducting financial transactions is probably the biggest motivator to go digital. Cashless payments have several advantages, which were never available through the traditional modes of payment, some of which are; privacy, integrity, compatibility, good transaction efficiency, acceptability, convenience, mobility, low financial risk, anonymity. There are many benefits of a cashless discussed as under:
1. Ease of Conducting Financial Transactions: First of all there is an ease of conducting financial transactions, which is probably the biggest motivator to go digital. In cashless payment, there is no need to carry wads of cash or even stand in long queues in the bank. It will be easy to carry money with you during traveling. It will be especially useful in case of medical emergencies. You can pay easily during working hours also.
2. Reduce Risk: The policy will help fight against corruption/money laundering and reduce the risk of carrying cash, reduced cost, corruption, and money laundering.
3. Reduced Tax Avoidance: Thirdly, the cashless economy gets the benefit of reduced tax avoidance. People will get a discount on digital purchases which will cut their costs. Add to these the cashback offers and discounts offered by mobile wallets like TELENOR EASYPAISA, UPAISA, JAZZ CASH, UBL OMNI, FINCA ETC, as well as the reward points and loyalty benefits on existing credit and store cards, and it could help improve your cash flow marginally.
4. Reduced Tax: Taxation with lesser availability of hard cash at homes and more in banks, there is the lesser scope of hiding income and evading taxation and when there is more taxpayer it ultimately leads to a lesser rate of taxation for the whole country.
5. Transparency: It is not just the easiest way to transact but also brings about a lot more transparency in the financial system, which helps to curb the generation of black money.
6. Reduce prices of real estate: Further, it will reduce real estate prices because of a curb on black money as most of the black money is invested in real estate prices which inflates the prices or real estate markets. It will also lead to lesser funding for illegal trades and activities including terrorism.
6. Hygiene: It will also help in improving hygiene on site eliminating the bacterial spread through handling notes and coins.
7. Reduced Fear of Theft: It will lower risk, it is easy to block a credit card or mobile wallet remotely, but it is impossible to get your cashback.
8. Reduced Red Tapism and Bureaucracy: With cashless transactions through electronic means the wire transfers are tracked and people are accountable which in turn reduces corruption and improves service time.
9. Lesser Interest Rates: More currency in a bank will mean more circulation of money in the economy, leading to greater liquidity and would eventually mean lesser interest rates.
10. Efficiency: Cash collection made simple as time spent on collecting; counting and sorting cash is eliminated it will lead to efficiency gains. There will be greater efficiency in welfare programs as money is wired directly into the account of recipients’. Further, it reduces transfer/processing fees, increases processing/transaction time, offers multiple payment options and gives immediate notification on all transactions on customers’ accounts.
11. Track on Spending: If all transactions are on record, it will be very easy for people to keep track of their spending.Also for the government to keep track of any suspicious person or institution transactions.
12. Benefits to Banks: It is also beneficial to the banks and merchants; there are large customer coverage, international products, and services, promotion and branding, an increase in customer satisfaction and personalized relationships with customers and easier documentation and transaction tracking.
13. Fake currency notes became redundant.
The cashless economy will directly eliminate, fake notes transactions and frauds.
14. Benefits to Government:
By implementing digital payment methods, like Digital Point of Sale (Digital POS), Unified Payments Interface (UPI), mobile wallets, Mobile Point of Sale (mPOS), etc, our country will be moving towards creating a digital economy that will benefit the people and the government in various ways. Some of the primary advantages from the digital economy are, following,
A. The government will benefit from the cashless economy in the area adequate budgeting and taxation, improved regulatory services, improved administrative processes(automation), and reduced cost of currency administration and management.
B. Removal of Black Economy:
When the transactions are made digitally, they can be easily monitored. Any payment made by any customer to any merchant will be recorded. This way, there will be no means for illegal transactions to occur. By restricting the cash-based transactions and using only digital payments, the government can efficiently expel the black economy.
C. Increase in Revenues:
This is one of the most obvious and common benefits of the digital economy. When the transactions are digitized, monitoring sales and taxes becomes convenient. Since each transaction is recorded, the customers will get a bill for their purchase, and the merchants are bound to pay the sales tax to the government. This, in turn, increases the revenue of the government — thus resulting in the growth of the overall financial status of the country.
D. Empowerment to People/SUBSIDIES BY GOVERNMENT:
One of the biggest advantages of moving towards the digital economy is that it gives empowerment to the citizens. When the payments move digital, every individual is bound to have a bank account, a mobile phone, etc. This way, the government can easily transfer the subsidies directly to bank accounts of people or Digital Wallet. In short, people no longer have to wait to receive the incentives and subsidies that they are bound to receive from the government.
E. Paves the way to E-governance:
The quicker, safer, and more efficient alternative to traditional governance, e-governance will be the outcome of the digital economy. From birth certificate to death certificate, everything is available online — thus it is convenient for people to access the information they need on the go. The digital economy will pave a way to e-governance, where delivery of all government services would be done electronically.
F. Creation of new jobs:
The digital economy has a lot of potentials to enhance job opportunities in new markets as well as increasing employment opportunities in some of the existing occupations in the government. This way, the unemployment rate in the country is bound to decrease.
7. SUGGESTIONS:
Respected Sir, Myself and my friends, we suggest a Digital payment mode, which will work in two ways, one as a DIGITAL WALLET, and secondly as a FINANCIAL GATEWAY.
-Our suggestion to Finance ministry is to form, a Government Institute like NADRA, SECP, etc, which will work under the jurisdiction of State Bank Of Pakistan and finance ministry.
-Their task to be DIGITALISING AND MONITORING OF MANY MICRO TRANSACTIONS OF OUR COUNTRY.
Objectives of this Institution will be following (but not limited to)
1. Form Regulations /Laws / Cyber Security Laws for such a system.
2. Monitoring DIGITAL TRANSACTIONS.
3. Developing/Executing and Monitoring of Digital App /website for
Digital transactions.
The board of the director will include personals from the state bank of Pakistan, from the finance ministry, IT experts, Cybersecurity experts, financial experts from the private sector, personals from SECP, from FBR.
There will be three teams,
1. BOARD OF DIRECTORS, (POLICYMAKERS AND MONITORING TEAM)
2. EXECUTION TEAM, (MOSTLY IT AND FINANCE EXPERTS)
3. SECURITY TEAM (RESPONSIBLE FOR CYBERSECURITY.
DIGITAL WALLET AND FINANCIAL GATEWAY WILL GIVE SERVICE IN THE FOLLOWING AREA.
1. UTILITY BILLS PAYMENT. (PERSON TO GOV PAYMENTS)
2. MOBILE RECHARGE/BILL PAYMENT
3. E-COMMERCE. (For EX.daraz, lotloo, Olx,eBay, Amazon, etc)
4. CAB / BUS / TRAIN/ FLIGHT BOOKING. (for Ex. Careem, Uber, MetroCab, etc)
5. HOTELS BOOKING.
6. MONEY/CASH TRANSFER, (PERSON TO PERSON PAYMENTS)
7. SCHOOL/COLLEGES/UNIVERSITIES/BOARDS FEES PAYMENTS.
8. HOSPITALS/MEDICAL STORES PAYMENTS
9. RESTAURANTS, FOOD POINTS. like MacDonald, pizza hut, KFC, etc
10. RETAIL SECTOR SHOPPING
11. BISP PROGRAMME (GOV TO PERSON PAYMENTS)
12.WFP PROGRAMMES….(UN PROGRAMMES, ALL KIND OF NGO, S PROGRAMMES)
13.IDP PROGRAMS (GOV TO PERSON PAYMENTS)
14. EOBI PENSIONS (GOV TO PERSON PAYMENTS)
15.PASSPORTS, NIC, ETC FEES(PERSON TO GOV PAYMENTS)
16. GOV, T CHALANS, (TRAFFIC CHALANS, ETC). (PERSON TO GOV PAYMENTS)
IF ALL OFTHE ABOVE TRANSACTIONS MADE DIGITALLY, THEN A HUGE AMOUNT OF REVENUE WILL BE GENERATED, AS ALL TAXES WILL BE DIRECTLY TRANSFERRED TO STATE BANK ELECTRONICALLY AND WITH PROPER E-RECEIPT.
The digital wallet can directly impact Revenue, as per State bank of Pakistan survey report retail sales in Pakistan in the year 2015 was 133 (USD BILLION). If the Government manages to Organise digitally, and tax collection from the retail sector becomes transparent then this will be a huge boost for the economy.
Mobile wallets make particular sense in Pakistan when considered in the context that around 144 million Pakistanis are mobile phone users, over 40 million of whom also use them online, from a population of 200 million. That’s a far higher percentage of the population than have a traditional bank account. The digital payment system provided by mobile wallets is also much cheaper for providers to run, meaning that offering the service to users of limited finances can still be profitable.
