‘Cashless’ for Whose Benefit?

Since the beginning of December of this year, it has become clear to most people that demonetization is a failed exercise. Neither is it going to identify black money, nor is it going to weed out fake notes. Government has finally admitted that almost all of the demonetised currency is going to come back to the RBI and with the rush that demonetisation created at the banks, the bank staff surely had little time in identifying the fake notes.

So, in a new move to justify demonetization the government is talking about ‘cashless’ and ‘less cash’ economy. The Prime Minister is asking people to use credit and debit card, PayTM and other mobile wallets instead of cash.

But, who is really going to benefit from a ‘cashless’ economy?

It is estimated that debit cards charge 0.5% to 1% to the retailer for every transaction and credit cards 1.5% to 2.5%. Mobile wallets like PayTM and JioMoney charge anywhere from 1% to 4%, if we want to transfer to a bank.

It is also estimated that Indians annually withdraw Rs. 75 lakh crore in cash from their accounts, either through ATMs or directly from banks.

If people were to go cashless, and we assume that on an average a 2% commission is charged per transaction, then banks, credit card companies and E-wallet companies are in for a bonanza. To begin with a 2% commission on Rs. 75 lakh crore (cash withdrawals) would mean Rs. 1.5 lakh crore for these corporates.

Moreover, if we were to assume that cash changes hands at least 2 times before it finds its way in to the bank - then it means that when transactions go online, all these entities can make a commission of about Rs. 3 lakh crore. This is about 2% of India’s GDP that would be going to credit card and E-wallet companies.

Which makes one wonder - who benefits from demonetization and the drive to go cashless? The common man or the corporates? We or PayTM and Jio?