Is Cash still King? Redefining Money in a Digital Age

Guru Bhat, GM Technology & Head of Engineering – PayPal

After meandering in geological time for much of its existence, the earth has experienced the pressing of a fast-forward button since the advent of modern man. Propelled by the intellectual might afforded to humans via an outsized brain in proportion to the body, the world has been on an ever-accelerating journey of change over the past few millennia. However, some things haven’t changed much! Facilitating the basic mechanics of a transaction through the exchange of value has been underpinned by physical money since metal objects were introduced as money around 5000 B.C. – a loosely-coupled alternative to the tightly-coupled architecture that the barter system presented. Money as a concept has survived since then, despite the maelstrom of change that humans have wrought on the planet. Is it now time to write its obituary and consign it to the history books?

Across the globe, physical currency is becoming less important even if not yet obsolete. Fueled by disruptive innovations in technology and business models, the unmistakable trend is towards plastic and towards bits and bytes. From the basic necessities of life, to the most luxurious of indulgences, it can all be bought by a few taps on a smartphone in today’s world.

While digital money is by no means a new concept, the accelerated adoption of digital money can be attributed to technology trends that have taken the world by storm over the past few years – access to computing and connectivity through the widespread adoption of mobile devices, ubiquitous broadband availability and the democratization of access to heavy computing power through cloud computing. In combination with a legislative environment that incentivizes the digitization of money, the vision of digital money is beginning to come to life with unprecedented reach, scale and convenience.

The volume of commerce across the world is astonishing, signalling a massive addressable market for digital money. According to a study by Boston Consulting Group, the digital payments industry in India will be USD 500 billion by 2020, contributing to about 15 percent of the GDP.

As a nation dominated by cash transactions, India is ripe for disruption. India ranks #2 in the world in terms of mobile penetration, with over 1 billion mobile subscriptions. With regulators promoting the Unified Payments Interface and the Bharat Bill Payments System, we have a conducive regulatory framework for faster adoption of digital payments. Government schemes such as Jan DhanYojana, Digital India program and Aadhar’s Unique Identification system have provided important enabling platforms for technology innovators. Steps like reducing surcharges on electronic transactions and offering tax benefits for consumers and businesses using e-payments have made online payments more attractive.

However, there are signs that reports of the demise of cash may be greatly exaggerated. For instance, if one were to look at the prevalence of cash on delivery as a mode of payment in the Indian e-commerce context, it is clear that even people with intimate familiarity of technology still prefer cash. What is stopping these digital natives from forsaking paper money? The answer is simple – trust.  The first step towards building a cashless society is to build trust and faith in digital money. People need to be rest assured that transactions in this new model are secure and they aren’t at risk of losing their hard earned money in a single swipe, so to speak!

A combination of bullet-proof security and water-tight processes is a fundamental requirement for a cashless society.

While a lack of trust may be a gating factor, the establishment of trust is by no means the sole determinant of success for the digitization of money. Unless financial services companies and the ecosystem at large elevate digital money to the same level as money in terms of ubiquity of usage, the common man would still not find it worth his while to make the switch. That obituary for cash can truly be written the day one can pay for a single cup of chai anywhere using digital money!

Cash has worked for millennia – so why this rush towards digitization? Is it just about ease of use and convenience? No! The digitization of money and financial services has huge implications in terms of financial inclusion of the unbanked and under-banked into the mainstream. It removes barriers imposed by our current structures and would enable access to financial services like banking, access to credit for anybody with a mobile device. Furthermore, the inherent auditability of digital money would dramatically lower the propensity for corruption and black money in our society.

As the dust settles on the Indian Government’s bold move to demonetize popular denominations of currency, more than a billion Indians were given a resoundingly concrete answer to the rhetorical question that this article poses in its title – Cash maybe king, but not for long!