Cashless transactions seem designed to benefit business tycoons

The journey of a single ₹500 note, paid digitally, can end up providing a windfall of ₹1,25,000 to the service providers and facilitators, argues a social media post. Add the entire currency in circulation and cashless transactions in a digital economy seem designed to benefit big business entities. Others counter it as the debate is joined. Read on.

As people using debit and credit cards are already aware, they pay a service charge for the convenience. If they buy anything for ₹1,000, they actually end up paying ₹28 more each time or approximately ₹12.50 if the transaction is of ₹500 and so on.

Now the following post circulating on social media is being hotly debated; and questions asked whether ‘Demonetisation’ was meant to provide a windfall to agencies like Visa, Mastercard, Paytm or banks which stand to gain commissions at the cost of consumers if digital transactions increase.

First, the post

“1. If a ₹500 note is circulated 10,000 times (it is on lower side considering average life of paper currency) it will have the same value (and) nobody gets any commission. But if it is circulated through cashless means, each transaction fetches 1.5 to 3.5% commission to the service provider.

That means 10,000 times at an average charge of 2.5% i.e. ₹1,25,000 (Rupees one lakh twenty five thousand) to service providers like Mastercard, Visa, Paytm or Jio Money etc. Just for five hundred rupees. (And assuming this cycle of 10,000 transactions take three months, the annual windfall for the agencies will be four times as high as estimated here. And please remember this is the cost of just ONE 500 rupee note).

So, it's a perpetual money going out of India or to the gang of the privileged. This is not ‘Make in India’ but is the Mother of All Scams.

2. For each transaction the consumer uses the internet or the mobile phone. If on an average 20 paisa is spent on each transaction then for 10,000 transaction it is ₹2,000. This again goes to the service providers.

3. For each transaction at shop etc, two copies of the receipt is printed. Paper and ink cost say minimum 10 paisa per transaction costs ₹1,000.

4. Assuming every cashless transaction consumes 2 minutes extra at the counter (often you have to wait longer), then it is 20,000 minutes. This is 333 hours. Counting both sides (payee and recipient at shops etc.), it will be 666 man hours.

In short for one 500 rupee note having 15 to 20 rupees cost of printing, consumers will end up paying ₹1,27,000 to various agencies and use up 666 manhours.

Here we have not taken into account the cost of millions of machines to be installed at vendor points (most of which will come from China in the age of ‘Make In India’). Data processing establishment cost, card printing cost, risk and loss due to cyber hackers, cost of cyber vigilance etc. are all additional costs involved.

Cashless transactions are effective and welcome in case of transactions which involve large amounts. It is certainly easier to do , and preferable, than to carry ₹50,000 or a lakh of rupees in cash. It is a boon for tourists and while travelling. But to force it on every consumer and for every transaction is a waste of national resources and designed to benefit a few business tycoons."

COUNTER ARGUMENTS FOR CASHLESS

While the post has taken social media by storm, quite a few have tried to counter the arguments as well. Some have suggested that the financial and Internet service providers who will get a windfall will also pay tax to the Government and the money spent on welfare measures.

Others have argued that the consumer must have more freedom and choice and in any case cashless transaction will add to the speed and to their convenience. Therefore consumers must pay a small price for it.

Some seem to believe the Government will exempt transactions below ₹5,000 of all charges though others counter by saying that it would be illegal to ban transaction fees and the Government simply cannot do this. The exemptions announced, they say, is a temporary measure.

The debate has just been joined. More fireworks seem round the corner.