What is digital currency and cashless transactions ?

Whether demonetisation achieved anything or not, one thing it brought into the conversation is cashless economy and digital currency.

So let's have a quick look at what that means and how it can be useful for us.

A quick search on what currency means reveals below:

A system of money in general use in a particular country.

So we know that money can be various forms cash, deposits, cards.
For convenience sake what people call as digital currency or cashless is anything that involves not using physical notes. 

Below are some of the ways to do cashless transactions

Debit cards:

All the bank accounts now offer debit cards associated to the savings account.
The cards are a way to use the money available in your account.

It's simple. You receive your debit card. You either will receive a PIN with the card or you can set one and then you are all set to go.

Most of the decently big setups now accept transactions through debit card.

You can use your money to the limit available in your bank account.


Credit cards:

Credit cards as the name says offers you money on credit.
Many banks and financial institutions offer customers credit cards based on their credit score.

The concept with credit cards is that you can use money to a pre-specified limit as agreed by your issuing institution and spend that amount.

You will have to pay back the money on a pre-specified billing date + x days. 
Attraction with credit cards is that you can spend money which you don't own.

Also that you get a time of about close to 30 days to repay the amount spent.
So one can easily see the allure of it.

You don't have to wait for money to be available to make your purchases. However it also has the downside that your impulse purchases are that much easier.

So one needs to judge the type of expense correctly and use it judiciously so that credit cards are useful.


Debit and credit cards are the major form of transactions when one buys things online.
All the major e-tailers or e-commerce companies offer payments with these.


Now there is a new category of payments that came into light recently.

Wallets:

Wallets you can consider them an analogy of your physical wallet. There is some amount in your wallet and you can spend it as necessary.

Same with e-wallets like PayTM, Mobikwik, Freecharge.

Wallets can store money (10K without KYC) and you can use them for any of your purchases or money transfers.

Wallets have least resistance as there is no two factor authentication required.

Two factor authentication is basically where there are two factors involved in authenticating a transaction. For Ex: a password and a secure code using OTP

While that has a lot of value by being secure it offers resistance as one has to wait for transaction has to happen.

Wallets solve this by not having a two factor authentication and they are gaining wide popularity.

Not only that wallets make it easy to do person to person transfers. Most of the wallets have their identity as mobile numbers. So as long as you know the other persons mobile number you can easily transfer money to them. No need to remember complex account numbers and IFSC codes.

Netbanking/NEFT/RTGS/IMPS:

I am grouping together other forms of banking into one.

Netbanking is form of banking that is online. You can perform all your banking operations that you can do with a physical bank branch with the convenience of online facility.

It can also be used for making online transactions in portals.

NEFT, RTGS, IMPS are different ways to transfer your money to other accounts. While NEFT is not realtime RTGS and IMPS are realtime.

So if you have to give somebody money there is no need to withdraw to physical notes. You can just do an online transfer using these mechanisms.

A special mention here is for UPI (Unified Payments Interface)

UPI:

UPI is a new facility which makes payments a lot easier.
Instead of using complex account numbers and IFSC codes now one has the ability to choose a VPA (similar to an email id) and make transfers.

So if one has to make payments all one has to know is the other person's VPA.
Think of it as sending an email. You open a browser, login to your email account, type in other person's email id and you can send them an email.

Similarly to use UPI, you open an app which supports UPI type in other persons VPA and type in the amount you need to transfer and voila. 


So above are some of the ways currency is taking digital forms. It has a lot of advantages and convenience as you can see.

Demonetisation and getting back your money

OK. Let's address the elephant in the room. Demonetisation.
What about it ? You may ask.

So RBI has demonetised two big notes in circulation 500 and 1000 INR. Objective is to dig up the black money that's in circulation and encourage digital currency.

Without going into the actual merits of it, I just want to touch on the impact of it in our lives.

For convenience sake I am assuming that most of the readers of this blog are the ones who are reasonably well off and have bank accounts and are savvy with digital transactions.

So let's see the impacts in the short term in our personal life.

Money Exchange:

If you are like any other family who has daily expenses and have domestic help at your home, do your grocery shopping at your neighbourhood stores chances are you have some money in the 500 and 1000 denominations lying at your home.

You might also have cash handed over as gifts and children's pocket money.

And maybe as many of us do you might have some handy emergency cash.

Your top priority is to exchange this cash so it becomes useful once again and has legal tender.

Options when this exercise started were 

• Goto a bank or post office and exchange the notes.
• Deposit the money in your bank account.

However by 24th November the option to exchange notes is no more and the only option would be for you to deposit them in a bank.

So Money Exchange is no more an option.

Money deposit in a bank:

Money deposit in a bank is an option that is available for all citizens and bank account holders.

The way to deposit the money is no different than how we used to do earlier.

Goto a bank branch, pick up a deposit slip and handover the money to a cashier.

Money in the old notes can be deposited in a branch until December 30th 2016.

Get your receipt and check if the money shows up in your account balance.

That's it.

Use Cash Deposit Machines:

Some of the savvy banks offer Cash Deposit Machines (CDMs).

These are available with some specific SBI branches as well.

So got a Cash Deposit Machine, login to your account and put in the old notes.

These are accepted and the balance shows up in your account.

So above are the ways you can get your cash back to you in some form.

Remember that if you have nothing to hide in terms of money and everything is accounted for you don't have to fear for depositing any amount of cash.

Yes, there will be additional scrutiny on large deposits made above 2.5 lakhs but that should not deter you and use alternate means to do your deposits.

In my next post I am going to address on how to use digital currency.