Is The Cash Really "Free " ?

So #Cashless is the new buzz word and #DigitalPayments is the new mission in India.As many of you know,we have been trying to promote cashless and digital payments in our city and district and have been moderately successful in many communities like local fishermen,senior citizens and students getting started in the digital payments journey.Digital payments would be a new normal in coming years and if our country may not become "cashless" but at least "less cash" will be a sure thing in our economy.

While promoting cashless economy ,many objections we get to hear from the critics starting from the poor infrastructure of internet,electricity ,telecommunications to even the cost of POS machines,MDR merchants have to pay for accepting cards and also issues like cyber crime which is a real threat to "everything digital ".

While we agree that a lot is yet to be done by the government for making basic infrastructure available up to rural panchayats and remote villages level and a proper regulatory and security framework to control cyber threats is yet to be developed at a larger scale,the argument about "charges" for digital payments is something which needs to be scrutinised in detail.Is "Cash really free " ? Just because cash is available to be withdrawn from the bank without any extra charge to many savings bank customers and because of the fact that merchants do not have to pay extra to anyone/maintain any shop level infra like POS machines and connectivity ,the cash is free ?If this is the case then why would someone accept debit/credit cards and pay 1 % to 3 % MDR to payment networks like VISA/MASTER and RUPAY ?

Let's go one and half years back when you could STILL use your old 500 and 1000 bank notes and #Cashless and #DigitalPayments was not "in fashion " :-) Modi was just settling in the PM office during his  initial 6 months ..and you and me never bothered to download any Mobile Wallet on our cellphones..Circa January 2015 ...A team of researchers ,post doctoral students and world class economists got together at The Fletcher School at Tufts University in US under the Umbrella of the Institute For Business In The Global Context,to study whether the cash is really free ! The output was a detailed 104 page long report titled "The Cost Of Cash in India " . 

Surprisingly if you read the complete report , ( which is freely  available at the Tufts School website for public download : http://bit.ly/2i4bGjD  )  ,it also mentions that to control the black economy of India," there have been demands"  that higher denomination 500 and 1000 face value currency notes should be banned ! ( Page 19 )  :-) This was in January 2015 !!! Conspiracy theories ? Anyone ;-)

The Reserve Bank of India and commercial banks annually spend around Rs 21,000 crore ($3.5 billion) in currency operations costs while citizens of Delhi alone spend Rs 9.1 crore and 60 lakh hours in collecting cash. The scale of this burden is unique to India considering that it is among the most cash-intensive economies in the world with a cash-to-GDP ratio of 12%, almost four times as much as other markets such as Brazil (3.93%), Mexico (5.3%) and South Africa (3.73%).

There are many reasons why India has to pay such a high price for its payments. One is the need to frequently reissue notes due to poor handling — low-value notes have to be replaced in less than a year. The other reason is the need to frequently upgrade security features and replace old notes. There is a huge cost in pulling old notes out of circulation and replacing them.( Haven't we seen this horror episode recently !!! )  India also has unique issues in logistics and in some places the currency notes have to be transported by helicopter. ( or by Indian Air Force Jets : -) )

Recently SBI Chairman Arundhati Bhattacharya in her interview to The Indian Express said ," “Cash imposes a huge burden. We don’t understand it as it is not immediately visible. It is a huge burden on society. Why should a country have to take on itself a huge burden of managing a totally cash economy? It is not cheap and the physical infrastructure to maintain cash is not cheap,” .According to Bhattacharya, with the increased spread of banking and, going by the latest survey that shows 91 per cent of households have bank accounts.( Source : The Indian Express ,Dec 19.2016 ) Now still why we are afraid to deal via banking channels ?Is it tax monster which makes us stay away from "white economy " ? Only the time will tell ! 

Now who pays this bill to print,transport,manage and replace cash ?Banks ,RBI and our government !! And finally this burden is passed on to you and me in terms of higher banking fees/taxes /higher lending rates and so on !Only because you and me don't pay "extra card fees" ( the popular word for MDR ) if we pay by cash at the shop..that DOES NOT mean "Cash is Free " !

Now let's look at a simple use case at "Micro" level to understand how Cash is not free .This use case is from a practical experience from a workshop we took for senior citizens on Digital Payments .When we asked the question to the audience ,how many of them pay their monthly electricity bill ,the consensus answer from all was something like this  : 

1.Go to the bank ( typically in the radius of 1 to 2 km of the house ,go by walking or public transport )

2.Stand in line for 30 mins to withdraw the amount in cash !

3.Go to electricity company office ( again a travel of on an average 10 mins either by walking or public transport ) 

4.Stand in Que there as well for 30 to 45 mins,and pay the bill in cash ! 

Now if you closely study this entire process,at least one hour was wasted in the process and if the person uses the public transport like auto/buses or even own vehicle then the cost of petrol/diesel/ fare paid will be at least Rs 10 !Add this "cost of time" ( which we normally overlook as a society as we Indians have a habit of not valuing the time anyway ! ) and cost of travel to bank and then for bill pay...the actual LANDED cost for the person to pay his bill in cash is higher than what it appears ! Now if the same person pays the bill online/through any Mobile wallet then he saves one hour ,saves money which would have been otherwise spent in travel !But the opponents of #Cashless payments NEVER try to logically analyze such use cases and discover the "True cost of cash " !

Now just for the argument sake even if we assume that a retired senior citizen in the above example is well past his earning years and for him one hour spent in bank line and then in bill payment line does not really costs anything,what if he gets robbed en route ?Now when we have the threat of "cyber thefts/hacks/crimes" for digital payments,the "physical cash theft" ..the  centuries old profession of thieves is ALSO a reality ..right ?

Another argument is "interest loss" and "opportunity loss" from the idle cash laying with you out of the banking system.The same cash ,if in bank account/mutual fund/equity market would have earned you some interest/returns but the cash in cupboard does not give you anything than a false sense of richness :-)

 
So with these "Macro" and "Micro" level thinking we now can safely say that "Cash is NOT free" ..it "appears" as free due to the absence of any explicit charges for paying in cash at the point of sale but if you look at the complete picture and the supply chain of cash...even you would now tend to agree with me !

Disclaimer : I have no connection to BJP /Modi /Urjit Patel /RBI /Any Bank /Any payment company like VISA/Master/RUPAY :-) This is just a common sense research I am doing to create awareness amongst confused Indians .