The Impact of COVID-19 on Cash and the Future of Digital Transactions

– Anand S.

In several nations across the world, public life has halted as the COVID-19 crisis rages. The human impact is immense, with the rapid worldwide rise inpatient and death count. The coronavirus has caused a large number of businesses to either suspend or slow down day-to-day operations. COVID-19’s exponential growth has been one of the biggest threats to the global economy and financial markets. Countries around the globe have taken various measures to mitigate the impact of the Coronavirus pandemic including limiting people’s movement, locking down cities, closing public places including malls, cinemas, tourist sites with the call for people to stay indoors, maintaining social distance and preventing unnecessary travel.

The Covid-19 pandemic has led to unprecedented public concern about viral transmission via cash. On 9 March the WHO released a statement recommending that people switch to cashless transactions to counter the COVID 19 outbreak. If concerns are justified or not, the perception that cash can spread pathogens can alter consumers and companies’ payment behaviour. Cash demand has also risen in past crises, as customers have tried to maintain a stable store of value and medium of exchange.

The outbreak could also lead to higher precautionary consumer cash holdings and even a gradual increase in the use of the mobile, card, and other online payments in the medium term. Such use of technologies varies between societies and between consumers.

DIGITAL PAYMENT (E-COMMERCE PAYMENT SYSTEM)

Technological advancement has led to the introduction of digital payments which has a huge role to play in such drastic situations. For example, there are debit and credit card transactions which typically require a PIN or a signature entry for larger transactions in a merchant’s own system. There are also contactless card payments which are common in many countries and do not need a PIN for small transactions. More possible solutions are digital wallets or other smartphone-based payment interfaces such as UPI payments, stored card information, QR codes etc. where multiple individuals do not physically connect the same object. Online e-commerce payments are not subject to viral transmission.

There are several benefits for cashless payments: digital payments are secure and increasingly necessary in current circumstances. Less valuable than their physical counterparts, they are also much easier to deal with. For example,  ). It is notable that if all payments were digital, the expense would only be a fraction.

It is also argued that digital services improve economic mobility, as more people are being able to open online bank accounts remotely, without ever having to commute to a physical banking branch – hardly feasible at times for rural communities in developing markets living far from their nearest city or town in developed economies.

Yet, it is not easy to move from cash to cashless. Digital payments can be simple enough, but a system that delays payments and causes bottlenecks still has a lack of standardization. Inconsistent digital infrastructure and lack of digital literacy makes digital transactions more complex.

Fintech services such as Paytm, Google Pay, and PhonePay have fixed some of the drawbacks, but also means that a person may have several different accounts with various payment providers and banks, which possibly eliminates the ease of digital payments. Moreover, capacity is often restricted. Once application programming interfaces are used even more widely, payment space may become another obstacle for entirely cashless companies to the fragmentation by large multinationals.

In addition to the success of the implementation and maintaining of a cashless society – perhaps most important of all in the present situation – bank liquidity is essential. If a country is to move entirely to digital payments, one of the major problems it would face is that of the bank liquidity which is necessary since people and companies need to have confidence in the banking sector. Liquidity is critical if the entire financial system is to remain optimistic. The   since the global financial crisis in 2008-09. Liquidity of banks would definitely decrease, however, it seems to be the right time to use liquid reserves to stimulate credit demand, including emergency financing for repo markets, restructuring of debt, mortgage holidays, new lines of credit, broad credit cuts, and so on.

EFFECTS ON DIGITAL PAYMENT INDUSTRY IN INDIA

The negative implications are caused by bottlenecks in the retail, aviation and hospitality sectors of the Indian economy. Digital transactions processed by leading companies, both online and offline, are bearing the brunt due to the restrictions imposed to prevent a Covid-19 outbreak. While consumer traffic is still strong on digital platforms, the value of transactions has declined substantially. If the situation continues for a long time, companies in the field of digital payments will encounter caution over the next few months as well.

Digital payments, backed by the decision to demonetize high value currency notes in 2016, and a sustained drive by the government for a cashless Indian economy,  have risen exponentially  . Online travel aggregators, film and event booking sites, as well as the leisure industry, together make up almost 40% of India’s digital payments sector. The balance comes from municipal expenses and banking services.

Although some sectors directly impacted by the COVID-19 outbreak have reversed the use of the digital payment, there have also been several new sectors which include airlines, travel/tourism, hospitality and theatre parks, restaurants, bars, entertainment parks, segments expected to adverse the effect of COVID-19 in digital payments in India. However, smaller food stores, online money transfer, online gaming, on-line training, ATM withdrawals and broadband use are some sectors that will improve their demand for digital payment.

The Government has even asked banks to allow their clients to take digital payments as a precaution of coronavirus. In the course of the Coronavirus outbreak, the Reserve Bank of India (“RBI”) has urged customers to use digital banking. In light of recent developments, the National Payments Corporation of India (“NPCI”) also launched an to raise awareness regarding digital payments as a result of the possibility of the spread of Coronavirus through physical cash. This is backed by several additional digital payment players including Paytm, Ongo, PhonePe and Amazon Payments.

CONCLUSION

A rational evaluation of the risks of cash transmission is particularly necessary as any move from cash may have distributive implications. If cash is not widely accepted as a means of payment, a “payment divide” between those with digital access and those without access could arise. This might, in turn, have a particularly significant effect on unbanked and older consumers. Exposure to these alternatives is far from widespread in many developed and developing economies where policymakers have only called for expanded use of digital payments. This will continue to be a significant discussion and may ask for reinforcing the position of cash payment in the economy.

Adaptable and accessible central bank payment infrastructures, including retail central bank digital currencies (“CBDCs”), could rapidly gain prominence. CBDCs are regulated cryptocurrencies that are operated by the respective monetary authorities or central banks of a particular country. Each distinguishable CBDC unit will act as a secure digital instrument equivalent to a paper bill, and can be used as a mode of payment, a store of value and also a unit of account. Such networks will have to deal with a wide range of shocks, including cyber-attacks and pandemics. In particular, the pandemic can, therefore, bring CBDC calls into sharper focus, emphasizing the importance of access to diverse payment methods and the need for every means of payment to be robust to a wide range of threats.

This article is authored by Anand S. He is a student at National University of Advanced Legal Studies, Kochi.