It is often reported that people are unable to withdraw money from banks. Depositors are either kept waiting to withdraw cash or sometimes directed to go to their respective branch for cash withdrawal.The common explanation is that the banks lack liquidity to meet demand. But what exactly is liquidity? In simple term, liquidity is the ability of the banks to satisfy customers' cash withdrawal.
However, why do the customers need cash in the first place? Customers need cash to do cash transactions in the market. If we consider replacing these cash transactions with a digital alternative, the idea of a cashless society emerges. These digital and cashless transactions give ease to the cash crunch in the banks.
Basically cashless refers to transactions without cash. Cashless transactions include payment by credit/debit cards, mobile apps, digital wallets or online transactions. There should not be any cash deposit or withdrawal.
The concept of cashless transactions has revolutionized the way the economy operates and transacts in today's world. Cashless transactions are easier and safer through internet banking, debit and credit cards, mobile apps and mobile financial services (MFS). If an individual opens an account, banks offer him to use different kinds of digital amenities congenial to do cashless transactions though MFS does not need an account at all. In this sense a good number of people are using digital platforms to materialize the cashless society.
The shift towards a cashless society is gaining global traction due to increased convenience, quicker and easier payments, reduced need for carrying large amounts of cash and the associated risk of being robbed. These benefits work as the hope for creating a non-cash future. The concept of a cashless economy or society has long been discussed at the academic and practical levels. A prime example of making significant stride in this case is the Nordic country of Sweden, where the use of cash has almost stopped, with less than 10 percent of people now using cash.
Other Nordic countries such as Norway, Finland, Denmark and most of the European countries are also following the same path. Around 90 percent of people in Norway, Finland and Denmark have now gone cashless.
Arrangements have been made to purchase products and services by scanning the QR Code through bank's apps or MFS platform to pay directly. With this start, government aims for 75 percent of transactions to be cashless by 2027, which will accelerate the financial inclusion program in the country.
But, the actual scenario is quite opposite. Statistics show that in January 2023, more than Taka one lakh crore was transacted through MFS, but the amount of cashless transactions was only Taka seven and a half thousand crore. The way MFS customers are doing transactions is not completely cashless as they still need to deposit and withdraw cash from the MFS agents. This process is completely incompatible with the concept of a cashless society.
Similarly, cardholders are doing a significant number of transactions using cards. Statistics shows in 2023, transactions by cards amounted to Tk 39,757 crore, but genuine cashless transactions totaled at Tk 3,800 crore. This cashless transactions were done by the cardholders using channels like e-commerce, POS system or utility bill payment which is 9.56 percent of the total card transactions. There is still a trend of withdrawing cash from ATMs and CRM booths.
If cashless transactions are increased, demand for physical cash will also reduce. Due to inflation in the country, people need more cash to buy goods for which they need to hold more cash in their pocket. As more cash money is stuck up in the market, banks are facing problems to supply cash fund to depositors. If cashless society is ensured hundred percent, demand for cash money will be replaced by digital currency.
We have a lot more work to do to implement 100% cashless transactions. To achieve this, we need to improve technology, spread out the use of digital transactions, raise customer awareness and above all make the customers realize that cashless transactions are beneficial for the economy. Banks and MFS should give rewards points, cash incentive and discount facilities at merchant points to encourage the cardholders and the apps users to pay cashless. Merchants should not charge extra if the cardholders pay cashless. Through this way, we can build a prosperous and fully cashless society, contributing to the stability and expansion of the economy reducing burden on the bank's cash liquidity.
The writer is a banker
