Impact of new banking/payment systems on Indian economy

Abstract

The inspiration for this study was the increasing change in the ways of monetary transactions. With the advent of online payment methods and increasing usage of internet banking, the paradigm of payment/transactions has changed. In the global scenario, the advent of government backed digital currency and Bitcoins have changed the way we look at transactions. The success and failure of systems like Bitcoins, M-pesa, etc. has led us to question the applicability of such methods to the Indian economy. Studying the evolution of money has led us to believe that, just like fiat currency slowly replaced metal money, and how plastic money is slowly replacing fiat currency, the next big change in the monetary space will be digital money. Additionally studying the inefficiencies of transacting in fiat currency (by studying the E-commerce model) has lead us to believe that the economy needs to move towards more efficient transaction systems. We then study the advantages of adopting digital currency. We look at the successes and failures of similar models in other nations, including the adoption of government backed digital money in Ecuador. We also study the challenges and benefits of implementation of such a system and the incentives that need to be provided to all stakeholders. We also study the legal, digital and the physical infrastructure required for the successful implementation of such a system. In conclusion, we believe that there are significant benefits in moving towards government backed digital currency, given that the challenges are well addressed. We also believe that it will be a significant impetus to the Indian Government’s aim of financial inclusion.