ABSTRACT

The study examines the impact of cashless banking on the profitability of banks .The study used
proxies for cashless banking such as Automated teller machine (ATM), Point of sale (POS), and
web based transaction (WBT) to examine its impact on the aggregate return on equity (ROE) of
deposit money banks in Nigeria, through an ordinary least square (OLS) multiple regression
method of analysis. The result showed that ATM and POS are positively related to ROE, while
WBT related negatively to ROE. This study examines the implications of cashless economy,
with a view to exposing the possible challenges and prospects .The study presented significant
recommendations: availability of sufficient and well-functioning infrastructural facilities
(notably electricity), harmonization of fiscal and monetary policy, regular assessment of the
performance of cashless banking channels (individually and collectively), consideration of the
present state and structure of the economy, redesign of monetary policy framework and greater
efforts towards economic growth whilst managing inflation

INTRODUCTION

What is a cashless economy and where does India stand?

A cashless economy is one in which all the transactions are done using cards or digital means.
The circulation of physical currency is minimal.India uses too much cash for transactions. The
ratio of cash to gross domestic product is one of the highest in the world—12.42% in 2014,
compared with 9.47% in China or 4% inBrazil.Less than 5% of all payments happen
electronically.The number of currency notes in circulation is also far higher than in other large
economies. India had 76.47 billion currency notes in circulation in 2012-13 compared with 34.5
billion in the US.Some studies show that cash dominates even in malls, which are visited by
people who are likely to have credit cards, so it is no surprise that cash dominates in other
markets as well. A Cashless Future Is The Real Goal Of India's Demonetization Move "This is a
public sector innovation unthought of in history. A cultural-economic revolution in the making!"
exclaimed Monishankar Prasad, a New Delhi-based author and editor, about India's
demonetization initiative and subsequent drive towards developing a cashless economy. The
biggest problem with India suddenly removing 86% of its currency from circulation without
having an adequate supply of new notes ready to take their place is that fact that India is more
reliant on cash than almost any other country on earth. Suddenly, hundreds of millions of people
were left without the means to engage economically, to buy the things they wanted and needed,
and myriad businesses were left without a readily available mechanism to receive payment for
their goods, to buy supplies, or pay their staff India‟s demonetization scheme was a unilateral
initiative that was planned in secret — in a back room of Prime Minister Modi‟s home, in fact —
by a small group of insiders tied-in with the upper echelons of India‟s government. The strategy
was to instantly nullify all 500 and 1,000 rupee banknotes, the most common currency
denominations in the country, and then eventually replace them with newly designed, more
secure 500 and 2,000 rupee notes. This endeavor instantaneously became policy when the prime
minister announced it via a surprise television address at 10:15 PM on November 8. One of
Modi‟s main brands is that of a corruption fighter, and his demonetization initiative was rushed
into effect in an attempt to catch the black market off guard — which could potentially lead to a
big payday for the central bank if large amounts of illicit cash wasn‟t redeemed. That plan
flopped, as almost all of the recalled notes were officially accounted for one way or another. But
this surprise demonetization also did something else: it pushed millions of new users onto the
country‟s digital economic grid by virtual fiat. Not even the banks were notified in advance of
Modi's plan, and, even with strict exchange limits that prohibited people from exchanging over
$60 worth of rupees at a time, they simply didn‟t have enough of the newly designed banknotes
on-hand to distribute to the masses looking to redeem their canceled notes. Rather than being a
50 day transition, as the Indian government projected, it is looking as if it will take four months
to a year before the country's currency supply is restored. In point, the people of India were left
in limbo as the government cancelled the bulk of their currency without providing them with the
means to obtain the newly printed notes to replace it. On the surface, this seems as if it was a
matter of gross negligence, but there may have been more to it than that. As the demonetization
process continues, Modi‟s rhetoric is less about fighting corruption and more about transitioning
India to a cashless economy.
 OBJECTIVES

 To examine the significant benefits and essential elements of a cashless Economy, and to
check the extent to which it can enhance the growth of financial stability in the country.
 To analyze the positive and negative policy implications of cash-less banking for the
Nigerian economy, with a view to exposing the possible benefits and challenges posed on
economy.
 To examine the impact of electronic Banking in Nigeria banking system on how different
channels could enhance the delivery of consumers and retails products.
 To discuss the various aspects of cashless banking channels, toknow where the real e-
banking should be, the problems facing cashless banking, its advantages and
disadvantages.

REVIEW OF LITERATURE

Review of literature is backbone of every research study. It is important to review the

existing literature to have an overview of what kinds of studies have been conducted and what
are the gaps in literature. Therefore, various studies studied on Effect of Cashless Society On
Banking Sector which were conducted in India and abroad have been reviewed. The Effect of
cashless society on Banking Sector, where clumsy and expensive‐to‐handle coins and notes are
replaced by efficient electronic payments initiated by various types of plastic cards is a
tantalizing prospect for the twenty‐first century. Some of the interested parties stand to gain more
than others if the cashless society becomes a reality. Outlines the rationale of those who are keen
to promote the cashless society and the implications for marketeers charged with winning
consumer acceptance for payment by plastic card. Commencing with a European‐wide view of
the European plastic card market, focuses on recent developments within the UK, one of
Europe′s leading countries in the use of plastic cards as a means of payment. The plastic card
payment product is analysed under the three headings of pay later, pay now and pay before and a
view is offered as to the future prospects for each type of plastic card in contributing to the
development of the cashless society.
 Hence, the advent of study money (notes and coins) made the process less costly by
allowing people specialize in production based on their strengths and by enabling the monetary
authorities to mint coins in convenient denominations, thereby creating divisibility (Baddeley,
2004).

The introduction of the modern banking system has to a great extent brought about the gradual
elimination of cash based economy in most countries. One such benefit is that electronic
payments enable bank customers to handle their daily financial transactions without having to
visit their local bank branch.Electronic payments products could save merchants time and
expense in handling cash (Appiah and Agyemang, 2006).

According to (Cobb, 2005), “electronic payments can thus lower transaction costs stimulate
higher consumption and GDP, increase government efficiency, boost financial intermediation
and improve financial transparency”. She further added that “Governments play a critically
important role in creating an environment in which these benefits can be achieved in a way that
is consistent with their own economic development plans”.

SUGGESTIONS

 Open Bank accounts and ensure they are operationalized.

 Abolishment of government fees on credit card transactions; reduction of interchange fee
on card transactions; increase in taxes on ATM withdrawals.
 Tax rebates for consumers and for merchants who adopt electronic payments.
 Making Electronic payment infrastructure completely safe and secure so that incidents of
Cyber crimes could be minimized and people develop faith in electronic payment system.
 Create a culture of saving and faith in financial system among the rural poor.
 The Reserve Bank of India too will have to come to terms with a few issues, from
figuring out what digital payments across borders means for its capital controls to how
the new modes of payment affect key monetary variables such as the velocity of money.
 RBI will also have to shed some of its conservatism, part of which is because it has often
seen itself as the protector of banking interests rather than overall financial development.
 The regulators also need to keep a sharp eye on any potential restrictive practices that
banks may indulge in to maintain their current dominance over the lucrative payments
business.
CONCLUSION
This paper was initially inspired by the notion of the “cashless economy”, a topic
which has become much publicized in the media and which as such has served as a
vehicle for frequent speculations on behalf of various organizations and public figures.
thus i wanted to demystify this concept by taking a look at the actual progress that
different societies have achieved on their way to making a switch from cash-based to
electronic transactions.

REFERENCES
Books, Journals, Reports, Newspapers
1.Journal of Internet Banking and Commerce:
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perceived risk internet banking adoption in India: An extension of technology acceptance
model„, International Journal of Bank Marketing, Vol. 30 No. 4, 2012, pp. 303-322.
3. Singh Tejinderpal, Kaur Manpreet (2012), Internet Banking: Content Analysis Of
Selected Indian Public And Private Sector Banks„ Online Portals, vol. 17, No. 1, pp. 1-7.
4. Thakur, Rakhi and Srivastava, Mala (2013), ‗Customer usage intention of mobile
commerce in India: an empirical study„, Journal of Indian Business Research Vol. 5 No.
1, pp. 52-72.