With the financial sector using a basket of applications for transactions and the government preferring digital transfer of funds, Jammu and Kashmir has become one of the best instances of a cashless territory. In fiscal 2023-24, a whopping sum of Rs 374957 crore was transacted digitally, reports Humaira Nabi
Nestled within the serene cobblestone streets of a remote village in Ganderbal, a shop stands with a weathered facade offering a variety of Tobacco products. Behind the tobacco stack, an antique weighing scale is a reminiscent nod to a bygone era. Contrasted against this vintage setting, a discreet QR code stands affixed to the side of the scale.
“My son installed this,” Farooq Ahmad, the shop proprietor said as he gestured towards the QR code. “In the past, people would pick up cigarettes without paying; brushing off the small amount by saying Rs 5 doesn’t make much difference. Now with online transactions, even the smallest amount holds value. It has helped bridge the gap for those small amounts often brushed off as inconsequential.”
The time-honoured traditions of cash transactions in villages like this is gradually yielding to the modern heartbeat of digital commerce. In Kashmir, traders now seamlessly provide customers with the option of digital payments, ensuring a smooth experience in marketplaces. Public buses, almost all retailers and Sumo drivers are using the smart apps to receive payments as small as Rs 10. Parents simply transfer pocket money to their children’s digital wallets.
Non-native selling water chestnuts in Srinagar’s Lal Chowk or a shoe polisher shining the shows in city streets, everybody is now used to accepting payments digitally. Part of the payments that Kashmir’s traditional bakers, Kandear, are receiving early morning is digital. They have installed speakers on their cell phones and they listen to the transaction while remaining busy baking lavasa’s, Kashmir’s traditional breakfast bread – no questions asked, no hands shaken.
As this transformative shift takes root, even the most unexpected corners of the region are undergoing a profound revolution in terms of financial inclusion. Hawkers, street vendors, and even beggars are embracing the wave of digital transactions through online platforms, marking a significant financial change spurred by technological advancements.
The decline in the usage of cash and visiting brick-and-mortar bank buildings or ATM kiosks over the years signals the dawn of a new era, where traditional currency gracefully steps aside to make room for digital payments. With a basket of user-friendly digital payment modes, people are shifting fast in the digital payment landscape and amplifying person-to-person (P2P) as well as person-to-merchant (P2M) transactions.
Financial inclusion
In the last few years, the Government initiated a serious effort aimed at the financial inclusion of populations operating outside the banking system. The Jan Dhan Yojana played a key role in enhancing financial accessibility, specifically targeting the integration of unbanked individuals into the formal financial framework. A national mission for financial inclusion, PMJDY offered affordable access to financial services such as savings and deposit accounts, remittances, credit, insurance, and pensions. Individuals without bank accounts were facilitated to open Basic Savings Bank Deposit (BSBD) accounts and the benefits it accrued include no minimum balance requirement, interest on deposits, a RuPay debit card with accident insurance cover (Rs 1 lakh, increased to Rs 2 lakh for accounts opened after August 28, 2018), and an overdraft facility of up to Rs. 10,000 for eligible account holders.
PMJDY accounts also facilitate Direct Benefit Transfers (DBT) and access to schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY), and the MUDRA scheme.
In 10 years, it has changed the landscape. In Jammu and Kashmir, there are 2589975 PMJDY bank accounts with a deposit base of Rs 1891.96 crore, as of October 2024. Slightly more than 14 per cent of these accounts have zero balance and the banks feel encouraged to issue Rupay Cards in 63.67 per cent of the accounts – a staggering 1648787 cards. Nearly 10,000 of these accounts even avail an overdraft of Rs 4.71 crore.
These accounts helped 1890630 account holders to access PMSBY, a personal accident insurance scheme that fetches Rs 2 lakh against death or in situations of crippling accidents. So far, Rs 14.90 crore stands paid in 755 cases. Besides, 775100 accountholders from them availed PMJBBY, another life insurance scheme offering Rs 2 lakh in case of death. Of them, 1731 family claimants got Rs 34.60 crore, so far.
The scheme is fundamental to MUDRA envisaging banks offering a loan of Rs 10 lakh on non-farm enterprises for livelihoods. So far, Rs 13682 crore has been advanced by banks under this scheme of which Rs 635.7 crore, which is 4.65 per cent of the total corpus, has turned bad.
Apart from getting almost one-sixth of Jammu Kashmir’s ‘un-bankable’ population in the banking sector, the scheme has ensured that every transaction is digital. Now the Ministry of Electronics and IT (MeitY) has established the DIGIDHAN Mission, which is advancing the digital payment ecosystem in India.
A clear instruction that all payments from the government including to pensioners and people availing social welfare support must be transferred to their bank accounts directly was added to the cashless movement in Jammu and Kashmir.
The Impact
The impact of these initiatives is significant and visible. Earlier, the banks were the only addresses for trading and transacting money. With newer applications piggybacking the smartphone, it is a crowd now. There is a special app for every kind of transaction and it has generated huge competition with tens of thousands of people managing the sector.
In Jammu and Kashmir, all the 20 districts are digitally enabled. As of March 31, 2024, the digital coverage (both saving and business accounts) is around 99.51 per cent with district Kishtwar showing the highest overall digital coverage of 99.93 per cent and Jammu showing the lowest overall coverage of 98.66 per cent.
The quantum of transactions through digital systems is phenomenal. In 2022-23, the banking system recorded a total of 274067043 digital transactions involving a transfer of Rs 342417.07 crore. The situation improved hugely in 2023-24 when 360161169 transactions took place involving a transfer of Rs 374957.17 crore.
= In the Credit Transfers category, the Real-Time Gross Settlement (RTGS) transactions value increased from Rs 131555.93 crore to Rs 138,510.63 crore; the Aadhaar Payments Bridge System (APBS), which facilitates Aadhaar-linked transactions, saw significant growth, with the volume rising from 8.8 million transactions in 2022-23 to 13.6 million in 2023-24. Correspondingly, the transaction value increased from Rs 1316.89 crore to Rs 2583.83 crore, demonstrating an expanded use of Aadhaar-based digital payments.
The Immediate Payment Service (IMPS) also witnessed a considerable rise, from 22.8 million transactions worth Rs 17677.30 crore in 2022-23 to 32.8 million transactions valued at Rs 23,553.00 crore in 2023-24. However, in contrast, NACH Credit (National Automated Clearing House) transactions declined, both in volume and value. The transaction volume dropped from 12.2 million to 7.8 million, and the value decreased from Rs 22350.15 crore to Rs 16805.23 crore, indicating a reduced reliance on NACH credits for fund transfers. National Electronic Funds Transfer (NEFT) transactions showed notable growth, with the volume increasing from 26.2 million to 34.8 million transactions and the value rising from Rs 118,457.45 crore to Rs 140,006 crore. Unified Payments Interface (UPI), however, had the most remarkable increase, with transactions growing from 123.2 million to 211.3 million, and the total transaction value climbing from Rs 37,511.40 crore to Rs 40,289.82 crore. UPI’s rapid growth solidifies its position as a favoured payment method in the region.
In the Debit Transfers and Direct Debits category, the BHIM Aadhaar Pay platform experienced a dramatic increase, with the transaction volume rising from 60,039 in 2022-23 to 397400 in 2023-24, and the value jumping from Rs 33.28 crore to Rs 193.76 crore. NACH Debit transactions also showed moderate growth, with the volume increasing from 3.8 million to 4.0 million and the value rising from Rs 2,432.40 crore to Rs 2,715.10 crore.
Prepaid Payment Instruments (PPIs), which include Wallets, Cards, and PoS-based instruments, showed mixed results. Wallet transactions remained steady, with around 940,000 transactions each year, but the transaction value saw a slight increase from Rs 15.10 crore to Rs 16.75 crore, indicating consistent use of digital wallets as a secondary payment option. Card-based prepaid transactions increased marginally, with the volume rising from 12,548 to 14,220, while the transaction value remained unchanged at Rs 3.63 crore. PoS-based prepaid transactions also showed slight growth, with the volume increasing from 9,860 to 10,298 and the transaction value rising from Rs 3.00 crore to Rs 3.18 crore. Transactions in the ‘Others’ category of PPIs showed a small increase in volume, from 2,688 to 3,922, but the transaction value remained relatively stable at around Rs 0.52 crore.
Since all applications are linked with bank accounts, banks are the only institutions that can offer the broad trends the markets exhibit.
Plastic Money Declines
The rise of digital payments has significantly impacted card transaction patterns, resulting in a reduction in ATMs and cash recycler machines as banks increasingly focus on digital channels.
Experts suggest that this trend may continue as banks and ATM operators face higher costs for mandatory software and equipment upgrades to enhance security. In Jammu and Kashmir, where 2682 ATMs are currently operational; 959 from public sector banks and 1,705 from private sector banks, debit card usage at Point of Sale (PoS) terminals has notably declined. Transaction volumes fell from 21.7 million in 2022-23 to 17.3 million in 2023-24, with transaction values decreasing from Rs 4912.32 crore to Rs 4079.22 crore.
Similarly, debit card transactions in the Others category dropped in both volume and value, from 47.5 million transactions worth Rs 3,386.84 crore to 30.0 million transactions valued at Rs 3,068.16 crore, further signalling a shift among customers toward digital payment options.
However, credit card usage at PoS terminals has seen significant growth, with transaction volumes increasing from 3.1 million in 2022-23 to 3.5 million in 2023-24 and transaction values rising from Rs 1812.30 crore to Rs 2074.35 crore. In contrast, the Others category for credit card transactions saw a slight volume decrease from 2.6 million to 2.4 million, though the transaction value still rose from Rs 948.66 crore to Rs 1054.05 crore.
Some experts attribute the trend of decline in ATM usage for cash withdrawal to the increased fee charged by banks on ATM withdrawals after a certain number of free transactions each month. For most major banks, customers can make up to five free ATM withdrawals per month at their own bank’s ATMs and three free transactions at other banks’ ATMs before fees apply. After exceeding these limits, banks typically charge around Rs 20-25 per additional withdrawal at their ATMs.
Bridging Financial Gender gaps
For Sabreen, a 20-year-old, the arduous task of visiting a bank every week located 10 kilometres away from her home to deposit the money she earns from tailoring has always been a substantial challenge. However, over the past two years, her reliance on UPI for processing transactions with her customers has significantly alleviated this burden, saving her valuable time and effort. This shift to digital transactions not only enhanced her financial efficiency but also helped her to focus more on her tailoring business.
“Encountering the male-dominated environment at the bank was nothing short of overwhelming; the queues filled predominantly by men added to the feeling of unease and apprehension during my visits,” Sabreen recalled. “This often made the entire experience quite daunting, especially after having to catch a bus to reach the bank.”
Digital payments have emerged as a transformative force for women in Kashmir providing a gateway to financial independence and economic participation. By embracing digital payment solutions, women who faced limitations within the traditional banking system are now able to transcend these barriers. The ability to conduct financial transactions and access banking services remotely through digital platforms has revolutionized financial inclusion for women in remote and underserved areas.
“Digital finance has not only offered greater financial autonomy but has also opened avenues for entrepreneurship and economic advancement. Women are now able to engage in various economic activities, access credit, and manage their finances. Online banking is bridging financial inclusion and gender gaps in the region,” a banker stated.
No Loose Change Toffees
The emergence of digital transfer apps has led individuals to adopt precise payments, negating the requirement for loose change transactions. This transformation has significantly impacted the landscape of small-scale commerce. Earlier shopkeepers often traded toffees for loose change. Interestingly, in 2020 brands such as Mondelēz International, Mars, Nestlé, Perfetti Van Melle, Parle Agro Pvt Ltd, and ITC Limited noted significant declines in toffee sales. Studies have shown that these seemingly small transactions ultimately led to substantial amounts over time.
With the advent of digital transactions, this practice has almost ceased, as customers have started paying exact amounts due, leaving no room for loose change and subsequently impacting daily toffee sales.
Threats
The digital landscape of Fintech is constantly evolving, so are the tactics employed by cybercriminals. There are various emerging threats and fraud techniques that pose significant risks in online transactions for both financial institutions and individual users.
“Relying more on digital payment systems heightens the potential risks linked to data breaches and unauthorised entry into financial data. The role of robust software architecture and database management in bolstering banking systems against possible data breaches and persistent site disruptions is crucial now more than ever,” Sheikh Asif, a cyber security expert, said. “Digital commerce transactions often experience a significant volume of data breaches and are plagued by an influx of malicious bot traffic. The compromised data primarily results from phishing attacks, credential stuffing and data breaches. When fraudsters gain access to stolen digital wallet credentials, users are left vulnerable and exposed, often without effective recourse.”
In a recent incident, a 60-year-old user of a digital wallet service became a victim of a phishing attack. Scammers, disguising themselves as bank representatives employed deceptive messages to contact the user. These communications insisted on an immediate account update for pension purposes. “Dear customer, your Bank account will be suspended today. Please click here to link and update your details immediately”, the message read.
Lacking digital proficiency, the individual was misled by the seemingly genuine messages and ended up disclosing critical information such as usernames, passwords, and one-time passwords (OTPs). Exploiting this data, the fraudsters illicitly accessed his digital wallet and transitioned a substantial amount.
“The resilience of banking systems against data breaches and site crashes depends on their software architecture, database management, and investment in technology,” a banker said. “Banks with advanced database systems are better equipped to ensure data security, handle high transaction volumes, and maintain system reliability.”
Customer issues apart, the banking systems may have to manage a turnaround in their vintage IT infrastructure. “Outdated systems have become a liability for financial institutions, amplifying the potential for glitches, crashes, and service errors, Asif said. “As a result, there is a pressing need for substantial investment in modernising IT infrastructure before transitioning to a fully cashless model to avoid leaving customers without access to their funds during critical periods.”
Regional banks, in particular, face hurdles in adopting the latest technology, often constrained by limited resources compared to their national counterparts. “These limitations hinder smaller institutions from providing advanced services and competing effectively, affecting customer service,” Riyaz Matoo Senior Network and Security consultant with PayNet Malaysia explained. “Disparities in software architecture further give national banks an edge in delivering seamless experiences, impacting financial inclusion and satisfaction.”
“Online banking operates in a cyclical process, starting with user input for authentication and validation,” Matoo explained. “Application servers handle requests, interact with databases, and ensure secure transaction processing, while activity logging provides transparency. The system concludes by delivering feedback to the user, maintaining data integrity and confidentiality throughout.”
Almost two-thirds of the banking in Jammu and Kashmir is managed by Jammu and Kashmir Bank. It is as true with deposits as it is with the loan book. Over the years, it witnessed crippling issues in managing the digital transaction revolution forcing the bank eventually upgrade from Finacle 7 to Finacle 10. However, concerns persist due to the intermittent functionality of the UPI in Jammu and Kashmir, posing ongoing challenges for the region’s residents in their day-to-day financial transactions.
Even though the banking sector is investing heavily in managing data safely, the linkage of accounts with external applications makes them vulnerable. Every year, there are reports about the Aadhar data of millions of people on sale on the dark web. The banks and other institutions continue to insist on Aadhar linkage with accounts, despite the Supreme Court not making it mandatory.
Influence on Policy Making
The digitization of financial transactions has enabled better tracking of funds thereby offering a more comprehensive view of economic trends. Experts believe that this enhanced visibility into financial flows and economic behaviour allows for more informed decision-making during the policy-making and budgeting process.
“The implementation of cashless transactions significantly affects fiscal policies, economic forecasting, and national budgeting mechanisms,” Dr Arif Billah Dar, Assistant Professor, School of Economics, Shri Mata Vaishno Devi University, said. “By enabling central banks to monitor interest rates and the money supply more effectively, cashless transactions have the potential to enhance economic stability.” Arif, who has bagged the Prof MJ Manohar Rao Award for his contributions to economic research asserted that digital transactions yield the government’s precise, real-time insights into economic activities, delivering valuable data on consumer spending habits, investment trends, and overall economic vitality.
