The government is chalking out a strategy to push the usage of plastic money in rural India. This is with a view to bring down the cost of supporting cash in circulation.
The finance minister recently held meetings with global payment company Visa as to how the usage of plastic money can be promoted in rural India. The government is also looking to adopt international best practices for the payments industry.
As a means to push the usage of plastic in small towns, the government is exploring the installation of low-cost wireless point-of-sale (POS) terminals at post offices for dispensation of cash, said a senior Visa official.
The government proposes to permit cash dispensation at POS terminals, which will reduce the cost of supporting cash in circulation, he added.
This will be at first initiated in rural India before extending this facility to other parts of the country.
Currently, only banks can dispense cash through their respective automated teller machines, cheques and demand drafts. Disbursement of cash through POS terminals will, however, need amendment to the Banking Regulation Act.
In the overseas market, dispensation of cash at POS terminals is popularly know as 'cash back'. This service is available through debit cards, which is defined as 'cash given to cardholders at the point of sale when a purchase is made.'
Many countries around the world such as the United States, the United Kingdom, Australia, Singapore and Indonesia provide cash-back services at the point of sale.
For example in the US, 86 per cent of all cash-back transactions take place at supermarkets, with 27 per cent of the merchants providing the service.
"Cash-back provides the payment system with a number of benefits, such as greater usage of notes in circulation," said a senior private sector banker.
This will reduce the number of customers visiting bank branches. The introduction of cash-back will lead to reduced need for retailers to continually deposit cash at bank branches at the end of the day as they could dispense with the cash collected from customers, he added.
"For merchants its a win-win situation as it reduces cash-handling costs and lowers cash transport fees," said the banker. "Cash back will also ensure less cash theft as less cash remains in the cash register," he added.
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