Digitization: Pros & Cons

Impediments to Digital Transactions

Digital transactions face significant impediments:

• They require special equipment, cellphones for customers and Point-Of-Sale (POS) machines for merchants, which will only work if there is internet connectivity.
• They are also costly to users, since e-payment firms need to recoup their costs by imposing charges on customers, merchants, or both.

Benefits of Digital Transactions

At the same time, these disadvantages are counterbalanced by two cardinal virtues:

• Digital transactions help bring people into the modern “wired” era.
• They bring people into the formal economy, thereby increasing financial saving, reducing tax evasion, and leveling the playing field between tax-compliant and tax-evading firms (and individuals).

Who Get Affected by Digitisation

Digitalisation can broadly impact three sections of society:

• The poor, who are largely outside the digital economy.
• The less affluent, who are becoming part of the digital economy having acquired Jan Dhan accounts and RuPay cards.
• The affluent, who are fully digitally integrated via credit cards.

One simple measure that illustrates the size of these three categories is cell phone ownership. There are approximately 350 million people without cellphones (the digitally excluded); 350 million with regular “feature” phones, and 250 million with smartphones.