‘Digital payments adoption among merchants, kiranas most effective through ‘A-B-C-D’ principle’

Credit and Finance for MSMEs: As 80 per cent of consumers in India switch preferences in favour of digital payments, merchants from kirana shops to street vendors must be enabled to accept them. The Reserve Bank of India (RBI) powered Payments Infrastructure Development Fund (PIDF), operationalized earlier this year, has kickstarted the focused effort to scale payments acceptance architecture for small-scale merchants in tier 3 to 6 centers and North Eastern states. The objective behind the PIDF is to achieve “pan-India terminalization”, or to provide all Indian merchants with a digital payment acceptance touchpoint.

Understanding the needs and experiences of local merchants will be instrumental to achieving nationwide terminalization. In our experience, digital payments adoption is most effective and enduring when it follows what we call the ‘A-B-C-D’ principle. This is to say, payments acceptance instruments must be ‘Accessible’ and ‘Affordable’, demonstrate the ‘Benefit’ they bring, ‘Convenient’ to adopt, and ‘Dependable’.

Payment service providers (PSPs) have a catalytic role to play in making payments technology accessible and affordable. At the rate at which PSPs are investing in developing locally relevant and low-cost acceptance solutions, India could well become an economy of scale in acceptance solutions. A paragon of this innovation in digital point of sale (PoS) infrastructure is the QR code, which has allowed merchants to seamlessly accept payments with a mere placard. Further, innovation in digital and mobile point of sale (mPos) interfaces with do it yourself (DIY) solutions like Soft PoS, where a merchant’s own smart mobile phone becomes a PoS device, with zero hardware and installation costs for merchants, could massively address supply-side gaps in acceptance. With DIY and bring your own (BYO) acceptance solutions, the cost of hardware can be eliminated and the speed of onboarding a merchant in remote and inaccessible corners of the country can be enhanced.

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Acceptance technology should also be designed to clearly demonstrate the benefit it brings to people’s lives and businesses. An acceptance interface can serve as a gateway for merchants to connect to the digital economy and access more complex financial services. Today, small businesses can apply for loans using payments acceptance data such as sales records, invoices, and receivables, in lieu of credit history. Using similar data-driven methods, PSPs could extend more banking services, such as B2B payments, insurance, remittances, and other VAS to small businesses. This could have a powerful multiplier effect on financial inclusion.

For acceptance devices to be widely adopted by first-time users, they must be convenient and user-friendly. When technology is intuitively designed, it is more likely to have a lasting impact and uptake among new adopters. Just as the QR code made making payments more efficient for merchants without a PoS machine, understanding how small merchants work, such as their use of feature phones, regional languages, quicker payments, and lower costs can make accepting payments simpler.

In a country where micro-transactions form a substantial part of the economy, it is critical that dependable and stable infrastructure is available to accommodate the shift to digital modes of payment. Many merchants find digital payments unreliable due to PoS friction, network constraints, and poor last-mile connectivity, which often result in transaction dropouts and failures. This not only adversely affects the end-user experience, but also overall confidence in the adoption and acceptance of digital payments.

Under its regulatory sandbox, the RBI has supported fintech firms and startups to pilot payments acceptance technologies based on near-field communication (NFC), sound waves, biometrics, off-line, and voice recognition. Eliminating the need for data connectivity for digital transactions, particularly person-to-merchant (P2M) payments, can significantly improve the dependability of real-time digital payments. As the government and industry continue to enhance the A-B-C-D of payments acceptance technology, we could bring millions of ‘new to digital payment’ merchants into the financial mainstream.

Rajeev Kumar is Senior Vice President, Market Development, South Asia at Mastercard. Views expressed are the author’s own.