Helping small stores think big: driving digital acceptance at the small in-store

01 / 10 / 2021

Acceptance of digital payments at micro or small merchants, particularly in developing countries, is low for a variety of reasons. Driving an increase in digital payments acceptance is easier said than done, but will depend on three key elements: trust, cost and opportunities for revenue generation.

man paying with his smartphone, scan and pay a bill on a card machine

A central goal of Worldline is to power the global transition towards a cashless society. A cashless society, among many benefits, facilitates greater financial inclusion as well as reducing corruption. Non-cash transactions are indeed growing fast, with a Cap Gemini report forecasting that the number of non-cash transactions will be close to 1.1 trillion in 2023, compared to an estimated total of 766 billion transactions in 2020. However, despite this growth, cash remains popular.

A McKinsey report shows that, in 2020, cash transactions by volume accounted for 74% of all transactions in Brazil, 86% in Mexico, 89% in India and 96% in Indonesia. However, a true success story for the digitisation of cash has been China, which saw cash transactions reduce from 99% in 2010 to 41% in 2020 – this digitisation has largely been driven through peer-to-peer (P2P) apps and the e-commerce boom. But cash can also remain entrenched in e-commerce too. In India, Cash on Delivery (CoD) accounts for 28% of e-commerce transactions; it was 41% before the pandemic and this number is down because CoD was actively discouraged by large e-commerce retailers. In contrast, mature economies are less cash driven: 28% in the US, 9% in Sweden but Japan is an outlier at 54%. 

A 2016 World Bank report suggests that it is largely micro, small and medium size merchants (and particularly those in developing countries) that are driving cash transactions. To understand why cash is so popular despite all its “costs”, it is instructive to understand some of its perceived advantages: anonymity, accepted everywhere, reliable, trusted, very low holding costs (despite research to the contrary). One challenge is getting merchants to accept digital payments, but an additional challenge is to get customers to want to pay digitally. A 2019 study on low adoption of digital payments in India concluded that:

Low rates of adoption do not appear to be the result of supply-side barriers, but due rather to demand-side factors or taxes. We find direct evidence of such demand-side factors, such as a perceived lack of customers wanting to pay digitally, and concerns that records of mobile payments might increase tax liability. Our results thus suggest that simply lowering the costs associated with adopting these technologies is unlikely to be successful in increasing adoption of digital payments.

A critical way forward to increasing digital payments is to incentivize both the merchant and the buyer to adopt them. While there is little that can be done to provide the same anonymity as cash (at least with currently mainstream payment options), buyers can still be offered incentives such as cashback, loyalty points, etc. It is also very likely that merchants promoting digital options will also encourage buyers to move towards digital payments, especially for micro transactions. Therefore, an important key is how to incentivize small merchants to accept digital payments. This will likely mean focusing on three key elements:

1. Trust – Possibly the most important, and it will boil down to “Will I receive my money in a timely manner and will it be the correct, promised amount?”

2. Cost – These merchants cannot afford expensive systems. They are not looking for lots of bells and whistles, but a simple mechanism to accept payments. QR codes are the best way to drive this and they have largely been credited for driving digital acceptance in China. Options like Softpos, which can be installed on a merchant’s smartphone, will also help. There is evidence that even the smallest of merchants are willing to pay some fees because they believe digital transaction acceptance drives transactions (and hence their revenues).

3. Revenue channels – Increasing revenue channels for merchants beyond digital acceptance is likely to increase the attractiveness of going digital. This means enabling services such as Buy Now Pay Later (BNPL), selling mobile talk time, selling tickets, among others – all these essentially lead to the merchant making more money with every transaction.

In conclusion, my view (one that has been shaped by discussions with many  merchants across the micro-to-medium spectrum in India) is that they are keen to accept digital payments because they instinctively understand that accepting digital payments translates into increased revenues. However, concerns regarding trust and cost persist. How these concerns will be resolved will determine the path and pace forward, but what is clear is that this is an opportunity for all worthy of pursuit.

The resources are linked in the article. I can be reached at in case of any queries.

Sunil Rongala

Head of Strategy, Innovation & Analytics, Worldline India – Member of the Worldline Scientific Community
Sunil Rongala is the Head of Strategy, Innovation & Analytics in Worldline India. A Ph.D. economist, Sunil has deep experience in the digital payments domain, macroeconomic research, product innovation & execution, analytics, risk management, and thought-leadership. He was part of the founding management team of a payments start-up till final exit.