Unlocking innovation in digital payments to make India’s merchant digital

We're living in the era of a digital revolution that is touching all aspects of our interactions. Money handling including payments are more secure, convenient, contactless, and invisible. From tapping a card, scanning a QR code, to using a smartwatch to pay, there's an increasing consumer preference for digital payments. 

While India saw growth in digital payments (especially debit and credit cards) post demonetisation, the adoption was slower in last-mile retail operations mainly due to the limited access to digital payment instruments for consumers (cards, smart mobile, data) to make digital payments and the cost associated with the merchant infrastructure (POS machines) to accept digital payments; 

The above two reasons coupled with limited customer awareness, perceived security risks around digital payments, never really pushed or incentivised the consumer to ask merchants in the last mile to accept digital payments. At the same time, savvy or well-informed customers in metro cities were demanding enough and there was a much larger adoption of digital payments. 

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However, the COVID-19 induced lockdown forced every business to embrace digital tools to survive. This included every aspect of the business from showcasing catalogues, accepting orders, receiving digital payments. Most importantly, social distancing norms drastically changed consumer behaviour as well and consumers were now willing to move online and digital. 

A recent report suggested that 5-8 percent of sales are now over ecommerce for most large FMCG companies compared to approximately 1 percent about two years ago. Industry experts believe that the Indian consumer's digital behaviour and adoption have leapfrogged by five years during the two lockdows.

India saw a whopping 25.5 billion digital transactions in 2020 alone, according to a report. Every business is going digital one way or another. However, much of the potential is still untapped. The abrupt digital transformation left small merchants behind. They don't have the bandwidth, budget, or legacy processes like large businesses. 

For a country like India, innovation and digitisation can be effective only when it also transforms micro-merchants, who constitute 99 percent of the total MSMEs. Introducing technology for the MSME merchants can potentially result in a business improvement by merchants being able to track and retain customers, bring in more customers, increase reach, reduce cost, increase revenue, and streamline operations. 

Consumer-led digital transformation

Despite the benefits of digitisation, last-mile retail operations are completely manual, disconnected, and unorganised. Most merchants spend a great deal of energy and time manually storing and retrieving data, performing actions. Further, they don't leverage technology to make smart decisions mainly because their consumer never demanded this of them.

Consumers in India themselves have had limited exposure to technology and the possibilities associated with it. However, there's been a drastic change in consumer behaviour in the past 24 months. They are now confident about using digital payment apps and contactless payments to purchase everything, including essential commodities. 

The growth is largely fuelled by India’s deep smartphone penetration in the past few years. The growing demand for smart payment solutions has forced retail merchants to go digital. The government is also extending its support to transform Indian MSMEs digitally. 

One innovation at a time 

Financial companies are addressing individual pain-point by focusing on one innovative solution at a time for merchants. To operate a business, merchants have to do various things and companies are now looking to provide all solutions required by the merchants under one window. The path to this vision is one solution at a time. 

The ‘Tap on Phone’ service is the best example. It enables merchants to accept all digital payments including Credit/Debit Cards, UPI, QR, and e-wallets without the requirement of a card machine. This purely digital app will reduce merchant operating costs on rentals and maintenance of POS machines. 

Moreover, companies are also facilitating platforms where small merchants can create an online store for their products online. This will help small stores to create an online catalogue for their products and share this with customers to drive online orders. Such services have seen promising results from the early adopters. 

Moreover, such platforms provide merchants a level-playing field to reach customers and fuel business growth. These innovative solutions also streamline operations, revamp consumer experience and lead retailers in the digital economy. 

The buzzing space of digital payments is witnessing a significant rise in new players, innovations, and regulatory changes. Fintechs are leveraging Application Programming Interfaces (APIs) to offer services that build new channels. Moreover, Machine Learning (ML) and Artificial Intelligence (AI)  will help accelerate innovation in the payments space.

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While the adoption of digital payments certainly transforms businesses, it is only one piece of the puzzle. There are various factors that contribute to digital transformation. For merchants, digital solutions in billing, order management and catalogue discovery remain uncharted territory. 

The adoption is slower because consumer convenience isn’t directly involved. All the touchpoints at different processes play a crucial role in organising last-mile operations. There’s constant effort to improve the entire ecosystem and create financial literacy. 

Going forward, digitisation will be key to organising last-mile operations in India. And, digital payments can be an easy entry point to foster digital transformation. The trend to develop such solutions will continue in the coming years. 

The support of government and central bank initiatives will further strengthen infrastructure and might as well extend the benefits to Tier-II and Tier-III cities. With the right tools, MSME merchants will not only be able to better compete with but also participate in online ecommerce by providing a seamless customer experience with a personal touch that cannot be replicated by large faceless companies.

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