MSMEs, retailers increasingly prefer digital transactions including UPI: Study

About 70% of MSMEs believe that more than half of their retail sales will be conducted through UPI (Unified Payments Interface) in the next three years, based on a study conducted by NeoInsights. The study, conducted between 2019 and 2023, covered more than 25 cities in India.

According to the survey, retailers prefer to go digital in the coming years, with UPI being their top choice due to its ease of transaction for a customer, and the speed of receiving payment for the retailer.

More than 50% of retailers surveyed witnessed an increase in sales and improved customer experiences after adopting digital payment modes, with approximately 40% stating that digital payments have helped attract new consumers.

On the retailers' end, this group too is increasingly indicating a preference for digital payments with UPI emerging as the most preferred method of payment due to its convenience and speed. 90% of retailers pay their suppliers or distributors digitally while 46% of them receive more than half their payments digitally.

“UPI is spearheading the adoption of digital payments among retailers by ticking all the right boxes,” said Arun Nayyar, Managing Director and CEO, NeoGrowth. He also added that digital payments can serve as a powerful tool to extend credit to underserved and unserved retailers. 

Between 2019 and 2022, UPI's share of digital transactions across many cities has increased. Bengaluru witnessed a 14% increase, followed by Chennai and Hyderabad at 13% each, compared to pre-COVID levels. Smaller cities experienced a 4% increase.

The FMCG and retail segment observed a 14% increase in UPI transactions, with Food and Beverage at 12% and Fashion and Lifestyle at 9%. 

In contrast, card transactions experienced a decline of around 12% across industry segments and approximately 16% across different locations, as per the report. This is attributed to the ongoing trend of consumers embracing contactless payment methods, which gained momentum during the pandemic.

Digital payments have also enabled new-age digital lenders to use retailers' digital transaction histories to determine their creditworthiness. Nearly 40% of retailers prefer to use digital payments to repay their loans.

The study also pointed out the infrastructural challenges faced by retailers, such as failed transactions, high costs of machines, and concerns about online fraud. 

This study is based on an assessment of NeoGrowth's customer data set of approximately 3,000 retailers, along with a survey of around 1,000 retailers across the country.