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Beyond the Transaction: Every Transaction Has a Story

Ensuring the growth of digital payments in India – Strengthening the digital payments ecosystem


Exactly four years ago, India had dismal ranks when it came to digital payments acceptance with only two percent of 60 million merchants accepting digital payments. Today, India has become the largest acceptance market in APAC, having contributed 55 percent of new merchant locations in APAC since 2016.

It is exciting to see the giant strides the people of this country are taking in terms of adapting to technology for making digital payments. In tier 2 and tier 3 cities of India, we still have a long way to go, although a 50-60 percent growth has been recorded in digital transactions. We are aiming to achieve 10 million merchants accepting open-loop digital transactions by 2020. The growth of digital payments has been marked by the innovation at Point-of-Sale (POS) with the introduction of low-cost POS devices such as MPOS & Bharat QR and processes to enable digital onboarding of merchants with our fintech partners.

To strengthen the acceptance of digital payments, it is imperative to increase merchant involvement in this entire journey. Without adequate incentives for the merchants of small businesses, digital payments will be limited to urban areas only. Expensive acceptance infrastructure and inertia towards cash payments have often deterred merchants from adopting the digital mode of transactions. To achieve the dream of cashless India, we need to ensure that the entire process is two-way, where both consumers and merchants can reap the benefits of cashless transactions.

The first step in this larger process would be to enroll more merchants into the digital ecosystem and then push the adoption of digital transactions. Here are a few ways in which this can work:

  • Interoperability – We need to promote only interoperable acceptance solutions in the market. All players need to work together to build a network of at least 20 -25 million merchants in India over the next five years that can accept all types of digital payments.
  • Customized solutions: A one-size-fits-all approach cannot work when we are dealing with merchants in a vast country like India. We need to have a segment-based approach to acquiring and alternate onboarding processes for different types of merchants. A Bharat QR might be relevant to a micro-merchant with a simplified KYC process; a medium-size merchant might need an MPOS device; whereas a large merchant would require a full-fledged POS with value-added services.
  • Valueadded services: To make an acceptance solution more appealing to the merchants, we must look at bundling POS solutions with value-added services. Value-added services could be GST compliance, ERP software, loyalty solution or working capital loans for the merchant. Using innovative approaches to underwrite merchants can go a long way in solving this problem. GST is going to make data available for many of these merchants, which can be used by lenders.
  • Incentives to merchants: On the ecosystem side, the government can play a significant role in building adoption and providing incentives to the merchants in the form of tax rebates for digital payments.
  • Collective efforts to prohibit consumer surcharging: We need to work together so that merchants are prohibited from surcharging the cardholders for making payments digitally. Consumer surcharging leaves a wrong impression in the customer’s mind, thereby pushing him/her away from digital payments. This will require efforts from all acquirers, networks and the regulator.
  • Disincentivize ATM withdrawals: In India, more than 90% of transactions on debit cards are done at ATMs. It is essential that we discourage ATM transactions and encourage consumers to use their cards for POS transactions directly. We need to build more awareness around POS usage and relook at the various approaches, including free ATM withdrawals to push POS transactions.
  • Promote contactless payments: We have seen that the growth of contactless transactions has moved customers away from ATMs and help digital payments grow globally for its convenience and its great experience. The regulator has taken some positive steps to promote contactless payments, and we should continue promoting contactless payments aggressively. Contactless payments in Transit as a category has been a harbinger of change in many markets. It can do the same for India as well in times to come.

As an additional attempt to encourage greater acceptance of digital payments, we need to have more POS machines manufactured in India as higher distribution will lead to greater awareness and usage. With adequate collective efforts, it will not be long before India can boast of going completely digital.