DIGITIZING SMALL MERCHANT TRANSACTIONS – BRINGING THEM INTO THE FOLD OF FORMAL FINANCE

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Small and micro merchants have the potential play a major role in accelerating financial inclusion and driving economic growth. Such small businesses are not traditionally reached by banking and formal payment services. Many of these micro merchants transact primarily in cash, which prevents both the businesses themselves and their customers from joining the world’s formal economy.

New technologies that automate services (financial and non-financial) provides an unprecedented opportunity to bring the unserved or underserved micro, small merchants and their customers into the fold of formal finance. Technology enables creation of digital footprint of merchant & customer transactions which leads to improved visibility of financial lives of the missing middle, atleast on the expenditure and revenue side. It opens up the access to the universe of financial services that can be available to the masses beyond micro-credit. The digital transformation of transactions, businesses and subsequently financial services will lead to better, faster, cheaper, and safer financial products; a transformation that would provide the small businesses / merchants and families with the tools they need to run, buy and sell better. This will help them have better control over their financial lives, manage and deal with emergencies, seize opportunities, and realize their potential.

There are tangible benefits to private sector organizations from pursuing greater usage of digital technologies, especially digital payments, in their supply chains. First, digital payments allow for the realization of operational efficiencies by streamlining processes and reducing reliance on cash-based value chains. Second, digital payments enable opportunities for market expansion that leverage new data on consumer segments to better target products and services. Third, a more inclusive business model enhances a brand’s value in today’s age where consumers increasingly place a premium on sustainable practices. In this context, the session discussed on the true potential of digitization in delivering the financial inclusion dream, challenges faced in driving digitization drive across banks, BC players, payment banks and other ecosystem service providers. The session also discussed on the challenges around adoption of data driven approach to credit underwriting. It also discussed in detail about the importance of  partnership in achieving scale, challenges faced w.r.t. to providing high quality customer experience across partners. It also discussed about the importance of putting clients at the centre of institution’s practices – including seeking customer feedback, designing merchant-centric products, with advent of new technologies and increased digital interfaces.

Key Takeaways

  • Digitization is a journey; the impact of digitation in terms of increasing the coverage of financial inclusion is felt in micro-merchant segment which are either acting as BC to bigger players or are standalone micro-retail unit.
  • The true benefits of digitization of operations by micro-merchants in terms of pricing and better product offering is yet to be observed.
  • Most dialogues unintentionally limit the scope of digitization to credit and payments.

However, it is critical to see digitization as being subsumed in daily life. This will need

concerted efforts through capability building, behavior change and outreach.

  • Partnerships hold key to the immense possibility of bringing efficiency and scale, especially in a market like India which is incredibly diverse.
  • Time taken to execute partnerships in terms of real output is critical. Conscious effort has to be made to ensure “getting down to do business” quickly as markets, opportunities and customer needs evolve and change much rapidly in a digital world.
  • Building and maintaining a culture around customer centricity while translating partnerships into reality needs clear framework on roles and responsibilities, resolution and escalation frameworks, processes for right control over customer touch points, universal/standardized fair practice codes and relentless focus on customer feedback and grievances.
  • Right incentives for market enablers and service providers to continue to offer the services to the excluded segment are an important factor. Policy support in terms of appropriate design of rewards and incentives is critical to achieve scale in partnership with market players.

Published by

Inclusive Finance India Summit

Inclusive Finance India is a global policy platform on financial Inclusion setup with the objective of enabling cross-pollination of best practices and breakthroughs,specifically to influence India’s Financial Inclusion strategy and campaign. Recognizing the need and to support this cause, ACCESS has been organizing “The Inclusive Finance Summit” since 2004. This year the Summit is being held on January 18 - 19, 2021 in New Delhi.

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