1. DIGITALPAYMENTS FOR MERCHANTS
PAYMENT PATTERNS, PREFERENCES, AND ATTITUDES OF SMALL BUSINESSES
Customer Research Project
Certificate for Digital Money | Week 7 | Swati Mehta

2. Introduction and
Research Context
Research Objective
and Questions
Summary – Drivers
and Opportunities
Report Overview
Profile of Merchants
Size and Payment
Patterns
Current Payment
Methods
Attitude towards
paper based and
digital payment
methods

3. WHO AM I, AND WHAT AM I TALKING ABOUT
WHY TALK TO MERCHANTS?
According to a World Bank study, the global market opportunity of electronic
payments made and accepted by micro, small, and medium retailers
(MSMRs) in 2015 is $19 trillion. This market has shown innovation and
progress with new business models such as Square in United States and
Kopo Kopo in Kenya. In South Asia, only 20% of all MSMR transactions ($4
trillion) were in electronic form, compared to global average of 44%.
* “Innovation in Electronic Payment Adoption: The case of small retailers”, World Bank Report, June 2016
My name is Swati and I lovebeing out in the field talking to
people about what they do and how they manage their financial
lives. My favourite people to speak to are the cab and
autorickshaw drivers, because there is so much time to kill while
the long commutes, and ofcourse they make great respondents!!
My new favourite after this research are the merchants!

4. RESEARCH OBJECTIVEAND QUESTIONS
The overall objective of the research is to understand the needs and preferences of small
businesses with respect to methods used for making and accepting payments.
What is their attitude towards digital payments, both cards and mobile? What is
their level of usage for digital payments?
What payment methods are used by small businesses for accepting payments
(from customers) and making payments (to suppliers)?
What are the reasons for using the current modes of payments? What drives
their suppliers’ and customers’ preferences?
What are the perceived benefits and pain points of using cash based
payment methods (cash and checks)?
What are the perceived benefits and pain points of using digital payments?
What strategy and tactics are required to shift the small businesses from cash
and make them adopt digital payments?

5. PROFILE OF MERCHANTS INTERVIEWED: SIZE AND PAYMENT PATTERNS
Type of Business
Average
daily sales
Average
daily footfall
Number of
Suppliers
% of cash
transactions
Respondent 1
Confectionary, toys
and gifts
INR 25,000 100 6 to 7 100%
Respondent 2
Cosmetics and
hosiery goods
INR 10,000 to
15,000
70-100 50 to 70 100%
Respondent 3 Grocery INR 20,000 70-80 100 to 200 40%
Respondent 4 Readmade clothes
INR 1,00,000
to 1,50,000
80-100 250 10%
q The research covered four respondents from the north and west part of Delhi. They were all
located in market areas surrounded by middle-income residential areas.
q All businesses were 15-20 years old and were managed by the next generation (younger sons
of 25-35 years old)
q The businesses had two types of suppliers – local/unbranded distributors and company/branded
distributors
q Only one of the merchants extended credit / advance to their regular customers. All merchants
took credit / advance from the suppliers from one week to one month

6. CURRENTPAYMENTMETHODS:CASHAND CHEQUEARESTILLTHEKING
Customer to Business (P2B) Merchant to Supplier (B2B)
CASH
Three out of the four merchants receive majority of
their sales revenue in cash.
CHEQUES
One of the merchants which is the only one providing
one month’s advance to customers, receive the
payment through cheque.
DEBIT AND CREDIT CARD
Three out of the four merchants had POS machine, but
only one of them accepted payments regularly (almost
70% of revenue)
PAYTM
While all merchants knew about PayTM, only one of
them is accepting payments through this mode. But the
volume of transactions is low (<1%).
CASH
Two of the merchants interviewed preferred to
pay the suppliers in cash. The small wholesalers
prefer to receive the payments in cash, while the
big distributors and companies accept both cash
and electronic payments.
CHEQUES
The remaining two merchants paid most of their
suppliers through cheques.
MOBILE BANKING
One of them recently started using mobile
banking (bank’s application) for online transfers,
but is still not comfortable with it.
Traditionally, the payment method is driver by the merchant’s preference. However, in more customer
oriented and competitive markets, the merchants adapt to customer demands and preferences.

7. ATTITUDESTOWARDSPAPERBASEDPAYMENTS
“
”
The sooner you get cash in your hand, the better it
is. It feels satisfying to have the money earned in
your pocket at the end of day
CASH IS IMMEDIATE
“
”
I do not give bills to customers because then I will
have to pay a sales tax, which makes my product
expensive than the other shop
THERE IS NO COST OF USING CASH
WE ARE USED TO HANDLING CASH
“
”
We do not have such high volume of transactions,
so the cash is not much. There is no problem in
handling cash
BUT..
As volume of business increases, merchants
might prefer to use less cash. One of the
merchants with more than INR 1,00,000 sales
per day prefers to use electronic payments for
both accepting and making payments as it is
convenient and aids in reconciliation.
CHEQUES HELPS WHEN LIQUIDITY IS LOW
“Sometimes we prefer to use cheques (post-dated)
when we do not have enough cash or money
”

8. ATTITUDESTOWARDSDIGITALPAYMENTS
BUT..
All the merchants agree that with time they will have to adopt electronic channels as customers
become more aware. Customerswho receive their income electronically demand electronic payments
as well. Moreover, the regulations are becoming strict and there will soon be restrictions on the
amount of cash transactions.
“
”
The card transaction costs 1-2% extra to us, so
why should we do that and lose out on our profit.
Cash does not cost anything
WHY PAY THE MDR!
“
”
I have kept a POS machine, but there is no demand
from the customers. The customers here prefer
cash
CUSTOMERS DO NOT WANT IT
AVOIDING TAXES
“
”
If I accept payment electronically, then it will all
show in my account and I will have to pay sales
and income tax

9. SUMMARYOF FINDINGS:OBSTACLESANDOPPORTUNITIES
Difficulty in formalising
small businesses
Prefer to conduct cash transactions
to keep their income discreetand
hence avoid taxes.
OBSTACLES OPPORTUNITIES
Chicken and egg
dilemma
The dilemma of who starts first – the
customer or the merchant. In urban
areas, merchants need to be customer
oriented, and is ready to adaptto
customer demands. The customers still
prefer cash. Till the time customer is
unaware, the merchant will push their
preferred mode.
Costs of traditional
systems is high
The cost of traditional card based systems
are high for the small merchants. The value
proposition is not attractive and entry barrier
is high because of high cost.
Regulatory changes
The government in India is putting
strict measures to control black
money by limiting amount of cash
transactions.
Combined solutions
Solutions that not just offer a way of
accepting/making payments, but
managing their business
(reconciliation, inventory
management) have better value
proposition.
More power to customers and
suppliers
Both of these stakeholders can greatly
influence merchant’s preferred mode of
payment. With increasing customer
awareness, the merchants will have to
adapt. The suppliers have the financial
incentive to promote electronic payments
to reduce cost of handling cash.

10. THANK YOU