Bringing retailers on board is a huge challenge for Pakistan’s digital financial services (DFS) ecosystem. Next door, India has tackled the problem to some extent (for more on India’s experience, read “Wanted: common payment interface” published June 28, 2019). Now a recent study by Karandaaz, the Islamabad-based think-tank that works on access to finance, sheds some needed light on merchant on-boarding.
It has been generally observed that cash is king not just because of the benefits of cash but also due to limitations of digital alternatives. The Karandaaz study, which surveyed some 3,000 retailers, found that 95 percent of respondents used cash as the only means to settle transactions. This is despite the fact merchants showed a high level of awareness for alternative channels like POS and DFS.
Background interactions have informed BR Research that merchants refuse to come on board also for tax-related issues. Karandaaz also found out that besides cash’s universal acceptability and convenience, merchants were wary to switch to digital payment due to “privacy”. In all, merchants came out satisfied with cash despite its hazards like fraud, theft and fake currency, late customer payments, etc.
Where the study is most striking is that only 3 percent of merchants used POS machines and only 1 percent used DFS channel. But the density differs across sectors. For instance, 44 percent of modern retail (cash & carry; super-markets, etc.) outlets and 34 percent of petrol outlets included in the sample reported POS usage. But usage was in single digits among outlets selling fast food, shoes and furniture.
Among the users of DFS, 1 percent of the sample, the two main segments were mobile shops and bakeries – 5 percent of each using DFS for payments. The density for both POS and DFS is very low. And if the numbers on DFS penetration precisely reflect the broader economy, then it raises a question on the validity of agent-related statistics that are reported by telcos to the central bank.
The study has some useful insights on why merchants are down on digital. DFS merchants in the survey had quite a few “pain points” – such as service disruptions, hassle-prone operations, and high fees for customers. Low customer demand, difficulties in usage, lengthy payment process, high charges and liquidity management are identified as factors that affect the uptake of DFS among merchants.
To circumvent those barriers, the study identifies some pertinent criteria that digital payment providers will need to meet in order to grow their scale. Are their platforms easy, quick and safe to use? Is their platform becoming commonplace enough? Does it cater most categories of suppliers and customers? Is the process reliable during emergencies? Can it ensure privacy of the business?
Cash reigns supreme on all those aspects, as the study rightly notes. But the idea is to have DFS become a cash-like alternative. And in that respect, the study suggests a number of interventions. These include creating awareness for DFS’ benefits; introducing all kinds of payments to create broad user demand; developing convenient new products for merchants; giving tax holidays for retailers’ comfort; and removing strict documentations requirements to give merchants POS machines and DFS accounts.
Those are nice bits of advice and one expects the central bank and service providers to pay heed. However, as identified earlier, until and unless service providers join forces and integrate their back-ends for a seamless payment interface, the digital channels will remain far from being simple and user-friendly. And as a result, cash will keep on having currency among merchants and users.
Comments
Comments are closed.