In part 1 and part 2 of our series on the cashless supply chain, we examined the benefits of implementing blockchain the supply chain and the benefits of cashless environments for suppliers. Today we take a look downstream at the merchants and some ways to incentivise them to cash in on the cashless wave. Many governments around the world are promoting the shift to cashless economies. While tactics such as demonetisation and tax breaks for fintech companies are common, additional measures are needed to incentivise and sustain traction properly. To perform a cashless transaction, both the buyer and the seller should be able and willing to use the cashless payment channel. Consumers today have a plethora of cashless payment options from banks, mobile wallets and e-commerce firms but most merchants still deal in cash, and the primary reason for that is lack of acceptance options at various stages of the supply chain.
The move to the cashless transaction can originate from the retail consumer but needs to involve wholesalers, distributors and manufacturers. If wholesalers and traders are reluctant to switch to the new payment systems, substantial disruption of the supply chain will occur. To ride the tide of cashless payments, it is thus imperative to provide incentives to the trader to switch. Governments can introduce waivers for fees on debit card and mobile payments. If the charge for transferring up to $1 is $0.01, why should debit card use cost 1% of transaction value? The MDR is either absorbed by the merchant or passed on to the consumer and hence deters the adoption of the cashless channel, particularly for merchants working with wafer-thin margins. A second deterrent is that the sale proceeds may not be immediately deposited in the merchant’s account, exposing the merchant to working capital difficulties. Cashless transactions also leave an audit trail, and a merchant does not want to invite the taxman home.
It is time for governments to not just push the trader towards cashless transactions through demonetisation, but also pull them in by offering an economic justification for routing transactions through the mobile wallet. Communication aimed at that segment is best handled if the firms get merchants on their side. A merchant who understands that GST and the surgical strike against black money have fundamentally changed the business landscape may start seeing value in the decrease in cash handling effort that the cashless channels make possible. An added pull of an interest-bearing current account could be the tipping point to cashless supply chains. Since MDR on debit cards is a cap and not a floor, banks could have proactively reduced MDR to spur adoption. They did not, and it was the government which waived it. In the past, banks have been more willing to issue a card rather than to invest in a point of sale terminal. If banks want to ride the tidal wave unleashed by the Prime Minister’s demonetization move, they need to reinvent themselves now.
There will be an adjustment period for consumers with the shift to cashless societies. However, it should be noted that while there are many benefits for all the parties involved, change is often difficult especially with something as precious as currency. We are already currently seeing wallet start-ups, and payment providers embark on an aggressive merchant sign-up drive. True, a smartphone is required for a mobile wallet, transactions are also possible when using an NFC technology such as cards and tags. Banks and wallet fintech companies need to take a supply chain orientation and look at the merchant not as a mere source of fee income but as a partner in this transformative journey. The merchants’ worries and objections need to be addressed, the current account should be interest-bearing, the MDR, if at all reintroduced, should be reduced to a flat fee, transaction reconciliation-related headaches eliminated, and the cash receipts synchronised with the merchants’ accounting systems. The bottom line is that you have to make it as easy as possible for merchants to encourage them to uptake cashless payment systems which in turn will drive consumer behaviour.
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