According to the World Bank, there are around 400 million small and medium-sized enterprises worldwide. In emerging markets, as many as 70% of those businesses have no access to credit, because they only accept cash and cannot produce formal transaction data. By digitising a fraction of those transactions, businesses could generate enough data to apply for a loan. So why aren’t small business owners motivated to accept digital payments? For insight into this problem, we spoke with Rob Hood, Youtap’s Merchant Strategy Manager.
Why do merchants resist accepting digital payments?
First, many smaller and informal merchants in developing economies have lower levels of financial literacy and don’t always trust electronic payments or those companies providing them. They worry about where the transaction information goes, who has access to it, and whether or not they will be paid. Second, in some countries, such as Indonesia, only about 15% of adults are registered to pay tax. Some business owners worry that if they accept digital payments, the resulting data trail will mean they have to pay more in taxes. Added to these concerns is the fact that they may have to buy a point-of-sale terminal and pay a fee on digital transactions. Beyond that there are perceptions that digital payments can be slow and unreliable and can be complex for the merchant. Allied to that while mobile money is still in its infancy smaller merchants will frequently tell you that demand for electronic payments is not high and customer always carry cash as an alternative payment option.
How do you convince a business owner of the benefits?
Particularly for informal or lower-value merchants, you have to give them compelling reasons. Many payment providers are complacent. They believe if you simply provide small merchants with a means of accepting electronic payments, they will jump at the opportunity. That is a dangerous assumption. In reality, the payment provider has to demonstrate real benefits. For instance, even a small electronic transaction history will give merchants a better chance of receiving a loan from a financial institution. And converting the majority of payments into digital transactions can be much safer for the business owner than handling cash and depositing it each day.
What other services can make digital payments more attractive to merchants?
To make digital payments more enticing, payment providers can offer merchants additional business services. For example, electronic merchant payments open the door for better business management. Tools like customer relationship management (CRM) and inventory control, to name a few, can help merchants understand their business and customers better. Many merchants in developing economies do not have these tools yet, but they certainly understand their value. Mobile money services can also give merchants the tools they need to reward customers for using digital payments. Those might include point-of-sale promotions and loyalty programmes.