IMT NPCI

This persistence of physical money is discouraging — not only because of the impact it has on financial inclusion — but also because of increasing evidence that the digitization of money has benefits for both governments and corporations as well as individuals. In developed markets like India, we see significant investor interest and industry activity in driving digital money innovation such as peer-to-peer (P2P) payments and tap-and-pay at the point of sale (POS). While these markets have embraced traditional debit and credit solutions, new innovations have struggled to make a dent into the remaining well-established and stubbornly resistant physical cash flows. Therefore, this study was conducted with an objective(i) to know the reasons for adopting Cashless Transaction Solutions by small merchants / customers of merchants, (ii) to understand the challenges (Pain Points) for adopting Cashless Transaction Solutions by small merchants / customers of merchants, and (iii) to suggest possible ways to overcome challenges for adopting Cashless Transaction Solutions by small merchants / customers of merchants.

The study involved both qualitative and quantitative methods to understand the motivators and challenges for adopting Cashless Transaction Solutions (CTS). Data collection was done by a personal discussion using open-ended semi-structured questions. The answers to the semi-structured questions were collected in form of narrations. Quantitative information were collected by close-ended structured questions. The questionnaire contained two parts, i.e., part-1 containing open-ended semi-structured questions, and part-2 containing close-ended structured questions. Data collection was done from 300 small merchants and 600 customers of small merchants in four tier 2 and tier 3 cities of Telangana State. The study was undertaken in the district headquarters of Warangal, Karimnagar, Mahbubnagar and Nalgonda. Sufficient care were taken to collect responses from various categories of small merchants and their customers. Data validation will be done by both transcription and audio recording of the narrations during the data collection process. Data analysis would follow appropriate qualitative methods [narrative inquiry, contextualization, causality analysis, cause-effect relationship etc.], and quantitative method followed statistical analysis like descriptive statistics, factor analysis, cluster analysis and discriminant analysis.

The study found that the small merchants of Karimnagar, Mahbubnagar, Nalgonda and Warangal of Telengana state were divided equally with respect to adoption and non-adoption of CTS methods (49 per cent adopters and 51 percent non-adopters). About 68% of the non-adopters perceived that they don’t need CTS for their business. The study noticed that the CTS adoption of merchants did not depend upon the ownership type of the business. The education qualification did not impact CTS adoption decision. The age of the business did not have a bearing on the CTS adoption decision of merchants, but the business revenue had a positive connection on CTS adoption decision. Adopters category of merchants had more average shop revenue than its counterpart. The number of employees of merchants did not influence the CTS adoption decision. The CTS Implementation cost did not affect significantly on CTS adoption of merchants. Merchants decided to go for CTS adoption if the business required a change. The CTS adoption of merchants was significantly depended on the business requirements.

Among the non-adopter of CTS merchants, there were two sub-groups, one, anti-technology merchants, and two, technology ignorant merchants. The characteristics of ‘anti-technology merchants’ were different from ‘technology ignorant merchants’ across five factors, i.e. unawareness, negativism, resource constraint, fear of technology, and self-efficacy. The ‘anti-technology merchants’ had a higher level of negativism, fear of technology and self-efficacy. Their awareness was not very bad, and they had a low resource constraint. These merchants need to have trust and confidence on CTS. Policy interventions with an objective to win trust and confidence of this sub-group of merchants may lead to CTS adoption. The negativism need to be converted to positivism and the fear of technology should be lessened or erased.

On the other side, there was another sub-group ‘technology ignorant merchants’ who had very high unawareness and resource constraint. They had low negativism and low fear of technology. The very high resource constraints along with very high unawareness led to a constraint for experimenting with various CTS methods for this sub-group. A policy intervention to make to increase awareness and make arrangement to experiment with various CTS methods would help them to get enrolled as CTS merchants.

Apart from the behavioural and perceptive issues, there were many common issues across the merchant sub-groups which triggered them not to use CTS. They mentioned that the CTS was not safe and secure as they assumed that there were third parties involved in the CTS, and also there is a possibility of online hacking. Merchants were apprehensive that a third party like bank or payment service provider will be knowing about their transactions. Further, they had a perception that their accounts might be hacked, and security of funds can be an issue.

The non-adopter merchants constantly raised issues on poor network (internet connection) and low bandwidth. This poor infrastructural facility limited them from using CTS. There was a need for upscaling internet infrastructure to speed up CTS usage among small merchants. Non-availability / temporary disconnection of Internet was a constant concern. Many a times, slow internet connection delayed the transaction and irritated customers. There were havocs among merchants for incomplete transaction and delayed transactions. Merchants mentioned that many situations where money was transferred by the customer and did not reach merchants’ account, and money was transferred by the customer and merchants received message after some time. Drawing inferences from incomplete transactions and delayed transactions, merchants were scared up of losing their revenue. Also, many times, incomplete and delay transactions created issues between merchants and customers with respect to money transactions. The competent authorities should emphasize on resolving these issues which would not bring antagonistic views on these payment methods.

There were situations where merchants realized cash from bank against trade bills after some time, and also there were cases where merchants were required to visit banks several times to realize cash from the bank. These situations dissuaded merchants to follow the CTS. Banks as an important stakeholder of the CTS, should emphasize on how to resolve these issues and persuade merchants to follow the CTS. Furthermore, merchants had to heavily depend upon smartphone for their transactions (for their business buying behaviors). Mobile wallets like Paytm are available only on smart phones, and smoothness of the transaction was dependent on the configuration and performance of the smart phone. There should be mechanisms to make affordable systems available to small merchants to expedite CTS. There were many instances where merchants complained about 2 % charges on card transactions. Also, they mentioned that customers were not cooperative, and they were not ready to pay the charges, for which merchants were disinterested to follow CTS. Customers’ unawareness on CTS was one of the biggest hiccups for not using CTS by merchants. Not only that, there were cases where even merchants were not aware of usage of swiping machine and other CTS methods. Many a times swipe machine users complained that the swiping machines were stuck or malfunctioned. These kind of hardware issues should be minimized, at least at the stage when the nation is trying to go cashless. Can we improve the quality of the swiping machines? Can small merchants avail high functioning swipe machines at affordable prices? The malfunctioning of swipe machine may not be a hardware issue, it may result from poor bandwidth. So, all these issues should be addressed in tandem.

Unlike the merchant’s, only 38 percent customers adopted CTS. Even for customers the CTS Implementation cost did not affect CTS adoption. About 76.8% of the non-adopter customers perceived that they don’t need CTS for transactions. Like merchants, there were two sub-group of customers who did not adopt CTS methods, one, technology antagonist, and two, technology ignorant. These two sub-groups were found different across four factors, i.e. unawareness, pessimism, investment and risk averseness. ‘Technology antagonist’ customers were found to be high on pessimism and Investment. They exhibited characteristics of negative perception associated with technology. They were conservative in terms of investing money assuming that more resources would be required to adopt technology. This sub-group required a strong intervention for persuasion and confidence building. Winning trust is the key to get ‘technology antagonist’ customers in to the CTS modes. The other sub-group was found to be high on unawareness and risk averseness. It exhibited characteristics of ignorance towards technology. This sub-group contained the characteristics of avoiding risk by being late adopter. This sub-group requires massive and impactful awareness programmes. Like the merchants, the non-adopter customers also cited issues pertaining to safety & security, network/internet connections, incomplete & delay transactions, smartphone issues, and usage charges. It may be noted that CTS is a method that connects the customers with the merchants. To make the CTS successful, the customer as well as the merchant must follow CTS methods. Policy interventions for CTS usage should address the customers and the merchants in conjunction.

There were success stories of CTS adoption noticed in small cities of Telangana. Merchants adopted CTS for three reasons, i.e. CTS benefits, CTS user friendliness, and CTS business imperatives. It was observed that the CTS adoption led to increased sales. Also, it positively impacted on cost & time saving. Some merchants found CTS user friendly. The CTS devices were easy to use, and learn, and also making the payment was hassle-free. Few other merchants adopted CTS because their business partners and customers followed the CTS methods. One significant take away from this study is “if customers follow CTS then the merchants will be encouraged (or compelled) to follow CTS”. Furthermore, merchants found CTS methods as methods of easy transactions. They realized that buying and selling can happen without physical cash. Therefore, hassles of carrying more cash was avoided. Merchants found that the CTS money was easily transferred to banks. CTS also avoided few issues of the customers of the merchants. Customers can avoid going to bank or ATM to withdraw money (which costs them time and money) for a purchase. Also, the CTS methods eased out the problem of exact payment. Merchants were happy because their customers did not get enough opportunities to say “we don’t have the change currency to pay”. The CTS methods were helpful for internal accounting purposes for the merchants since CTS has inbuilt money transaction recordings. Some merchants were of the view that CTS was a safe method since it resolved the fake currency problem and lessened problems associated with cash money (theft or misplacement or loses, tearing of currency notes, etc.).

CTS was a time saving method and it significantly reduced the customer waiting time. The reasons behind adoption of CTS of customers were not much different from those of merchants. Customers, who adopted CTS, were found happier for quick and safer transactions. Customers did not require to carry cash for a purchase, hence avoided issues like theft or loss of cash money. CTS adoption authenticated the receipt of the payment made by the customer. Apart from that the CTS allowed the customers to purchase from anywhere, may be from home, office, etc.

Research Team

Dr. Sriharsha Reddy

Dr. Debadutta Kumar Panda

Dr. Sridhar Vaithianathan