After GST, demonetisation, Covid, here’s what India truly needs to enable digital payments among MSMEs

Technology for MSMEs: The Micro, Small, and Medium Enterprise (MSME) sector is considered the backbone of the Indian Economy. It is extremely vital for the growth of the economy as it not only contributes significantly to our economy but also employees a valuable chunk of the population. The Union Minister of MSME, Nitin Gadkari had stated that the MSME sector contributes nearly 30 per cent to Gross Domestic Product (GDP) and export from it is 48 per cent. It comes as no surprise that the recent events namely the implementation of GST and demonetisation had a significant impact on this sector. The implementation of GST unified close to 17 taxes into one, thereby simplifying the entire taxation process and streamlining this unorganised sector. It has enabled MSMEs to channelize their resources more productively. Similarly, demonetisation brought many MSMEs under the umbrella of digital India and reduced the sole reliance on private finance options to seek credit. Many Banks and Fintech platforms are now offering digital banking and payment solutions that have empowered MSMEs by making their processes more transparent and efficient.

Covid-19 pandemic which has had an unprecedented impact on economies, globally, has largely increased the adoption of digital payments among MSMEs in India. Due to the Government’s push and consumer’s apprehension towards the usage of cash, digital modes gained momentum. With digital payments, these organisations have been able to ensure timely payments, optimisation of resources, and streamlining of operations. The ‘Indian MSME Impact Report, 2019’ by Instamojo stated that 20 per cent of MSMEs saw value from customer preference for digital payment technology, data security, and synchronization. Despite the encouraging initiatives and an increase in digital adoption, MSMEs are yet to realise their full potential. There are various challenges that persist and need to be overcome by the MSMEs:

Digital Awareness

For a new trend to encompass any sector, it is imperative that the stakeholders are completely aware of its benefits. The government and regulatory bodies such as RBI & NPCI have made great strides in offering digital benefits to MSMEs. However, many MSMEs have not digitised as they lack resources and the right solutions or incentives and are not completely aware of the value such solutions provide. To address this, many banks and payment players are taking initiative to educate merchants. However, to bring about the next wave of growth in MSMEs, these efforts need to percolate deeper into Indian geographies, especially in Tier-III and IV markets.

EMI and Digital Credit

To bring more merchants under the umbrella for digital India, financial aid is of paramount importance; especially for MSMEs. There are many merchants who want to go digital, but the lack of infrastructure prevents them. Also, there is a perceived high cost to digitisation which makes them apprehensive to make the switch from physical to digital or even ‘phygital’. To tackle this, it is important to have policies that offer financial aid to merchants with easy repayment options. Recently, a well-known digital wallet player announced that it will offer collateral-free loans of up to Rs 5,00,000 at a low-interest rate to MSMEs. Also, features like the pay-per-use model can further encourage small Kirana store owners to adopt digitalisation.

Strong, safe, and secure infrastructure

It goes without saying that for increasing digital transactions, there must be a strong and robust infrastructure that can support the processing of seamless transactions without compromising on data security. Recently, there have been frequent digital outages with leading banks and payment providers. In November, Peer-to-merchant (P2M) transactions contributed to 40 per cent of the overall transactions of about 885.55 million transactions. Such a stupendous surge requires a strong infrastructure to support it and build confidence among smaller merchants. Data breach incidents and payment frauds create a strong sense of urgency for banks to ensure that the Maximum Tolerable Period of Disruption (MTPD) is not exceeded.

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The lockdown has made many MSMEs go digital and hence any loophole in the ecosystem will make them susceptible to attacks. According to Kaspersky, 48 per cent of small businesses witnessed data breaches in 2019. Additionally, in its cybersecurity predictions for India, Kaspersky stated that with the growing digital economy cyber frauds are likely to continue in 2021 as well. Another report points out that 60 per cent of all cyber-attacks are aimed at MSMEs, and of these companies, 60 per cent never recover from it. Such incidents create a sense of panic among businesses and it becomes imperative to come up with solutions that reinstate their confidence in using digital payments.

In addition to fraud prevention, it is equally important to invest in cyber defense solutions. Banks, payments networks, and fintech players are ramping up their platforms to offer a safer and more secure experience to their users. Such benefits need to be communicated to the MSMEs across sectors as a part of bundled solutions.

Value-added services

One of the many ways of enhancing digital penetration is offering value-added services. With smartphones and the advent of payment platforms like BHIM UPI and QR, more customers are opting for digital payments, providing MSMEs a great opportunity to increase their business avenues by the means of value-added services. Looking at the current scenario, customers prefer retailers who offer additional services along with digital payments. Hence, solutions such as loyalty programs, easy EMI facilities, billing payments, etc, should be extended to merchants as it can help expand their business horizons especially in challenging times like these and create a strong sense of brand loyalty. For instance, merchants with Ongo POS terminals can now choose to offer instant motor insurance to their customer base in addition to offering other utility features.

It is equally important to build a sense of confidence among merchants and consumers, in digital transactions taking place at an outlet. For the same, any exception in transactions should be handled swiftly and transparently. Value-added services such as Paytrack can help merchants verify an entire cycle of transactions on the PoS terminal or on the app. Here, the merchant can verify a transaction status on the portal/app in addition to the PoS terminal and view any dispute logged in by the customer. Such solutions go a long way in building a sense of trust and credibility among both – customers and merchants.

Co-branded initiatives

Once a merchant is educated and brought under the ambit of digitalisation, it is imperative that communication is also sent to its customer. While word of mouth continues to be the means of communication for small or medium-sized merchants, various Banks & payment players must work in tandem with their merchants to benefit the overall ecosystem. For instance, American Express’ ongoing ‘Shop small’ campaign is an initiative that aims to increase footfall at shops affected by the Pandemic. Amex with its partner payment companies like Ongo, is offering lucrative cashback to existing Amex users which in turn benefits the merchants. Such initiatives will go a long way in encouraging merchants to opt for digital options and help them increase footfall.

In conclusion, for financial inclusion to be achieved, it is important that MSMEs are not left behind in the race for ‘digitisation’. There are initiatives and policies in place that can benefit the small & medium-sized merchants, but to ensure that the entire ecosystem benefits from it, every stakeholder – whether a bank or a payment player, must play its role.

Ravi B. Goyal is Chairman & MD of AGS Transact Technologies Ltd. Views expressed are the author’s own.