Merchant perspectives on the BHIM experience


Since its introduction in August 2016, the Unified Payments Interface (UPI) has been a game changer for the digital payments ecosystem in India. The interface allows bank customers to make payments to another bank account on a real-time basis using the Immediate Payment Service (IMPS). The National Payments Corporation of India’s BHIM application, which is based on the UPI interface, was one of the first few UPI applications to gain traction among users. As part of its Digital Payments Lab in Jaipur, Catalyst piloted a merchant-centric UPI awareness and adoption campaign in a market cluster of nearly 400 retail outlets, Barkat Nagar, surrounded by a dense residential locality. The objective of the campaign was to enable merchants to accept payments via UPI-enabled applications at the point of sale, using Quick Response (QR) code stickers. It also endeavoured to test the suitability of the QR-based UPI solution for small merchants, and analyse the role of financial incentives and handholding models as an intervention to boost adoption and use by merchants and customers.

A follow-up survey was conducted four months after the campaign’s launch, to garner feedback from a sample of users as well as non-adopters.

This note discusses learnings and insights from Catalyst’s pilot UPI awareness and activation campaign, followed by insights from the feedback survey that was conducted in March 2018. It provides an analytical perspective on the features that work in favour of BHIM, and barriers to its wider adoption and use. From a use perspective, insights suggest that the BHIM application faces stiff competition from other UPI applications and payment platforms in the market. The authors make a case for reorienting BHIM as an ‘ecosystem enabler’ and propose two strategies to this end.


The Bharat Interface for Money (BHIM), a mobile application launched by NPCI in 2016, allows users to make account-to-account transfers using the Unified Payments Interface (UPI). Launched by the Government of India on the back of the withdrawal of legal tender of bank notes in denominations of Rs.500 and Rs.1000, BHIM was an integral constituent of the push towards a less cash ecosystem in the country. A nation-wide awareness and marketing campaign conducted at the time of the launch of the application, followed by promotional schemes for merchants and customers, translated into 19 million downloads between December 2016 and March 2017. Moreover, BHIM has been successful in generating mass awareness about a new interface (UPI), and spurring the creation of a UPI app ecosystem with nearly 40 applications in the market todayBHIM UPI users have the option to make payments using a virtual payment address (VPA) or by scanning a Quick Response (QR) code. As a form factor, the QR code is easy to use, and offers a user experience that is closer to cash as compared to other payment solutions such as cards. Once the QR code has been generated using the BHIM application, the merchant has to simply display the code at a prominent location in his/her establishment, and the customer can scan and pay on the go. In countries such as China, QR codes are playing an important role in building last-mile acceptance for proximity payments even among low-income merchant segments. As of 2016, a third of the mobile payments done through WeChat and Alipay combined ($ 7.9 tn.) were using QR codes.


In October 2017, Catalyst implemented a pilot project to assess the suitability of UPI as a payment solution for small retail merchants and test the role of financial incentives in driving adoption and sustained use. The project tested the suitability of two UPI-enabled applications– NPCI’s BHIM UPI and Flipkart’s PhonePe.

Barkat Nagar in Jaipur was chosen for this survey because it is a major mixed-use market that is surrounded by a dense residential colony. It is frequented by a younger demographic that may be more amenable to digital payments adoption. Moreover, there is a fair penetration of prepaid digital wallets among merchants in the market which indicates a certain level of pre-existing digital payment awareness and familiarity.

The pilot campaign was conducted in partnership with NPCI and PhonePe and they provided the data for transactions on the respective platforms. It comprised of the following phases:


A 10-day awareness campaign to emphasize the benefits and ease of using QR-based digital payments was conducted in the market cluster using a combination of feet-on-street activities and kiosks that were set up in various locations inside the market, with support from the local market association. Learnings from a prior experiment conducted by Catalyst in the same market suggest that door-to-door marketing campaigns and kiosks across prominent locations in the market prove successful in garnering merchant interest. Moreover, proprietors of small retail businesses are typically strapped for time and manpower, and may find it challenging to step away from the store to participate in awareness campaigns. Drawing on this insight, multiple touch points were used to reach out to small merchants and consumers in the market and its vicinity, with the assumption that these activities would create awareness among a critical mass of people and spur two-sided network effects of payments.

Nearly 40,000 flyers were circulated in Barkat Nagar through newspapers, an additional 15,000 flyers were distributed through kiosks in the market, and 5,000 flyers were distributed by merchants to their customers. To improve the effectiveness of the awareness campaign, the information was packaged and delivered through collaterals in the local language. It consisted of information on steps to use the QR code to make payments, details about the incentive schemes for merchants and consumers (Table 1) and list of shops that would accept payments through the UPI QR code.


Since the BHIM application and the UPI-based technologies were relatively new in the market at the time, handholding merchants through the onboarding process and assisting them to try the solution at no-cost/ risks formed a key part of the campaign. Merchants who expressed interest in adopting the solution during the outreach campaign were assisted with the onboarding process on BHIM, generation of QR and printouts of QR code stickers. They were also given detailed information regarding the incentive schemes for them as well as consumers and provided with collaterals illustrating steps to pay via QR code.


Since mid-October 2017, month on month data on transactions conducted via BHIM UPI has been tracked for the sample of adopters (69).

Data from NPCI suggests that while UPI transactions in India have seen a consistent rise in volume and value in 2017-18, BHIM’s share in UPI transactions has not seen a concomitant increase. Transaction data shared by NPCI for merchants in our sample for November 2017-February 2018 also suggests that while there was significant interest in adoption at the time of the outreach campaign, it did not translate into high adoption rates and sustained use on a month on month basis. On an average, only 14 out of the 69 merchants (about 20%) of BHIM adopters were using it actively. (A merchant was classified as an active user if he/she had conducted more than five digital transactions for at least two of the four months.)


Feedback from merchants in the first month of the campaign suggested that the minimum threshold of 30 transactions in a month, and 20 unique transactions to avail the financial incentives was relatively high. The initial design of the incentives was modified based on this input – the monthly threshold was reduced to 20 transactions and the criterion of unique transactions was relaxed. Based on usage data for November 2017, the first cohort of winners was awarded the financial incentives at a ceremony conducted in January 2018. To understand the potential factors responsible for the low adoption and usage rates, a follow-up survey was conducted through in-depth interviews with a sample of 25 merchants from those who were targeted as part of the outreach campaign for the intervention. The sample for the follow-up dipstick study included 20 merchants who had adopted BHIM QR and five merchants who did not adopt it, for various reasons. The adopters consisted of a combination of active and inactive users. A merchant was classified as an active user if he/she had conducted more than five digital transactions for at least two months during the study. The 20 adopters consisted of six active users, seven users who reported low to moderate transaction levels, and seven non-users (merchants who were on-boarded to the application but did not undertake any transactions).



i.Seamless transfers between accounts

Merchants acknowledge the convenience of account-to-account transfer offered by BHIM as against the manual/ lagged credit of payments to their bank accounts in the case of prepaid wallets. This played an important role in encouraging trial and adoption of BHIM in the pilot. Nearly 50% of BHIM adopters interviewed in the feedback exercise found the account-to-account transfer facility as a defining feature of the application. It is important to note that merchant’s frame of reference for digital payments mainly consisted of prepaid wallets such as Paytm which did not have the UPI functionality at the time. Thus, in relation to e-wallets such as Paytm, BHIM UPI and PhonePe offered a more seamless payment experience.


The perception of trust associated with an application endorsed by the Government of India, coupled with the nationwide marketing campaign at the time of launch were motivating factors for adoption as well.

This trust may be due to an implicit understanding of it being a “safer” means to pay. 10% of the adopters cited this as a reason for adoption/important feature of BHIM.iii.Handholding to on-board

Feedback from merchants suggests that the extensive handholding and assistance in carrying out actual transactions played an important role in encouraging them to try the technology. More than 30% of the adopters alluded to this in the survey. While such go-to-market models may be difficult to scale across markets, it is important to acknowledge the need to support assisted use of new technologies and solutions among users who are in the early stages of digital payments use and adoption.


Low merchant acceptance of digital payments remains a barrier to widespread adoption of digital payments at the last-mile – nearly 40 million merchants still do not accept any form of digital payments. In our study as well, while merchants exhibited a fair level of awareness and familiarity with digital payment solutions, their share in overall transaction values is not significant. Our study suggests that merchant adoption is motivated by a combination of factors which include reducing on-boarding frictions, incentives such as cashbacks and rewards, and preferences of transacting counterparties such as customers and suppliers. The qualitative survey conducted as part of the project suggests that the following barriers may have played an important role in influencing merchant’s adoption and subsequent use of BHIM:

i.On-boarding frictions

There were some bottlenecks in signing up on the BHIM application, such as:

  • After linking the bank accounts with the application, it asks the user to set a UPI PIN. For that the user is required to put in the last 6 digits of the debit card and the expiry date. Because of this, some merchants who did not have a debit card linked to their current accounts could not on-board on BHIM as they did not want to link their savings account to BHIM.
  • Some merchants also encountered issues in the process of getting the OTP to register on the application.


ii.Stickiness of cash in merchant ecosystem

Although merchants were using apps like Paytm and BHIM for business purposes, the total value of such transactions did not account for a significant proportion of their business operations. Almost 30% of the 25 merchants interviewed revealed that majority of their transactions were in cash, primary reasons being that customers prefer cash and suppliers also had to be paid in cash. The stickiness of cash is also reflected in a study that Catalyst conducted in collaboration with PRICE. In the study, 55% of the non-adopters of digital payments cited lack of customer demand as one of the primary reasons for non-adoption.


iii.Weak Incentive Design

Financial incentives such as cashbacks/referral bonuses offered by other applications (like Paytm) in the market were seen as more lucrative by merchants and customers as compared to the incentives on BHIM, as at the time of the study, incentives on BHIM were significantly lower than other applications. The process for availing rewards/cashbacks from referrals is fairly simple in these applications as well. Moreover, they offer customers the flexibility to use the cashbacks and rewards in multiple ways such as utility bill payments, in-app purchase of goods and services or payments at locations like petrol pumps and movie theatres. Additionally, they offer rewards on mobile recharges, bill payments among other payment use-cases.

The drawback in the initial incentive scheme has been addressed to an extent with NPCI’s announcement of a revised scheme of incentives for on-boarding and use, in April 2018. This includes a cashback of INR 51 for customers successfully completing their first financial transaction, cashbacks of upto INR 750 for users registered as customers, and cashbacks of upto INR 1,000 for users registered as merchants linked with minimum transaction values and volumes.

iv. Low awareness and demand for BHIM in merchant ecosystem

Merchants also reported lack of awareness among customers and subsequent demand from them to pay via BHIM as an important reason for the low use of BHIM. While the revised incentive schemes for BHIM referrals and cash back mentioned above could give a fillip to transactions, low awareness and adoption among customers remain a barrier to sustained use by merchants.

The low demand for BHIM in relation to payment solutions such as e-wallets and other UPI applications may be a function of the first mover advantage that incumbent service providers enjoy in the market. Being early in the market has allowed private payment service providers to establish a wide network of merchants and customers and facilitate easy recall value, which are important determinants of success in a two-sided market like payments. Moreover, entities such as Paytm have invested heavily in online and offline marketing campaigns, which has strengthened brand recall among customers as well as merchants.

v. Limited Use Cases

The limited range of use cases of the BHIM application at the time of its launch, as compared to other digital payment offerings in the market is also an influencing factor. Given the competition in the payments ecosystem, providing differentiated features is important for payment service providers to incentivise users to choose one solution over another.

Our study also reveals that users value such product differentiation significantly. Illustratively, PhonePe and Paytm both have a PPI license and on the one hand allow account-to-account transfer through UPI and on the other, allow the customer to use the PPI balance for making in-app purchases of goods and services from the merchants on-boarded on the platform. Additionally, they provide options to make bill payments and mobile recharges, among other facilities. Until recently, BHIM was primarily a conduit for account-to-account transfer and has been upgraded to include a bill payments feature as well.


In a move to spur greater adoption of UPI and facilitate recall value among users, all bank-led UPI applications in the market have been rebranded with the prefix ‘BHIM UPI’.15 This implies a change in nomenclature at the front-end of these applications (e.g. BHIM SBI Pay/BHIM Axis Pay), while they continue to operate on the UPI interface. Thus, on one hand, the BHIM application is a platform that enables merchants and customers to make UPI-based payments, and on the other hand, it has been positioned as a larger entity which is synonymous with the UPI interface.

In light of these developments in the larger BHIM/UPI ecosystem, and the demand-side constraints in scaling the BHIM application articulated above16, there is a strong case for reimagining BHIM as an ecosystem enabler – beyond its role as a payments application.

This proposition is based on a combination of factors which suggest that BHIM is uniquely placed to play such a role in the ecosystem. These include the large volumes of transactional data available on the platform which can be opened up to further innovation through secure APIs, promoter NPCI’s organic linkages with banks and complementarities of value added services with payments. We make a case for two ways in which the BHIM ecosystem can be creatively reimagined below.


Presently, 92 banks are live on BHIM and it has recorded 58.16 million transactions in 2018. Further, the BHIM mobile application has been downloaded on 28.9 million devices, meaning that it contains data about consumer and merchant transactions. This data can be accessed by developers (in compliance with best practices to safeguard users’ data privacy), financial services providers and other Fintech companies for building “Over the Top” applications and complimentary products that may be offered within the BHIM app interface. Enabling secure access to data aggregated on BHIM can facilitate innovation by financial institutions, Fintech companies and other stakeholders who can utilise this information to develop customised financial service products.

This kind of integration, with BHIM acting as an aggregator for merchant-centric products, can play a role in bridging the credit gaps for the MSME segment. Another potential use-case is for the BHIM app to offer an insurance products marketplace and facilitate access to insurance products to merchants that operate these small businesses.

Under the extant regulatory framework, offering insurance aggregator services requires an entity to be licensed by the IRDA. Symmetrically, offering financial products like Mutual Funds requires the entity to retain a distributor license from SEBI. Since NPCI, the promoter and operator of BHIM, is a Section 8 Company incorporated with the objective to set up and implement retail payment systems in the country, the aforementioned proposal will require regulatory concessions from the relevant regulators

Given the socially beneficial impact of reorienting BHIM as an online marketplace for complimentary financial products, there is a compelling case for the NPCI to partner with the Ministry of Electronics and Information Technology and the Ministry of Finance to work with the concerned regulators to obtain these regulatory concessions. NPCI’s role as the umbrella retail payments organization in India and the fact that it is already a regulated entity under the Reserve Bank of India’s jurisdiction bolsters the case.

The potential illustrative workflow of such an offering is:

  1. In addition to the ‘Send’, ‘Request’ and ‘Scan and Pay’ option, the application Home Page offers a section titled ‘Other Services’
  2. Contained within ‘Other Services’ is a “catalog” that offers a host of financial products and services including credit, insurance (even potentially mutual funds).
  3. Here the merchant can view, and compare, the products offered by banks, insurance companies and AMCs
  4. The merchant can then click through to initiate the purchase of the product/service.

Policy related to small business credit could be amended to create high powered incentives for banks to originate credit from leads generated on the BHIM application. Though these high powered incentives could be delivered through several channels, we suggest a ranking system monitored by a government think-tank like Niti Aayog linked to the volume of credit that banks originate through the leads generated on BHIM.


In addition to efforts to popularise BHIM among merchants using cashback schemes, providing value-added services such as a ‘khaata’ feature can enhance its utility to merchants. A ‘khaata’, colloquially, is a ledger kept by businesses to record sale and purchase transactions. With BHIM increasing the convenience in collecting payments for merchants, additional value can be unlocked by incorporating a dashboard for a ‘digital khaata’ in the platform. A “digital khaata” would record the business transactions paid through BHIM as “sales” and “purchase”. This would entail easy reconciliation and more efficient management of business operations. For instance, it may allow merchants to track supplier payments and send payment requests, and get paid seamlessly through the app. This khaata may also be used to undertake customer analytics for the merchants to generate insights on what could drive business for them. Illustratively, insights on sales trends can help the merchant design better sales strategies and map loyal customers. Conversely, purchase trends may yield data which aids the merchants in better inventory management.

BHIM can also be repurposed as a platform for business to business interaction. Illustratively, a merchant may design and market customised, time bound offerings for its clients via BHIM. Doing this would significantly expedite business communication and allow merchants to instantly accept and pay for such offers.

A potential target group for the testing of such a solution can be found in India’s vast network of small retail businesses. These businesses enjoy a regular local clientele from neighbouring residential and commercial areas and maintain physical registers. The analytics component of this digital khaata solution can help these small businesses design customer loyalty programs, and keep track of bills and payments due to distributors.

It is of importance to acknowledge that this solution may only be applicable to businesses which may not find it feasible to invest in ERP solutions to manage their business operations.


Insights from Catalyst’s small merchant UPI activation project and feedback from ongoing monitoring and evaluation suggest that providing seamless account-to-account transfers alone may not be enough to incentivise widespread adoption and use of the BHIM app. While the revised scheme of incentives for BHIM use now places it at par with the incentives offered by other players in the space, and selected features such as utility bill payments have been added to the application, it continues to face stiff competition from UPI-enabled applications that offer multiple use cases, enjoy first-mover advantage and a strong brand recall. Strategies to promote further adoption and use of the BHIM application need to weigh potential gains in relation to these factors. The focus must instead shift on leveraging the application to test scalable use cases that can spur widespread adoption by merchant and consumers, and create an enabling ecosystem for service providers to innovate.

TECHNICAL WRITERS: Mandar Kagade, Janak Priyani, Diksha Singh and Raghav Katyal.

ACKNOWLEDGEMENTS:The authors would like to thank Kanika Joshi, Darshan Singh and Anil Kumar Pandey for their support in data collection and analysis.

Catalyst’s digital payment journey in jaipur first stop – Barkat Nagar

Digital payments uptake by small merchants is a stepping stone to broaden financial inclusion. Integrating these small merchants into the digital payment eco-system is an imperative need and critical element to realise the vision of a cash-light economy.

Catalyst has established a Digital Payment Lab in Jaipur to formulate experiments, learn through an iterative process to institutionalize scalable and demonstrable templates for large-scale implementations. Catalyst organised a �Digital Payment Shivir� in one of Jaipur�s bustling market – Barkat Nagar, to handhold merchants into initiating a digital payment value-chain. The open-to-all camp is one of the first experiments of the Digital Payment Lab that endeavored towards educating, facilitating, onboarding small merchants and low-income consumers into the digital payment eco-system

The experiment kick started with a week of feet-on-street activities, shop-to-shop campaign to educate and understand merchant�s solution choice and culminated in a 3 day long camp (Shivir), at the main market area at Barkat Nagar.

One of the key objectives of the camp was to evaluate the most viable, suitable solution out of the varied options available for the fixed store merchant segments and importantly, to also analyze the intrinsic barriers to adoption. Catalyst�s formal agreement with the Government of Rajasthan and their formidable support significantly helped the efforts of this experiment in building strategic partnerships with Digital payment solution partners & banks such as EPaisa, FTCash and AxisBank.


Major market in Jaipur that stretches to about 1.5kms with pre-dominant presence of specialised stores dealing in apparel, general and books with presence of 600+ merchants

Majority of the population is engaged in business or service and predominant income digitised, thereby breeding digital payment familiarity

Strong youth presence in the area with a presence of around 20 schools, 6 colleges and 15 coaching centres in the vicinity; make for ambassadors to promote digital payments

Fair penetration of wallets by merchants indicating pre-existing digital payment awareness and familiarity

Surrounding residential area with approx. 6000 households to tap on consumer literacy needs


The month-long merchant camp that kicked off in mid-March camp comprised of 4 key milestones, encompassing preparation, execution and post-camp learning activities.

Shared Lead Generation (Catalyst)

  • Training on in-scope digital payment solutions to Catalyst�s field staff
  • Shop-to-shop awareness across appx 400+ stores for interest assessment and survey
  • Opportunity for self-selection of solutions based on a solutions-to-features comparison matrix
  • Leads consolidated

and handed over to Solution Partners

3-day market Campaign (Solution partners & Chai Chowkis)

  • 3-day intense awareness drive through Solution partners� fixed kiosks at Barkat Nagar�s library
  • Chai-chowki beats across market streets to increase camp awareness
  • Solution partner�s feet-on-the-street team engaged in pursuing leads handed over by Catalyst
  • Assisting on-the spot on-boarding/sign-up and activation*
    (*for specific solutions)

Leads follow-up & conversions (Solution Partners)

  • Pursue activation of solution post sign-up (subject to KYC clearance)
  • Close �post-camp� pending and open-leads
  • Addressing activation related grievances and solution trouble-shooting

Post decision interviews (Catalyst)

  • Feedback from adopters & non-adopters
  • Inputs from Solution partners
  • Analyse adoption and usage behaviour

Local enablement support which proved crucial for driving adoption

  • Catalyst and GoR�s partnership derived a �brand� for the merchant camp which sought trust and credibility from merchants
  • A solution-wise feature and price comparison matrix presented to the merchant during lead generation enabled self-selection of solutions
  • Support from local market association and mediation increased the participation from merchants entrusting value in the initiative
  • Shared lead generation activity optimised feet-on-the-street engagement for solution partners and provided them focussed channels to pursue adoption
Payment Service Providers at the camp: EPaisa, FTCash, BHIM, Axis Bank NBFC Partners at the camp (in partnership with Solution Providers): Indifi, Capital Float


*published as of March 2017

Supporting collateral of the comparison matrix below was shared with each merchant as part of the lead generation exercise to empower their decision making in choosing a solution that best meets their business requirements and comfort on total cost of ownership. A walk-through of this table by the field staff to the merchants helped streamline their choice and indicate targeted exploration of solutions at the 3-day camp.


The main aim of the experiment was to gauge merchant interest in adoption & acceptance of digital payment solutions and provide them an opportunity to self-select solutions based on their business needs through a shared lead-generation model. The intent of the experiment was to also evaluate if shared lead-generation and acquisition was an optimal, effective and scalable �go-to-market� model.

Catalyst�s field staff canvassed the lead generation exercise through 422 merchants out of 600 in the Adarsh Nagar market area (the remaining were dormant or non-existing businesses). Merchants were briefed about the proposed 3-day �Shivir� that was lined up and how their businesses could benefit by increasing their digital payment acceptance. Supporting collateral such as brochures on digital payment types, benefits, solution features versus pricing comparison notes and a letter of encouragement from the local market association head drove higher interest and response rate from the merchants

For mPoS solution:

  • Customer demand largely influenced adoption
  • Lower cost of trial when compared to traditional PoS triggered interest in trialability
  • Ease of use of the solution was an influencer

For web-link solution:

  • Was an attractive option with no upfront/sign-up cost and was adopted by merchants who were willing to experiment digital payment solutions and evaluate its

Reasons for non-adoption:

  • Lack of consumer demand to pay digitally
  • The market sees a higher ratio of consumer preference to pay cash at the point-of-sale
  • Merchant�s unwillingness to bear upfront cost, thereby reducing his opportunity for trial and experience

Reasons for low solution activity:

  • Less than one-month period post activation of the solution at the point of sale
  • Certain app-centric solutions required re-training for merchants to gather familiarity
  • The transaction time taken for web/link based solution was inconvenient to merchants due to the time taken to complete the transaction

Data insights from the lead generation exercise indicated that those merchants who had experience/ exposure to digital payment solutions before showed higher interest to explore other market solutions. Similarly, post-camp insights indicated that the adoption numbers of merchants with pre-existing digital payment solutions was twice as compared to the merchants who were new to the concept.

A post-camp activity was conducted on sampled merchants to validate reasoning behind adoption or non-adoption of the solution. The insights indicated that the adoption of mPoS solution was largely driven by customer demand, as the merchant experienced a footfall of consumers who were keen to pay by card. Merchants were also open to trialability for solutions as there was no upfront cost invovled. The key reasons for non-adoption underlined the fact that customers who made purchases were habituated to pay cash and a targetted behavioral shift experiment can help assess the change in payment behavior and evaluate the prudence for sustained usage.


BHIM, a UPI-based solution that promotes instant bank-to-bank transfer was exhibited at the camp to spread awareness about UPI payments and their benefits. A chai-chowki (tea-cart) was stationed at a strategic point at the market-place which gathered the curiosity of merchants, provided demonstration to activate and initiate a payment transaction to increase familiarity. The 3-day camp gathered a total footfall of about 86 merchants and were assisted in on-boarding and activation.While there was ample interest in solution adoption as it is cost-free for a peer-to-peer transaction, only 70% of the merchants attempted to activate themselves on the BHIM App with eagerness to transact of which more than half of them (28 merchants of 86) were successfully on-boarded and ready to transact. A large set of registrations/ activations failed since mobile numbers were not linked to bank accounts and the remaining faced debit card issues such as not carrying debit card and unawareness of expiry date details.

Following the merchant camp, a wave of feedback was conducted with sampled merchants who adopted BHIM to analyse their reasons for adopting BHIM and to assess their current transaction activity. The survey indicated the key reasons for adoption of BHIM was the zero set-up or transaction cost and ease-of-use of the solution. The merchants however indicated that the awareness of UPI amongst consumers was low, thereby creating lack of customer demand at the point of sale.


Adoption, Solution Usage data and post-camp feedback from both the adopter and non-adopter merchants led to some actionable insights. These learnings were categorised under:

Solution & Business Model Relevancy to address which were the right solutions that suited the relevant merchant business/segment

Go-to-Market Model to define the most optimal and effective way of reaching out to small merchant community that can be scaled-up for wider implementation

Drivers for Sustained Usage that will aim to refer to factors that influence sustain or regular use of digital payment solutions thereby helping the transition to a cash-light eco-system

These learnings have been mapped to Implications for action highlighting the upcoming opportunities for study and experiments on-the-ground for the team, emphasising the overall merchant behaviour and acceptance towards digital payment solutions.


  • Zero sign up cost and low/ zero monthly rental critical influencer for signup
  • Small merchant unwilling to pay additional for value-add features (e.g. billing, inventory, analytics) for initial adoption
  • Provide payment solution as per merchant needs without focusing on value added services initially
  • Prioritize solutions with zero signup and low monthly rental
  • Test pilot pricing models


  • Digital payment and solution information useful for merchant
  • Government and local market association support built trust in merchants
  • Shop-to-shop campaign & shared lead generation for mid-low income market generated conversions in-line with mid market benchmark (~10%) but it is not a scalable model
  • Evaluate information dissemination and lead generation through automated IVRS and e-Mitra enabling cost effective scalable model and leveraging local trust and community proximity


  • Customer demand and solution awareness important for drivingusage
  • Preference of cash embedded strongly in merchant and consumer
  • Trialability important for merchant to build sustained adoption and usage
  • Solution applicability and ease of use
  • Enable trialability for merchants through zero adoption cost supported simultaneously by incentives for merchants and consumers to drive usage
  • Drive significant adoption and usage within a geography to drive network effect
  • Assess a model with merchants as change agents to influence & drive consumer usage

As a culmination to the first pilot in Jaipur, data insights and learnings from the digital payments lab indicate that small merchants are largely appealed by digital payment solutions that have minimum or no cost and attest solution simplicity for acceptance & adoption. The inferences highlight the criticality of increasing consumer awareness of digital payment acceptance at merchant stores alongside the need to devise methods to influence behavioural shift of consumers from cash to digital. Catalyst proposes to roll-out deep dive studies and pilot to address these challenges and stimulate & analyse sustenance measures for merchant acceptance and consumer usage towards digital payments.

Decoding Jaipur’s Digital Payments Landscape

The last few months have been a watershed for the digital payments space in India. With concerted efforts from the government, as well as businesses, the landscape has seen some tectonic developments. From mobile wallets to lower cost, interoperable solutions such as UPI, Bharat QR code and Aadhar Pay, more tailor-made solutions to meet specific needs of small businesses and mass consumer segments are now seen on the horizon. Moreover, with the government announcing a budget of Rs. 495 crore to promote digital transactions using BHIM (a UPI enabled app), with a target to catalyze 25 billion digital transactions in the fiscal year ending March 2018, policy and market forces are colluding to promote a less cash economy. However, despite recent advancements, the consumption spends using digital means currently stand at a dismal 51%, making it crucial to investigate the reasons for low solution adoption.

For India to accelerate its progress towards a less cash economy, there is a clear need to deliberate on economic, social and behavioral dependencies that steer the decision of the low-income population to adopt digital transactions. In that context, Catalyst, an initiative to accelerate adoption of digital payments in India, has formed strategic partnerships with research organisations such as People Research on India’s Consumer Economy (PRICE), IFMR LEAD, CEGA and Ideas 42. Bringing in strong research expertise and rich insights to bear on Catalyst initiatives, these partnerships will play a substantive role in guiding Catalyst�s engagements with operational partners to design and implement a range of needs-based payment solutions for the �last mile”. They will help us get a deeper understanding on how merchants and consumers interact with financial tools, what are the barriers and what are the value propositions that induce them to transact digitally

Jaipur, Catalystaic first Digital Payment Lab

Adopting a unique ecosystem approach defined by local geography, Catalyst has operationalized its very first digital payments lab in Jaipur – a tier 2 city with a 3 million plus population, more than 200,000 commercial establishments, and over 75,000 informal establishments including home based and roving businesses. Using new technologies, business models, and institutional innovations, combined with rigorous research evidence, Catalyst aims to build an inclusive digital financial ecosystem in Jaipur – one that is demand-driven, accessible and serves as a foundation for greater financial inclusion. Our goal is to create a template for implementing similar initiatives in other cities.

Before embarking on this challenging journey to transform Jaipur into a less cash economy, we immersed ourselves in the current financial and socio-economic landscape of Jaipur, and particularly focused on understanding merchant perspectives towards digital payments. The Sixth Economic Census conducted in Rajasthan (May-June2013), as well as the �Jaipur Population Profile� study conducted by PRICE, helped us in getting an understanding of the city across various themes, such as income segments, occupational categories, bank penetration, expenditure, saving, investments and use of digital technologies. In addition to providing an overview of the income segments of Jaipur, which is critical for solution design and implementation, the latter also enabled us to assess the digital readiness in communities, looking into different aspects of technology � particularly, access, usage and prevalent infrastructure. Insights from these two studies have underpinned further exploratory initiatives to decode the market dynamics of Jaipur city.



83% of households in Jaipur fall within the income bracket of <= INR 25000, which is Catalyst�s core target population. Casual wage labour, shop owners and grade 4 employees (peon, driver, carpenter etc.) are the 3 key occupational categories, that represent 80% of households in the city.


Irrespective of the income group, cash is the preferred choice for transactions, across categories.


Overall, data indicates low debt penetration in Jaipur city. However, it is important to note that out of the pool of indebted households, most had resorted to informal sources for credit needs. This could indicate barriers for low-income households to secure loans from formal financial institutions.

Source: ICE 360� Survey (2016), PRICE


Source: Sixth Economic Census (2016), CSO


Source: ICE 360� Survey (2016), PRICE


Source: ICE 360� Survey (2016), PRICE


At Catalyst, we believe that the shift from cash to digital, within local economies, is incumbent on transformation of 3 key stakeholders � suppliers, merchants and consumers. Each need to find adequate avenues and incentives for usage of digital payments, creating the need for an approach that focuses on enabling all three forces with requisite payment solutions.

Small merchants, currently with a digital payment penetration of only 6% of the total merchant base in India, serve as an important touchpoint for consumers as well as suppliers. They collectively have immense potential to accelerate the usage and adoption of digital payments. If merchants find transacting digitally beneficial to their businesses and are equipped with need based solutions, they will advocate the use of digital payments to a large consumer base, and also assert the message to suppliers. At the same time, there is a need for coordinated initiatives targeting consumers and suppliers directly, thereby integrating the entire value chain into a digital payment ecosystem

Recognising the central role of merchants in transforming a city into a less-cash economy, Catalyst�s first step towards understanding the current trends of digital payments in Jaipur was to interact closely with the small merchants of the city. In doing so, Catalyst partnered IFMR LEAD to conduct an observational survey of 30 markets in Jaipur, out of which 10 markets were selected based on criteria such as presence of low-middle income consumer base, overall size and merchant mix, and current digital payment system penetration. Further, in each market, a random sample covering 25% of the merchant base was surveyed to assess needs and capture merchants� perspective towards adopting and accepting digital payments from their consumers.


Low digital payment penetration

To get a comprehensive sense of the current extent of digital penetration in Jaipur city, the study looked at trends in the tourist-centric markets within the walled area of the city, and general residential consumer-centric markets outside the walled area. It is surprising to note that despite having the enabling infrastructure, merchants within the walled city, who primarily cater to tourists, display digital penetration of as low as 11.6%. In contrast, digital payment penetration outside the walled city stands at 20.7%. Overall, penetration of digital payments among merchants in Jaipur, across 10 major markets, is 17%.

Optimistic figures on availability of enabling infrastructure

The study identified power supply, phone network connectivity and access to Internet, as significant factors that affect the digital payment penetration in markets. The numbers on most parameters are encouraging to accelerate usage of digital payments in Jaipur markets. However, a possible roadblock we should take cognizance of is the low penetration of Internet among the merchant base, with only 51% reporting access. This further becomes relevant, as the analysis brought forth high dependence on Internet access for merchants to adopt digital payment methods. Access to Internet increases the probability of going digital by 2.5 times.

Among merchants with Internet access, mobile phones are predominantly used to access the Internet in the business.

57% of merchants use smartphones. Further indicating opportunities to push mobile payment solutions, such as UPI enabled apps.

Needs Assessment Study (2017)

Number of ATMs in the market area, positively correlate with digital payment penetration

In addition to the dependence on other infrastructural support, high presence of ATMs in a market came to fore as an important contributor to digital payment penetration in that area. This supports the premise that greater access to Cash-in/Cash-out points in a market increases digital payment uptake and usage in that area.

Source: Catalyst-IFMR LEAD, Jaipur

overall, jaipur boasts of high penetration of bank accounts within its merchant base.
however, in terms of active usage of bank account by merchants, and linkage of bank accounts with smartphones, the figures are comparatively low in most markets.

Our study indicated that merchants� readiness to adopt and use digital payments significantly depends on them having a bank account, its linkage to a mobile phone, and the linkage of the account with the merchant�s Aadhaar number. Moreover, an active bank account adds to the probability of a merchant�s willingness to adopt digital payments.

Source: Catalyst-IFMR LEAD, Jaipur Needs Assessment Study (2017)

Probability of using digital payment systems increases by 25 times if the merchant is an active bank account user



Mobile and POS machines are the most widely used digital payment solutions in Jaipur markets. Further, in terms of usage, on an average, a POS machine is used 6.58 times in a day, and Mobile wallets reported usage of 3.28 times a day.



Customer retention, Convenience of transactions

Mobile Wallets

Convenience of keeping records, Lesser risk perception with instant credit to wallets



  • Type of product/service that caters to a broader consumer mix or has a higher ticket size resulting in more consumer demand to pay digitally?
  • Greater ability to defray explicit transaction costs associated with digital payments?
  • Lower transaction frequency and longer transaction times which are more congenial for digital payment experiences?

Source: Catalyst-IFMR LEAD, Jaipur Needs Assessment Study (2017)


Digital Merchants vs Non-digital Merchants

While there isn�t much difference in the overall sales, profit margins vary significantly between digital and non-digital merchants.

Source: Catalyst-IFMR LEAD, Jaipur Needs Assessment Study (2017)


Cash, still the king of markets!

83% customers of merchants, who currently accept digital payments, prefer transacting using cash. Therefore, significant proportion of customers demanding to pay by cash works as one of the key factors driving merchants to discontinue using digital payments.

Cost optimizations, not cited as reasons for discontinuing usage of digital systems.

Lack of technical support

One of the key obstacles for sustained usage of digital payments by merchants is a lack of awareness on how to report problems merchants encounter while using various digital payment solutions. This highlights the need for more handholding by solution providers, as well as indicates a need to set up robust grievance reddresal mechanisms

Technical support required by merchants

Source: Catalyst-IFMR LEAD, Jaipur Needs Assessment Study (2017)



  • Lack of awareness
    Of the 539 merchants surveyed, who have not used any digital payment solutions in their businesses, 49% reported a lack of awareness on how to access and use digital payment systems
  • Low customer preference
    26% of merchants stated low customer preference to transact digitally
  • Don�t see the need for digital payments
    24% of merchants reported not seeing the need to transact using digital payment modes. This perhaps re-iterates low consumer demand and low merchant awareness on digital payments

Source: Catalyst-IFMR LEAD, Jaipur Needs Assessment Study (2017)


65% of the merchants expressed the interest in learning about and using digital payment systems.

Through our further interactions we learnt that the most effective means to inform merchants is through traditional forms of mass media (e.g., newspaper, radio, etc.). In addition, merchants prefer information tools that can be accessed at all times, and information methods that do not require them to leave their stores.

Merchants are also seen to actively rely on their social networks for information related to business. They tend to approach family members, friends and peers in neighbouring markets for business advice.

Source: Catalyst-IFMR LEAD, Jaipur Needs Assessment Study (2017)


Increase in Customer Preference

For merchants, �Customer voice� is above any other form of advice, proof, or information relays. Digital payments is no exception to this principle. The study helped us establish that an increase in customers� demand to pay digitally, can play a catalytic role in accelerating adoption of digital payment systems by merchants.

Enhanced Awareness

With close to 50% merchants reporting lack of awareness as the reason for not adopting digital payments, implementing integrated communication programs to enable merchants with requisite knowledge and tools is key to achieving greater adoption. Merchants need to be given information on tangible benefits of accepting digital payments, supported in making informed choices across different solution types, and trained on using solutions chosen. In addition, there is also a need to address merchant apprehensions about security of their money and data, as well as dispel their fear of being cheated. This trust is the cornerstone of new technology adoption.

Attractive Incentives

Tax rebates and rewards offered by the government, as well as the varied types of incentives given by solution providers, are seen as strong influencing factors to drive merchants towards adopting digital payments.

Digital lending for small merchants: the missing road to the last mile


Ninety-three percent of India’s US$670 billion retail market continues to be unorganized, operating through mom-and-pop, kirana or standalone stores.1 According to a recent Boston Consulting GroupConfederation of Indian Industry (BCG-CII) report, this sector is projected to double from a US$1.1-1.2 trillion market by 2020, driven by a 70 percent rise in income levels and a 100 million addition in the number of youth entering the labor force.2 However, despite growth projections, there are several factors that hinder the growth of these informal enterprises which provide livelihood options to nearly 111 million workers,3 thus forming an important engine for India’s economic growth.

The lack of proper infrastructure and technical skills notwithstanding, a pressing factor hindering attainment of scale by informal enterprises is the lack of credit from formal sources at affordable rates of interest. According to an International Finance Corporation (IFC) report, the credit gap for informal enterprises within the Micro, Small and Medium Enterprises (MSME) sector in India was estimated at US$418 billion in 2012-13.4 Underlying the gap in accessing formal credit is the story of missing applicant credit histories or other parameters of credit worthiness used in traditional appraisal processes by lenders.5 Under such circumstances, most enterprises resort to informal lenders, despite the high interest rates charged. Reluctance to adopt digital payments further exacerbates this situation, since it is near impossible to convince lenders of credit worthiness in the face of missing information on credit and other transactional histories. Lack of awareness, low capability and unwillingness to try new technologies for fear of failure are some reasons that contribute to this wariness and create a vicious cycle that has been hard to break.

CATALYST, in its drive to explore the digital readiness of this segment, hypothesized that providing access to a small amount of credit at lower rates could act as a hook for digital payment adoption and usage, which in turn could trigger a positive spiral to access higher amounts of credit. In a preliminary study to understand the financial behavior and borrowing pattern of small businesses, CATALYST conducted a Credit Needs Assessment Survey (CNAS) where 1,140 small fixed store merchants in Jaipur were interviewed in September 2017. The survey showed that 69 percent of the merchants sourced their credit from informal sources such as friends, family and local moneylenders. Merchants expressed dissatisfaction with local moneylenders because they charged an interest rate of over 30 percent per month. But they still tend to prefer informal lenders over formal ones because of ease of access, no requirement of lengthy documentation, and speedy processes.

Armed with these insights, CATALYST launched the Credit as a Hook pilot in Jaipur in June 2018 for a select set of merchants. The pilot aimed to provide incremental loans through a starter-builder model starting with a small loan that would increase based on usage of digital payments, where the payment footprint would help merchants build their formal credit history. CATALYST hypothesized that, for the merchants, this would result in larger loans over a period of time at better rates of interest. For lenders, the presence of a digital footprint would provide the means to underwrite loans better and allow them to acquire new customers (i.e., a set of small merchants that was hitherto unserved by formal financial institutions). The initial pre-assessment survey carried out prior to the product launch, CATALYST’s CNAS report, revealed that 92 percent merchants contacted during the survey was aware of digital payment solutions. Of these, 53.5 percent was interested in availing credit through a digital platform with an expectation of quick processing time.

The first challenge that CATALYST faced was to convince lenders to provide an initial loan, albeit small, in the absence of a digital payment history. Traditionally, the route to access credit has been via an established digital payment footprint because of the inherent difference in the way payment and credit operates. Payment systems work better when more people use them, and therefore are designed to be more inclusive in nature. Credit, on the other hand, is designed to hedge excessive risks, and therefore is harder to establish as the first step to financial inclusion of the underserved market segment with no credit history.

A lending model is predicated on profits from taking calculated risks. So, lenders seek to build strong relationships with their customers and get a broad base of information to calculate the exact underlying risk. On the other hand, payment companies are inherently less dependent on understanding customer risk. Payment businesses therefore tend to be more transactional and less relationship-based than lending ones. The quality or depth of individual customer relationships matters less. Instead, the number and breadth of customers and their networks matter more.6

Understanding these basic functions of payments and credit is critical to exploring how the two can be linked. Technology and access to customer data play a huge role in leveraging the payment and credit lens to achieve financial inclusion.

The CATALYST pilot aimed at precisely this understanding. How can we urge merchants to start using digital solutions, which in turn can help them access credit at better terms?

While the merits of credit are known, research is beginning to show the advantages of digital credit as well. Early evidence from studying M-Shawri7 in Kenya has shown that uptake of digital loans has helped improve household resilience against shocks and increased the propensity of families to spend on welfare activities such as health and education.8 While we have little evidence available from similar experiments in India, we expect the positive benefits would be similar.

We hope that the following results of CATALYST’s Credit as a Hook pilot reveal the opportunities and challenges of launching a digital payment and loan product bundle for underserved informal sector merchants in India.

  1. India’s $670 billion retail market is heading for a dream run, April 16, 2018, Quartz.
  2. Retail Transformation: Changing Your Performance Trajectory, BCG-CII National Retail Summit Report, 2016.
  3. Found: 111 million MSME workers in India as data rules changes, Livemint, November 22, 2017.
  4. MSME Finance Gap, Assessment of the shortfalls and opportunities in financing micro, small and medium enterprises in emerging markets, IFC, 2017.
  5. Research by Entrepreneurial Finance Lab, retrieved from The Hindu Business Line, ‘There is a credit gap of 56% in the MSME sector’, July 2, 2014
  6. Buckley, R. and I.Mas. The coming of age of digital payment as a field of expertise, Journal of Law Technology and Policy, June 2016, Vol.2016.
  7. M-Shwari is a paperless banking service offered through M-Pesa. M-Shwari bank accounts are opened and maintained through mobile phones.
  8. Bharadwaj, P., W. Jack and T. Suri. Can Digital Loans Deliver: Take Up and Impact of Digital Loans in Kenya, 2018 (Working Paper, draft received on special request from T. Suri).


Testing the hypothesis involved bringing together a payment provider and a lender — a role that was played by CATALYST. For the pilot, CATALYST partnered with Nupay, a Point of Sale (PoS) device or card swipe machine provider and an early stage startup, and Capital First, a Non Banking Financial Company (NBFC), which agreed to provide term loans to fixed store merchants in Jaipur. The combination of a payment device and loan was offered as a bundle, with the intention of testing the extent to which credit can act as a ‘hook’ to adopt and use digital payments. This combination was created for the purpose of the pilot alone since lenders are unclear of the risks involved in offering a small amount of credit, no matter how small, before they can establish credit history based on transactions on the device provided. Since the combination of partners was arranged by CATALYST for the pilot, CATALYST also had to provide a set of Feet on Street (FoS) for on-the-ground support to roll out the services. The FoS team, trained by CATALYST, provided support in marketing and customer acquisition.


Product bundle: Capital First and Nupay, a term loan with a card swipe machine

Product bundle details: Capital First (the lender) agreed to provide loans of a ticket size of INR 25,000 to INR 5 lakh at an interest rate of 18 percent to 24 percent annually for a tenure of nine months to 36 months, depending on the ticket size and repayment capacity.

Nupay’s card swipe machine had a monthly rental of INR 350 (~ US$5) plus 18 percent Goods and Service Tax (GST), which was also to be paid by merchants. The lender agreed that merchants would be considered for an incremental loan based on their repayment history observed in the first tranche of the loan, and their digital transaction footprint.


Project roll-out and findings: digital payment adoption vs. non-adoption

During the pilot, CATALYST reached out to 409 fixed store merchants across six major markets in Jaipur (Shastri Nagar, Sodala, Durgapura, Khatirpura, Jhotwara and Bani Park).9 These stores have been in business for an average of 10 years and had a median monthly revenue of INR 45,000. Most stores (99 percent) were owned by men; 87 percent was sole proprietorships while a smaller group (13 percent) was managed jointly with other family members. Sixty-five of them were already using a PoS or a card swipe machine and the remaining 344 merchants were given a demo on using a new PoS machine with the help of CATALYST’s FoS team.

This data set is separate from the earlier CNAS data. With a time lag of eight months, it is often difficult to work with earlier data sets. So, 490 new fixed stores were chosen from six new markets in Jaipur

Key results from the experiment were:

  • There were eight fixed store merchants who had never used a card swipe machine but eventually adopted digital payment solutions after being trained on card swipe usage by the CATALYST FoS team.
  • The primary reason for adoption was that it would allow them to service a broader customer segment that used (debit/credit) cards to make payments. In other words, the ability to serve a specific customer segment that was familiar with digital solutions was a key driver. This would also result in new customer acquisition over a period of time.
  • Among the merchants who refused to use or adopt a PoS machine, the dominant reason for nonadoption was the absence of customer demand (62 percent, Figure 1). These merchants were unwilling to act as enablers to train customers in using a new digital solution. If the customers asked for the service, they were happy to provide it.
  • The remaining 10 percent (Figure 1) reported the inherent cash stickiness of their business as a major deterrent. Another 2 percent (Figure 1) cited the cost of the machine as a major barrier to accepting digital payments.

Note: From top right: existing loan usage, source of loan, purpose of loans and awareness about CIBIL scores of 18 merchants who agreed to reveal information about a prior loan.

While most merchants who were part of the pilot preferred not to share their current loan practices, those who revealed that they had availed a loan (18 out of 409) had done so from a formal source. Fourteen of the 18 were also aware of their credit score (CIBIL) and its related impact on their credit eligibility.

  • Only 18 fixed store merchants (4 percent) with an average monthly revenue of INR 90,000 (double the population median of INR 45,000) reported that they had availed of a loan in the past.
  • The average tenure of the loans was two to three years; 17 merchants sourced the loan from banks and one from a Micro Finance Institution (MFI);
  • The purpose for which loans were taken varied from business expansion (10 merchants), household requirements (four merchants) to health emergencies (one merchant). Utility loans such as for two wheelers (three merchants) formed another major category of reasons for taking loans; and
  • The ticket size of the loans taken by the merchants varied from INR 40,000 to INR 9 lakhs.


Perceived vs. real interest in loan: When offered the bundled product of payment device and credit, 25 merchants showed initial interest solely in accessing the loan during their first interaction with the CATALYST FoS team. However, 24 had changed their minds when the lender’s agent approached them after a week, perhaps because merchants are always interested in understanding options for credit but may not avail of it even if they express an interest initially.

One merchant who agreed to try the combination of a PoS device and loan had a fixed cloth store in Shastri Nagar market. He wanted a loan of INR 1-2 lakhs. Unfortunately, the request was denied since his residence was located outside the serviceable area set by the lender. This fact was discovered after the processing was done, and resulted in a poor customer experience for the merchant.

Why was there a low uptake?

The experiment shows that while there was individual adoption of the card swipe machines, there was little uptake of the bundled product. Technology did seamlessly bind the products together but the communication to merchants was often unclear and did not explain how payment device usage would help them get a loan of higher amount in the future. The reasons this product could not cater to customer expectations or improve customer experience as expected are:

Loan structure: While the lender assured the merchants of a credit-build-up model, the merchants were keen to understand the exact qualifiers for the build-up process, i.e., number and/or value of transactions required to qualify for the next tranche of loans. Additionally, they wanted to know by what percentage the loan amount could grow through increased usage of digital transactions. None of this information was provided to merchants since the lender had not yet thought it through. The product’s value proposition stated in one line by the lender as ‘enhanced loan size for incremental usage of digital payments’ failed to gain the merchants’ trust.

Single interface for credit and digital payments: During the CATALYST pilot, the lending company and the digital payment solution company used two separate applications to onboard customers. For the merchants who saw the two as a single product, it was important for the digital payment solution provider and the lending partner to integrate their solution into one single application for simplicity and usage. The existing process offered poor customer experience because filling out two applications is a time-consuming process.

Large time lags: Loan disbursal followed a lengthy process, i.e., lead generation by field agents (CATALYST FoS team) from an initial interaction, followed by a calling exercise by the credit assessor and then a site verification. This long time period between initial contact and disbursement was a pain point. Additionally, there were delays in disbursing the card swipe machine. Partnering with an early stage startup for PoS machines led to a resource crunch, which resulted in operational delays. The time lag between initial lead generation and delivery of the machine ranged from 15-20 days which was too long a time to retain interest.

High cost of on boarding: The loan offer had a customer onboarding cost plus GST that hiked up the existing rates of interest by 3 to 4 percent so the lending interest rate worked out to be around 30 percent annually. These nuanced details deterred many of the merchants to finally take up the loan despite having shown an initial interest in the loan product.

Short tenure of the pilot: Lastly, one must note that three or four months is too short a time to launch and iterate on a product bundle that includes a loan repayment timeline of nine to 36 months. To understand access and usage of repeat loans, the pilot experiment should essentially be of a much longer tenure.


Need for a local presence: An implementation challenge that needs to be addressed in order to iterate on the pilot experiment and help it succeed is decreasing the time lags between the first point of contact to in-person onboarding with the card swipe machine and the loan. To avoid such operational delays, it is advisable to work with a local company with a greater field presence than with a well-known company based out of another metropolis but with little field support, as was the case during this pilot. Otherwise, the card swipe company/loan company should partner with a channel partner that should be assigned locally to cover the high customer acquisition cost which must be incurred (by default) for wider reach and larger impact among the segment of merchants who are new to digital payment usage.

Lower cost of product: If such loans could get priority sector lending status, obtaining funds would be easier for an NBFC, making access to credit easier and cheaper.

Alternate digital payment solutions: Current credit products are more inclined towards PoS machine uptake and usage. However, given the rise in use of other digital payment modes such as Unified Payments Interface (UPI), e-wallets and other Aadhaar-based solutions could lead to faster and cheaper adoption among merchants.

Simple product structure: As the pilot results suggest, clearly informing the merchants of the exact qualifying factors for incremental loans will help develop higher trust and better customer relationships for a credit-builder model.

Provide digital training and awareness: Multiple field visits and available data on awareness of credit history or usage of digital payments suggest that small fixed store merchants need substantial handholding, training and awareness to understand fundamental financial concepts, the importance of formal loans, and use of credit history. The experiment results suggest that the small merchants would be better off with expert handholding support and training from their first point of contact, as they would be without operational delays. Further, digital training and awareness building must extend to consumers who shop at these merchant locations, since customer demand is a huge driver in merchant acceptance of digital solutions.


Credit can potentially act as a hook for usage of digital solutions, provided the effective costs are lower compared to credit from informal sources, and access is speedier. Merchants also need to be provided information on the clear pathway on increase in credit as they continue using the digital facilities. Lenders and payment service providers must present a unified front and offer a superior customer experience to the merchants. Lastly, acceptance of new payment solutions requires end customers to be sensitized equally

TECHNICAL WRITERS: John Arun and Shubhranka Mondal

ACKNOWLEDGEMENTS: The authors would like to thank Jayshree Venkatesan for her expert advice, and CATALYST’s Feet on Street team, for their ground support



Can hunger for growth lead to early adoption of digital payments?

Praveen Agarwal, a 35-year-old merchant, lives and works in the Sodala neighborhood of Jaipur. Together with his brother, he runs a retail shop that sells bags. Neither uses Paytm, Unified Payments Interface (UPI), PhonePe, Bharat Interface for Money (BHIM) or other popular means of digital payments. Praveen tells us that he had installed Paytm about a year ago on his phone but never had the urge to use it. However, after running a shop for ten years, he invested in a mobile point of sale (mPoS) machine to lure new customers.


Intrigued by this change in behavior, we asked him about the real triggers behind this decision. Praveen says that he had been running a small shop next to his current shop till three months ago. He and his brother used a large part of their savings to move into a bigger shop on the main road. Now, the shop is noticeable in terms of both its size and location.

Praveen says, “Earlier only one or two customers would want to make payments through a credit or debit card. Today, with this bigger shop, we see about six or seven such customers daily. We don’t want to lose these customers. Each customer is valuable for our business.”

There is no ATM within a one kilometer radius of the shop. Praveen adds, “At times, customers would leave the shop to withdraw money from the closest ATM, and change their minds in the process. At times they would never return. I do not want to lose those customers or let them change their minds. I think a PoS machine is going to help me hook those customers.”


CATALYST has been experimenting with various ‘value additions’ to the PoS/mPoS mechanism to discover a perfect hook for digital payments adoption and access to credit. Field stories such as this tell us that newly opened shops with a larger ambition and bigger appetite for growth can be good use cases for early adoption. However, for shops that have not been able to grow in size over time or where the cost of digital adoption is still high, we need to experiment further to learn, through an iterative process, about value-added services that can lead to faster adoption.




Trust in PoS machine biggest concern among merchants Tags: User Story

The narrow streets on our way to Amna’s house are full of life in the disorganized neighbourhood of Bandha Basti, a hilly slum cluster in peri-urban Jaipur. Amna, a resident Anganvadi worker, has been working since 4 years with a monthly income of Rs. 2000 providing for the six family members with support of her husband.





Vaibhav Singh is one such kirana store owner in Sanganeer in Jaipur. He has been using a PoS machine for the last three years; he’s keen to know about and use the new mPoS machine as a new mode for payment. However, his concerns on adopting an mPoS machine are whether he can get:

  1. Printed receipts for each transaction; and
  2. A bigger PoS machine at the same cost as the old one because a larger machine provides better visibility and does not easily ‘get lost


However, what remains to be seen is whether the mPoS companies’ recent decision to do away with monthly rentals (lifetime rental free payment) with only one time installation charges (of approximately Rs1700) has a large enough impact for merchants to overcome their current concerns on paper receipts as well as machine size. If it does, even gradually, it will be a big step towards building digital trust among merchants across several age groups and levels of digital exposure.


Opportunity and growth for small merchants with eMitras

Sporting white long hair, Rajesh Jain, has seen many ups and downs in his life, and is now an eMitra merchant in Jaipur with a beeline of customers at his provisions shop. The shop now functions primarily as an outlet for extending government services, ranging from utility bill payments to university fee payments.

“I used to be a large-scale trader with stakes in wholesale and distribution but things started to go wrong and we suffered a massive loss in business. Then I started a small shop to get back my financial stability, but what has transformed things for me is taking on the eMitra work,” Jain said, taking breaks between a steady stream of customers as it middle of the month when most of them pay the utility bills.


His youngest son supports him on the days that see a rush of customers. Like most small shops, Jain’s shop, is an extension of the house and is the main source of livelihood for the family of five.

“I started offering eMitra services around five years back primarily due to public demand and lack of e-Mitras nearby and have been blessed with a good footfall since I started. Digitization in the country has created a big shift, but it will take time for customers to become confident about using digital payments on a daily basis,” Jain added.


“The customers that come for the e-Mitras related services are mostly old and retired folks and are more comfortable with cash, which is the most prevalent form of payments with this group.” Their knowledge about digital payments is generally not very extensive and paying digitally usually invokes a sense of hesitation and fear of fraud. Some even worry and make errors while writing cheques for these payments.

“However, we are working with customers explaining to them about ways and advantages of making digital payments. While the card usage here has been on the rise but the overall percentage of digital payments is still too low,” Jain explains the current trend.

A number of customers came in to specifically ask about the process of getting the Aadhaar card. Jain patiently explained that eMitras no longer provide that service. These interactions highlight the critical role a human interface plays in both literacy and facilitation. Jain sees himself as a change agent.

“Cash handling is a challenge and entails risks, in addition to frequent visits to banks for depositing it. If people shift to digital payments it will be good for us in many ways,” he added.

In terms of what is needed to nudge the customers, he said: “Literacy and awareness on regular basis are important in addition to building trust in digital payments.”


Catalyst engaged with select e-Mitra merchants during the pilot carried out over 10 months to promote card payments at these centers. As part of the pilot these e-Mitras were provided the Point of Sale machines with the help of Government of Rajasthan. All charges associated with the adoption and usage of the solution were waived off for the project period for these e-Mitras to understand its uptake.

Additionally, a range of promotional information materials were prepared and placed at these eMitra shops for awareness generation among consumers to advance acceptance and adoption of digital payments.



Tuning into the sound of digital transactions

For 30-year-old Satya Prakash Bansal, the transition from running a sound shop as he calls it, to an eMitra merchant, providing numerous digital services has been exciting. He is among the thousands of entrepreneurs offering services to citizens across Rajasthan through a government digital platform that provides 300 plus services.

When we met Prakash, he was busy shuffling through hundreds of chits and receipts in his small shop located in the market residential area of Barkat Nagar. But soon the reason for this became apparent.

It was that time of the month when residents throng to his shop for payments of utility bills, such as electricity and water, among several others.


“The payments are still largely in cash. But many people have started making payments through debit card (he calls it ATM card, just like most people here) and it is on the rise. It stands at around 10 percent presently,” he says.

Prakash was also very emphatic about the need for making customers aware of the safety and advantages of using digital payment methods. He himself has been nudging them but the progress is slow.

“Most of my customers are retired and old people who like to pay by cash. I try my best to educate and explain… but it is tough,” he added.

“Of course, a lot of customers are starting to pay as they become more confident. It will continue to grow with time, but it is hard work,” he emphasizes.

Among some of the challenges he faces in accepting digital transactions are the transaction failures.

“There were some payments that did not go through successfully and took time to be reversed. This was difficult to handle because the customers kept coming back to me for answers. But now people use debit cards and they are more aware. I don’t need to tell each and every customer to use his debit card now,” he adds.


“I started doing eMitra work about four years back and the business has grown tremendously since then,” Prakash says. This is one of the many small shops in the large market-residential area, and like others who decided to ride the opportunity of providing digital services and educate customers, he too is reaping the fruits of a growth in the business.

“I will continue to expand my business through my work as an eMitra and promote digital transactions because cash is difficult to manage and involves risks,” he explains.

His mother runs a small grocery shop next door. He goes on, “Digital transactions will not only reduce my bank visits to deposit cash, but also help me to keep my wallet balance easily.”

The business of renting out sound equipment for weddings and social functions is now an aside for Prakash as his eyes are fixed on servicing and educating his customers.


Digital is good for business, adds value for consumers

Dressed in a striking red sweater, Vikas Parnami, is thoughtful and articulate as he manages a steady stream of customers at his small shop that also functions as an eMitra outlet, through which he provides access to government services and accepts payment of utility bills.

“It’s been three years since I started offering eMitra services and have seen a steady growth of customers ever since,” he says, before turning his attention to an elderly customer who just discovered that he cannot make digital payments because because he does not own a debit card.

The 40-year-old is part of a 55,000 strong merchant network in Rajasthan that constitute’s the nucleus of the state-run eMitra platform, which offers more than to 300 services


“We tell the customers who come for eMitra services to try digital payment methods, especially debit cards, but the most frequent and immediate response is one of apprehension and distrust,” he adds.

Vikas’ shop is his own initiative and stores various provisions and goods for daily use. It is a general store, to use the term popular for describing small shops that cater to the neighborhood.

“Most of the transactions are through cash. Although there has been a slight growth in digital payments for eMitra services in the past few months, it is still low,” says Vikas. “I hope it picks up fast,” he adds, smiling.

“The customers need awareness and incentives to move from the cash habit, and we are doing what we can,” he says while rattling out a list of ideas for awareness materials that can be used.

“We could use illustrations, factsheets and WhatsApp messages,” he said with palpable energy in his voice.


So why is Vikas so keen on nudging his customers and challenging what he calls a ‘business as usual approach’, especially among the older age group?

In 2013, Vikas jumped onboard the bandwagon of digital services through a state-level variant called Common Service Centres (CSCs). His shop had few takers in an already crowded and competitive market of neighborhood shops, but the entrepreneurial opportunity changed his business around and set Vikas on a mission to excel in providing paid e-services and establishing a strong bond of trust with them.

“I had barely ten customers for the eMitra services when I started, but slowly my clientele started to grow. I am making money now and the shop is also doing much better. The two businesses complement each other,” he added.

“Customers need to know that going digital is good for merchants as it frees us from the risks of handling cash. It also does away with merchants having to take multiple trips to the bank. For customers, it eliminates the need to have to go to the ATM each day to get cash” he explained as his father joined him in the shop.

“Currently, the ratio of payments is 70 percent in cash and 30 percent through cheques and digital. It needs to change to the exact opposite of that,” he says.

In the two-hour long conversation, we saw just two customers coming in to buy daily items, but there were easily over a dozen to pay bills or enquire about services.

Age just a number when it comes to digital payments

Dressed in spotless white like most men of the region, Ghansham Singh is at ease waiting for his turn at the counter of a small shop. With just two other people around the counter, he awaits his turn as they speak with the bespectacled middle-aged shopkeeper.

The shop has large audio speakers and woofers stacked up to its roof. The display is hardly something that a 70-year-old would be interested in, but on a closer look one gets a hint of what is drawing people, holding paper slips in all colors.

The small shop functions as an ‘eMitra’ outlet which provides citizen services ranging from bill payments to college admission applications. The shop owner, Satya Prakash Bansal, is an eMitra merchant and caters to the neighborhood in the Barkat Nagar locality of Jaipur. The 30-year-old is part of a 55,000-strong merchant network in Rajasthan, which constitutes the nucleus of the staterun eMitra platform that offers close to 300 services.

To learn more about the network, how it functions and the work Catalyst is doing to digitize payments, please read this blog.


Although Singh retired for over two decades ago, he has been aware of debit cards for a while now, even though, like most elderly customers we met, he calls it an ATM card. While most customers his age who visit these eMitra centres use only cash for payments, Singh has been an early user and proponent of digital payment systems.

“I have never had a problem and making digital payments at an eMitra is very convenient,” Singh says, in response to a question on what he thinks about digital payments and whether he has had any difficulty using them. When asked about other digital payment methods, he insists on his choice of debit card payments.

To him, debit cards are the way to go. He uses his debit card mostly for bills, high value payments and shopping transactions. “If the payments are up above Rs. 3,000, I use my debit card, but for smaller payments cash is better for me,” Singh says.

“I pay electricity bills every two months and water or telephone bill every month,” Singh adds, resting outside the eMitra merchant shop. Elderly family members constitute the biggest chunk of consumers who frequent the eMitra outlets to pay utility bills, according to Bansal.


He adds, “However, customers of this age group, even those who may be digitally savvy, are not as comfortable with credit cards and e-wallets as they are with bank accounts with debit/ ATM cards.”

“I have had no problems understanding or using debit cards for payments. Even in my age group, there is no one I know who has said anything negative about digital payments,” Singh says when asked if people in older age groups found adoption of digital payments difficult.


In terms of household usage, he said that everyone in his family is fairly evenly placed in terms of digital transaction knowledge. One senses a feeling of pride in Singh’s assertion, when he says: “I can manage digital payments by myself and am confident doing transactions.”

As we walked around the market over three days, the presence of elderly customers was striking.

We noticed that very few used debit cards and that cash continues to be the most preferred method of payment – a fact confirmed by the eMitra merchants.

However, the e-Mitra merchants also pointed out that the same people would be much happier receiving payments digitally because it would save them the hassle of handling cash and blocking money by maintaining pre-loaded cash in an e-wallet.


“These days, you never know what can happen in crowded places. Your cash can be stolen or simply snatched. Therefore, using digital payments or a debit card is a safer option,” Singh said about the distinct advantage of paying eMitra merchants digitally.

Singh also mentioned that to him personally, digital payments was his preferred method. He, however, reiterated that Rs. 3,000 and above was his threshold for using a debit card or ATM card.