Unlocking finance for small merchants — from digital data to digital credit

Kamal Singh, a 40-year-old tea vendor in the walled city area of Jaipur has been running his family’s tea shop for two generations. As we arrive, Kamal is busy serving tea and biscuits to office-goers who are sitting on a row in a small iron bench outside the shop. Rakesh Singh, his 70-year-old father, is mixing milk and tea in a burning aluminum vessel in a corner in the shop.

The visible inventory in the shop is scant – a couple of big glass jars filled with biscuits, a few packets of plastic tea cups and some freshly bought sachets of milk from the local diary. Early on in our conversation, Kamal tells us that he needs around one lakh rupees to expand his business. While he did apply for a loan from a formal financial institution, his application was rejected.


Millions of microentrepreneurs such as Kamal are unable to access working capital loans from banks and financial institutions due to lack of formal financial histories. In such a scenario, digitizing merchant payments generate data trails that can be used by a financial service provider to assess the credit worthiness of small merchants and extend loans.

As part of a pilot initiative to test this hypothesis, Catalyst has partnered with a financial service provider to provide a sample of small merchants with a Point of Sale (PoS) machine to digitize payments by customers. During the onboarding process for the pilot, we demonstrate the PoS machine to Kamal and help him with instructions on how to operate it. We also tell him that if he encourages his customers to pay by card even for small transactions – a lending agency will be able to see his monthly transaction data, and offer him a formal loan. Once a small ticket size loan is disbursed by the lender, the daily interest payment due on the loan can be deducted directly from the payments received from the card swipes at the POS. Kamal is intrigued by the proposition and seems convinced that using the POS machine can help him get a loan.



Following the onboarding to the machine, we explain to Kamal the upfront cost and the rental cost of buying and maintaining a PoS machine. At this stage, we see a hesitation on Kamal’s face. The upfront cost of buying the machine is upwards of Rs. 2000 and he needs to pay an additional rental fee of Rs. 250 per month to maintain this machine. These costs are over and above the daily interest on the loan amount that he wishes to borrow.

“The cost of buying and renting the machine is quite high for me. It is also challenging to convince my customers to pay digitally for small transactions.”

Hearing about the various indirect costs associated with acquiring and using the PoS machine, Kamal’s interest in the loan product has visibly dwindled. Moreover, his customers undertake transactions of small ticket sizes and he is doubtful about nudging them to pay him digitally.


Our conversations with Kamal gives us important insights into the operational challenges related to testing our hypotheses of bundling digital payments with credit propositions. We are back to the drawing board and are working on an iteration of the pilot.

In the next phase, we will introduce a no/low cost payment alternative for small merchants such as Unified Payments Interface (UPI) to help them overcome the cost barriers associated with purchasing and renting a PoS machine. Using our iterative design and learning process, we will also continue to gather deeper insights into the factors that influence merchants and the customer’s willingness to adopt digital payments for small transactions at retail shops such as the one run by Kamal and his family.

In BHIM we trust

“If we see monetary benefit in using a digital payment application, we download it. If we see customers demand digital payments, we learn more about them.” Sanjiv Kapoor’s sentiment on how transacting digitally has become inevitable resonates with several other small merchants across Barkat Nagar Market in Jaipur.

Sanjiv runs a garments store in the market, which was established in 1984. At any time of the day, this 51-year old can be seen dressed in his formals, attending to customers happily. A typical business day for Sanjiv starts at 11 am, and ends at 9 pm. His enthusiasm for the business is evident in the rapport that he shares with his customers, who often take his suggestions and consult him on matters. He considers himself a simple man who cares about his family and does all that he can to provide for them. His two children are a source of great pride for him. His son is currently pursuing a degree in computer science engineering, while his daughter is doing her Bachelor’s in business administration. His eyes gleam with pride when he talks about his wife, who runs her own children’s wear business, which he helped her set up in the same market a few years ago.


Akin to most other lower middle class families in the area, Sanjiv keeps himself updated with the latest happenings around the world by reading the newspaper and watching television. “I saw the launch of BHIM QR on television. The trust and credibility associated with government initiatives motivated me to want to use yet another mobile application. It is attractive to have the convenience of account-to-account transfer along with zero rental/ transaction costs,” says Sanjiv.

The reassurance from Catalyst’s awareness camps* and representatives in the market also facilitated several merchants in the vicinity to successfully download the application for business use. After consulting with other merchants in the market, one gets the sense that there is a common perception of the BHIM QR code as being a convenient, low-cost medium for the acceptance of digital payments in the area.

*In October 2017, Catalyst conducted a series of awareness initiatives and an on-boarding camp around Government of India’s BHIM application, and its QR code functionality. The intervention also introduced incentive schemes for merchants and customers, to test their impact on increasing adoption and usage.


In residential markets such as Barkat Nagar, the relationship between a merchant and his customer is very important. In October 2017, Catalyst conducted a series of awareness camps around BHIM and its QR code functionality, and introduced incentive schemes for merchants and customers. From December 2017 to January 2018, Sanjiv reported nearly 60 transactions via BHIM QR code. Sanjiv has also nudged his customers to download and adopt the BHIM QR application after on-boarding them on the incentive schemes introduced by Catalyst.

“Most customers want to download and understand digital payments, and I help them to do so. I have told all my customers to use the BHIM QR application and two of my customers even won a cash prize of Rs. 1,000 each as part of the incentive scheme introduced by Catalyst!”

The only setback was that not all of his customers had the application installed on their phone or the time to download it. Nevertheless, Sanjiv’s experience reiterates the potential small merchants may have to act as change agents and digital influencers in their ecosystems. Experiments across a cross-section of merchants and across geographies may validate this hypothesis.

Sanjiv sees value in transacting digitally, as these payments can mitigate issues associated with cash such as fake currency in circulation. However, he believes that the ecosystem for universal BHIM QR payment acceptance needs to be strengthened. Penetration of digital payments among customers is still very low and the market ecosystem is unattractive.


Moreover, while all applications have similar features, the one that offers more lucrative cashback rewards to customers sees the widest usage.

Sanjiv believes that “Customers are more attracted to schemes. While they love cash, if a lucrative scheme is introduced for digital payments, they are ready to try it out and move out of their comfort zone. It is very important to keep the customer engaged.”

On being asked what he thinks about the future of digital payments he says, “Digital payments will pick up exponentially in India and they will be beneficial to all. However, it is important to make digital transactions more attractive for customers and make them aware of these benefits.”

Fingpay… fostering bare-pocket transactions

As India continues its journey towards digitization of the economy, the payments space bears witness to rapidly evolving digital infrastructure, and innovative financial solutions. An intermediate objective of this journey is to ensure that every citizen should be able to transact digitally, with the same ease as cash.
While the benefits of digital payments are well documented at the macroeconomic level, Pratyush Halen, founder of Fingpay is of the view that each stakeholder derives unique benefits from transacting digitally as well. Firstly, unbanked and underserved consumers who begin to transact digitally create a transactions history that can be a gateway to various other financial products such as credit and insurance. Secondly, as a result of this increased base of eligible consumers, financial service providers gain access to broader markets for their products. Lastly, this enables governments to bring informal transactions under the umbrella of the formal sector and provides them valuable data on the scale of economy activity in the country


With these factors in mind, Fingpay, a biometrics-based payments platform, envisages an economy where all transactions are possible bare-pocket – without the need for customers to carry cash, cards or phones on them. “Till a couple of years ago, approximately only 20 lakh of the nearly two crore merchants in India had the ability to accept digital payments. These low acceptance levels can in part be attributed to the inertia that stems from the issuance costs of credit and debit cards, and the security and monthly rentals on Point of Sale machines. To tackle this inertia, the need of the hour was a better digital payments solution which was cost-effective, secure, and mimics the ease of cash” says Pratyush. Fingpay utilises the Aadhaar number – bank account linkages in authenticating transactions via biometrics stored in the UIDAI database, thus enabling anyone with a bank account linked to their Aadhaar number to transact digitally

Adoption of digital payment solutions requires ownership of smartphones and fundamental knowledge about using the platform. In rural areas of India, where network coverage and signal strengths are weak, fintech companies such as Fingpay face an uphill task. With 68% of India’s population living in rural areas, where the choices of payment options are limited, the Fingpay team believes that their biggest challenges also offer them the opportunity to create impact at the last mile. Their Aadhaar Enabled Payment System (AEPS) aims to bring the rural economy at par with the digital progress made by the rest of the economy. The team adds “Once our platform proves to be successful, it can be scaled up across similar geographical locations.”


Fostering large-scale adoption of the Fingpay platform required a unique strategy. Pratyush elaborates, “Our process of on-boarding merchants remotely, using a digital interface, sets us apart from other players in this space and gives us an edge in pushing Fingpay at scale. The sign-up process is a detailed one and lets the merchants provide requisite details which are verified in real-time and enables them to start transacting immediately”.

Pratyush and his team acknowledge that their experience with the Catalyst Incubator* in Jaipur has provided them with valuable connections in the ecosystem, especially on the policy front. He adds “The incubator is designed to support start-ups which can re-imagine and reinvent fintech products for the masses in ways that optimize for specific needs and contexts through affordable channels.”

As is the case with all new solutions, Fingpay’s platform had to evolve and adapt in accordance with learnings in the initial stages. Pratyush says “The product had to be iterated a few times. It continues to evolve in response to various challenges on the field.” Some of the challenges that Fingpay continuously engages with include the absence of chargeback guidelines in case of fraudulent or disputed transactions and a clear refund policy for these transactions.

The team believes that cooperation between regulators, governments and companies can bridge these gaps. The Catalyst Incubator Program also enables the start-ups to execute their mission smoothly by facilitating partnerships with organisations that can complement or support their activities, and partnerships with other start-ups to promote cross-learning.


Where does Fingpay see itself five years down the line? Pratyush ambitiously says “We see ourselves embedded in all layers of transactions currently dominated by hard cash – with a deeper presence in rural areas of the country. We would like to diversify and offer our customers insurance and other financial products. In doing so, we will also be able to capture customer data which will provide valuable insights into their needs and financial lives, and can be leveraged to create customised financial solutions for them.”

PayNearby…towards a hyperlocal fintech network


PayNearby is a start-up that aims to create the world’s largest hyperlocal fintech network in India, by enabling existing corner shops to become digital financial service hubs

PayNearby’s endeavor to provide digitally assisted financial services to the masses in such a way that every citizen can go to a nearby retailer to make digital payments and avail banking services with the same convenience that he/she experiences in purchasing ration, groceries, vegetables and fruits. “Customers avail financial services from people they trust.” says, Anand Kumar Bajaj, founder of PayNearby, an IIM Ahmedabad alumnus, ex Chief Innovation Officer of YES Bank and a Chartered Accountant with 17 years of experience in the digital payments space. With the advent of digitization, he believes that India is transitioning from a Krishi Pradhan nation into a Digi Pradhan nation. Riding on this digitisation wave, PayNearby has launched a campaign ‘Har Dukaan, Digital Pradhan’ which partners with local retailers to onboard them as digital financial service partners



The startup operates on a B2B2C model, and provides services such as Aadhaar ATM and deposit, SMS payments, Khata services, utility bill payments, prepaid cards, mutual funds and insurance, money transfer,and payment services via Bharat QR and UPI using the PayNearby application. Their team has operations in 23 states of India and aspires to empower 20,00,000 retailers across Tier I, II cities and rural towns, where knowledge and awareness levels around technology are low and cash is the dominant mode of transaction.

PayNearby’s resolve is to simplify, ‘sachetize’, and digitize high-end technologies and bring it to the common man. According to Anand “We are making banking easy by helping people save, invest, insure, remit and withdraw conveniently even after banking hours. Our facilities help wage labourers, factory workers, among others, to transfer money in times of urgency, and recharge bills easily at any time of the day. Our vision is to be an over-the-top organisation to ReBank India.”

Digital Pradhans find that most customers who avail their services become repeat digital users at the store, as they can access all digital financial services under one roof. Amit, a Digital Pradhan from Sri Balaji Telecommunications speaks highly of the portal. “Using PayNearby’s portal, I can easily withdraw money, book bus tickets, pay utility bills and do mobile recharges for my customers. I have been using the application for the last two years and so far the rate of transaction failures has been low. In case of any technical issue, I receive assistance and requisite help from the company’s relationship manager who typically resolves issues within one working day.”

Similarly, Prashant, who runs his shop from 7 am to 9:30 pm feels that unlike other digital platforms no transaction gets stuck via PayNearby. “Thanks to PayNearby, I can offer customers services that are similar to the services provided by any bank. There has never been a technical issue with the application.” He further adds, “My sources of income have increased owing to PayNearby, and I can offer customers the convenience of transacting digitally with their Aadhaar number and a tap on my mobile phone.”


PayNearby is one of the five startups selected by Catalyst as part of its ‘Fintech for the Last Mile Incubator program* in Jaipur. As part of the program, Catalyst is providing a conducive and collaborative workspace to PayNearby to operationalize its activities in Jaipur, without having to bear the burden of overhead costs in the initial stages of this journey. Along with this, Catalyst is providing feet on street support to the startup, wherein its representatives approach customers, pitch its products, gather feedback and also assist in the entire sales process.

PayNearby is currently testing digital solutions to expand its retailer reach and has developed a newer, more comprehensive version of their application for Aadhaar Enabled Payment Systems, money transfer and khatta pay solutions.

So, what are their plans in Jaipur? Anand believes “We intend to digitize Jaipur as a role model for other cash sticky states with support from Department of Information Technology (Rajasthan) and Catalyst. We have smoothly launched our digital financial services here and are now excited to expand our retailer/customer reach via the ‘Har Dukaan, Digital Pradhan’ campaign. We are looking forward to reach the last mile retailers and learn from this experience in the months to come!”

Mapping the Merchant’s mind

Building Hooks and Ladders: A case for integrating digital payments and lending to small merchants

Digitizing Micro-merchant Ecosystems – Fixed Stores

WordPress PopUp Plugin