With the UPI (Unified Payments Interface) and the Bharat QR code, now effectively merged, banks and fintechs should find it a lot easier to convince smaller merchants to go digital. That’s because the QR mode costs a fraction of what a PoS (point of sales) machine does. While the PoS machine can set the merchant back by anywhere between Rs 6,000 and Rs 10,000, the QR-mode costs just Rs 50. Though a potent one, the combine is not going to be easy to change mindsets of smaller vendors; transaction volumes, so far, have been fairly subdued. Some incentives for both merchants and consumers, may do the trick. The total volume of digital transactions so far in 2017-18 is nearing 10.5 billion — worth Rs 1,284 lakh crore — these include transactions via IMPS, NEFT, UPI, debit and credit cards at POS, mobile wallets and mobile banking.
The UPI — across platforms including banks, BHIM, PhonePe, Paytm, Google Tez —has clocked in volumes of 735 million for a total value of Rs 85,290 crore. Both banks and fintechs, which have spent the better part of the year trying to figure out the best way to connect small merchants with consumers, are more or less convinced the UPI-QR route should work well. UPI was launched in August 2016 while Bharat QR was rolled out in January 2017. To be sure, merchants are now a lot more comfortable with digital transactions after the government’s decision to reimburse the banks, fintechs and others involved in the payments process, for the merchant discount rate (MDR) for transactions of up to Rs 2,000. However, consumers clearly need to be nudged.
Fintechs such as Google Tez drummed up business by offering customers freebies and incentives; that was in the UPI peer-to-peer (P2P) payments space. Similar incentives, for merchants, could well be seen in the coming months. While the government is understood to have indicated to banks they should be looking to enroll ten million merchants by March 2019, it’s important the volumes increase meaningfully else banks don’t stand to gain. Industry players say the number of merchants acquired for UPI payments so far is anywhere between 85,000 and 90,000. Sudhakar Ram, founder and chief executive officer (CEO), Benow, said it added 29,000 merchants in 2019. “Our focus is on the neighbourhood kiranas and other small facilities, Ram said. While Benow works in and around Mumbai and Hyderabad, it is looking to foray into Nashik.
The presence of several small banks in southern India and their connect with merchants has led to a concentration of QR-enabled small merchants in the region. Chennai-based M2P Solutions, which works with around 10 such banks down south, has on-boarded 15,000 small merchants so far. Madhusudanan R, founder, M2P Solutions, said the firm was targeting the CASA (current account savings account)-holding merchant customers of these banks. “We typically approach the top 50 such account-holders in each branch,” Madhusudhan explained. The western part of the country too is slowly becoming a hub for QR-enabled small merchants though the model may be a little difficult to replicate in other parts of the country. That’s because, as Harshil Mathur, CEO and co-founder, Razorpay, points out, in the north, the larger banks are more popular. “While you have regional banks, they don’t have as strong a network as the south does,” Mathur explains.
Given it may not be financially viable for the larger banks to reach out to the smallest of merchants, much of the country’s northern population will need to wait a little longer before they can use UPI to buy vegetables. Most UPI-enabling entities say they see only a few hundred transactions a day though they are hopeful volumes will pick up. Vinay Kalantri, managing director, TMW, which recently bought out merchant-acquirer Trupay, believes it’s still early days. “Once people see the benefits of digital payments, that’s when you’ll see a big jump,” he notes.