Oct 01 2015

Explained: Why you are not able to pay through your debit card at the local kirana store

Explained: Why you are not able to pay through your debit card at the local kirana store

In Delhi, the share of cashless payments is still very low for medium (12%) and small (7%) retailers, though large retailers claim to have 33% of their consumer payments in cashless mode. In what are known as kirana stores or local grocery shops, the number of cashless transactions are absent or negligible. These are the results of a dipstick survey was carried out in the markets of the national capital to understand the roadblocks and barriers in usage of cashless options in transactions.

The study indicated that customers’ demand for cashless payment is very low at small and medium retailers, with only a quarter of small retailers confirming that consumers frequently ask for cashless mode. Perhaps unsurprisingly, this has led to a skewed distribution of cashless transactions between large and medium to small retailers, with large retailers reporting that a third of their transactions are in the cashless mode. The lack of demand for cashless transactions at small and medium retailers probably explains why almost 50% of the small retailers do not have a Point of Sale (PoS) machine. Corroborating the evidence that these retailers are not included in the arch of formal financial services is that less than 10% of the respondents used banks as a source of credit, with family and friends being the major contributor to fulfill their credit needs.

Figure 1: Survey respondents – We divided Delhi into 5 zones, namely North Delhi, South Delhi, East Delhi, West Delhi and Central Delhi, interviewing 5 retailers from each zone.

Although retailer-consumer transactions are predominantly in cash, the majority of payments made by the retailers to distributors / wholesalers is in cashless mode, mostly through cheques. A caveat here is that small retailers are doubly likely to pay in cash as compared to large retailers, again highlighting the distaste of small retailers to transact using cashless modes.

Figure 2: Results of respondents currently possessing a Point of Sale (PoS) machine, segregated as per the retailer size

The survey also yielded an insight into the main reasons for the aversion of retailers to adopt cashless modes of transactions. The main concern on the part of the store owners that emerged was the high operating and transactions costs associated with card machines with almost 50% of the retailers naming it as the main barrier to their usage. Half of the kirana store owners covered by the  survey said that cashless payments for small ticket/ low margin items was another major concern for all retailers, especially small retailers. Lack of customer demand as well as the issue of trust and security of cashless payments for all kinds of retailers also figured predominantly as limiting factors causing few takers for the cashless mode.

Figure 3: Retailer concerns about accepting cashless payments

What emerged from the study was that growing customer demand for cashless payments is the most important factor that may encourage retailers to accept cashless payments. 81% of small and 50% of medium size retailers felt this to be the most critical parameter for them in terms of adopting cashless payments. Reduction in POS operating and transaction cost is another important factor for retailers. 50% of small retailers feel that the costs should go down for them to consider adopting cashless payment modes. Large retailers said they are ready to adopt a better cashless payment mode; however, this is not that important a factor for small and medium retailers to consider adopting cashless payments.

Figure 4: Factors that might encourage cashless transactions

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