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Laying foundation of digital payments for MSMEs to cities beyond metros

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Mr. Ravi Battula, Head Merchant Acquiring Solutions, WibmoConsidered the backbone of the Indian economy, the MSME sector is evolving at an exceptional pace and scale. Central to this growth is the infrastructural development across the country’s hinterlands, the heart of its MSME base. Thus far, geographies beyond metro cities have largely seen technological progress in the form of greater and cheaper access to mobile data and the internet. This has led to MSMEs expanding their ambit and embracing new-age tools such as social selling.

Transforming MSME payments in India’s heartlands
As the internet continues to make deeper inroads across these regions and digital commerce comes to the fore, is it time for a digital revolution in the payments space? Seeing the wealth of opportunities it will open up for MSMEs, the answer is a resounding yes. This brings us to the all-important question: what can India do to enable digital payments for regions beyond metro cities? To create a seamless digital payment ecosystem, the country will need to channelize several industry players. Collaboration is key.

The digital payment space is a highly interconnected and regulated ecosystem. It needs to be secure, accessible, responsive, and easy to understand by the layman. Multiple players will need to come together to make this possible. Let’s elaborate with the help of an example. Imagine a Tier 6 village that is home to 500-1000 individuals. The area, at the very least, will have a post office, at least one petrol pump, and mom-and-pop stores that help people recharge their mobile phones while shopping for their daily needs – this is the bare minimum.

Now, think of an MSME that is looking to sell products to a larger market. For this, especially in the current times, the organization would require digital payment solutions. One viable solution: the Indian Government’s JAM scheme - linking Jandhan Bank accounts, Aadhaar Cards, and Mobile Numbers to give the MSMEs a chance to send and receive digital payments by setting up mobile wallets, payment gateways, and more.These foundational building blocks can be extended to create merchant/commerce hubs tailored for rural MSME with basic marketplace features e.g. inventory management, price discovery with payment options linked to aadhar account or to pre paid instrument with simple reports on good sold vs orders received. Post sale services like accounting, taxation, payroll, CRM services in local language tailored for regional needs will be a big driver too.
However, there remains a gap in terms of customer education. Since not many MSMEs in rural regions are aware of the digital solutions available to them, there is a need for last-mile connectivity in terms of information and guidance for MSMEs into the digital realm. This is where the role of highly digitized post offices comes into the picture. A tier 4, 5, or 6 towns can convert its post office workers into digital financial consultants who can help citizens understand the process and opportunity. On the flipside, it can become an alternate revenue stream for the consultants.

Digital-led growth and development become the norm.In addition fintech players can also strategically invest in building long term infrastructure to support this wider segment of user base through regional support service centers in partnerships with local retailers/banks/gas stations/mobile operators outlets by providing their platform whilst utilizing the physical presence building classic ‘Phygital’ model with additional revenue streams for both players with marginal investments. Retailers participating in the initiative will connect the consumer and the fintech platform provider through a simple digital app which would ecompass the functionalities of marketplace, value added services, payment services, customer service with seamless integrations through the embedded payment gateways and myriad of APIs underneath.

In yet another option, digital payment solution providers can also tie up with post offices to create scalable models that not just enable payments but also encourage more MSMEs and even individuals to enter the digital payments landscape. The mom-and-pop stores mentioned above can also double up as digital payment enablers by tying up with telecom providers. In doing so, we are calling upon trusted entities who understand the psyche of the region's residents to become the harbingers of a digital revolution.

Gaining scale through digital lending
In another example, think of an MSME that is looking to scale up its business – add new products to its portfolio, expand its geographical presence, or simply hire more people. For this, the company would need access to funds. Thus far, they would turn to unorganized lenders within the village who would offer unsecured loans at exorbitant interests. This would be detrimental to the growth of the business.

The solution, here, would be for the financial consultants of the village (post offices/mom and pop stores/Phygital players) to introduce villagers, who aren’t digitally savvy, to digital lending platforms that offer safe and secure lending mechanisms. They could offer the information required, help with the onboarding process and also explain repayment plans. Since most business owners in these regions would lack a credit history, such a setup will help them receive loans on the back of their post office accounts that recognize them as verified customers.

It becomes even more convenient since there is no collateral required. Trust and authentication are achieved through the available means. Business owners can simply repay through their earnings and continue to scale their ventures.Digital Fintech players can forge partnerships with the incumbent ecosystem players while building complimentary capabilities like disbursing small ticket loans with simplified validation and disbursement through a local correspondent banking agent/Phygital participant or through DBT to the MSME conveniently with a light weight risk profiling with fewer parameters.

Given, these solutions are easier said than done. The revolution we’re anticipating will require industry players to create processes, infrastructure, and educate villagers about their offerings. Fortunately, it is not impossible. India’s remotest regions can come on board the digital scheme of things with concerted efforts from the entire industry and policymakers, unlocking the longstanding dream of emerging as a 5 trillion economy.