Addressing the barriers to adoption in digital payments

Addressing the barriers to adoption in digital payments

Published: August 2017

This report is an attempt to identify challenges and provide solutions to the issue of digital payments adoption in the Indian context. The Indian economy is a predominantly cash driven economy. While the penetration of digital payments has increased significantly in the last decade, cash still continues to dominate.

The report is divided into two parts. The first part identifies the different factors that act as barriers to adoption, and the second highlights levers that can help overcome these barriers. The following emerge as the most important findings (and lessons) from the research:

  1. Like any new technology, users are hesitant to adopt digital payments. The problem is compounded by a lack of awareness and the fear of losing money. The need of the hour is a strong grievance redressal mechanism to improve trust in the system and well-designed nudges to get users to experiment.
  2. A supportive regulatory regime that enables innovation is crucial to increased adoption. Several steps are already being taken in this direction, but more needs to be done. This includes an accommodating framework with respect to digital payments solutions by non-bank entities, simplification of KYC norms as well as interoperability among wallets.
  3. Upfront investment and ‘visible’ costs like MDR (as opposed to the ‘hidden cost’ of cash) tilt the scale in favour of cash. Given the positive externalities of digital payments, this bias needs to be corrected through more government support.
  4. Offers which bundle value added services that can help merchants grow their business, as opposed to vanilla payments solutions, are likely to significantly increase the uptake of digital payments. The add-on perks could include greater access to working capital loans, inventory management and supplier mapping etc.

Throughout the report, the primary focal points of this research continue to be two sets of stakeholders – small merchants and (bottom of the pyramid) customers. The report draws heavily on empirical research as well as case studies from around the world to gain insights into the behaviour and experiences of these sets of stakeholders.

Access the report here