Digital financial services (DFS) allow financial systems to perform their core functions of providing access to liquidity and managing risk at scale. They also help lower transaction costs and deliver at the point and time the services are most needed. While the financial services-technology pairing can be powerful, the secret in creating value for all stakeholders is building the business around the customer, i.e. being customer-centric.
India has made significant investments in building its digital payments infrastructure, which creates the foundation for a stronger financial system. Specifically, India’s interoperable payment infrastructure through the Unified Payment Interface (UPI) continues to provide a strong business case. While digital payments have been growing every month, the frequency of regular, smaller transactions continues to be low. The Catalyst team did a deep dive in Jaipur’s dairy ecosystem to understand barriers to UPI usage. Dairy was selected since milk purchase is ubiquitous in daily household purchases.
Dairy booths in Jaipur are replete with QR codes on their walls, inviting you to make your payment using a UPI app. It appears that digital payments are a resounding success. But ask the retailer how to pay using the QR codes and they will likely have no idea. This is a specific instance, but it shows that simply developing products is insufficient for addressing ecosystem problems. Adoption of digital payments faces the bottleneck of cash-dependent end consumers.
There are five key customer-centric principles for fintechs to consider:
1) Focus on the end user
QR codes have been viewed by fintech companies as a way to acquire merchants at a low cost. The National Payments Corporation of India recognizes this opportunity and every UPI-based application includes the Bharat QR code. However, the biggest barrier is getting the end customer to pay using the QR code. Customers are either unfamiliar with navigating the app, or the person sent to make the purchase does not have a smartphone, does not own and control a bank account, or both. Quite often the person sent to buy milk is a child or domestic help. Cash is often the go-to solution in such cases. Fintech providers have to consider this audience while developing a payment solution.
2) Ensure solution for better alternative
Reserve Bank of India data reveal that the total volume of coins in circulation has increased from 8% in 2014-15 to 8.2% in 2015-16, to 8.5% in 2016-17. The availability of small change, which is often refused by banks owing to high storage and transportation costs, inevitably finds its way to small merchants and households, and is used for low-value transactions such as the daily purchase of milk. In this scenario, it is quite hard to convince customers to use digital solutions, which take longer, are not as familiar, and are unreliable and unnecessary for small transactions.
3) Identify and empower your change agents
Merchants are the consistent customer interface and are asked questions about how the QR code works. Companies must ensure merchants are supported adequately with a helpline and continuous training in the first few weeks, and are familiar with multiple interfaces. A dedicated helpline or interactive voice response service (IVRS) for merchants can help address ongoing issues with using the QR-UPI solution. Fintechs could offer business value to merchants for encouraging end customers to pay digitally. This could take the form of loans at better terms, or clear indication of increased revenue due to increased transactions, or both. The merchant is the person who will influence customer adoption positively or negatively, and it is important to convince him of the merits.
4) Validate insights
Speak to founders of MeraPaper, who are digitizing subscription service payments, or PayNearby, who provide a hyperlocal payment platform, and you will quickly discover the involvement of leadership in capturing insights. In the case of MeraPaper, the leadership team was up at 4 am on newspaper delivery rounds with the vendors. Weekends were spent visiting customers to collect payments. This has resulted in ongoing upgrades to the application interface so that it meets the needs of both newspaper vendors and end customers. For PayNearby, which has been in existence for just two years and spent zero dollars in marketing spend, the early commitment to spending substantive time with Mumbai retailers is validated by the $300 million worth of transactions per month processed on their platform.
5) Establish clear business and customer value
Many businesses, which operate in the low-income space, have low profit margins. However, digital financial solutions can lower costs or increase revenue at a marginal cost, driving business value. A granular understanding of profit margins is important. This translates into an understanding of the customer adoption rate that would make the solution viable. Creating a product that speaks to core business value unsurprisingly drives adoption, retention and use. But this approach needs to be considered more explicitly in the last mile digitization of cash. Specifically, it is important not to impose further costs on the end customer or create a solution that merely pushes the pain points further down the value chain. The success or failure of digitizing the last mile rests on demonstrating personal value to the end consumer in switching from cash to digital payments.
Jayshree Venkatesan and Myla Swallow are, respectively, an independent consultant working with Catalyst, and a student at Duke University.