Micro and small merchants (MSMs) have 99 problems but cash-handling isn’t one of them. Going fully digital can truly be a tall order for MSMs due to the following reasons:
1. Their customers pay with cash.
2. Their trade supply chains are typically cash-based (micro-merchant, micro-distributor, distributor and manufacturer).
3. A significant amount of transactions between the players in the trade supply chain is trust-based. i.e. No cash is involved as goods are sold on credit.
4. High level of illiteracy by MSM segments — This includes educational illiteracy, digital illiteracy and financial illiteracy.
5. High cost of maintainance of POS and mPOS terminals (Internet, power etc.).
6. Possible tax exposures.
The points mentioned above are well known to FSPs as barriers to digital acceptance of payments by MSMs. However, there are other factors that need to be properly addressed (both in telco and bank-led DFS ecosystems) for uptake of digital payments by underserved and unbanked MSMs.
1. Fraud
Currently, digitally and educationally literate merchants are increasingly find themselves at the receiving end of fraudsters. The most common type being SMS fraud. This type of fraud typically involves sending a fake credit transaction notification to the merchant’s mobile phone via SMS for goods received.
Initially fraudsters targeted large and mid-sized merchants whose losses could range from tens of thousands of dollars to even a Porsche . However, this fraudulent phenomenon is beginning to find its way to smaller merchants who are fleeced of sums as low as $6.
The result — Merchants have begun to reject digital payments thereby reinforcing the use of cash by customers, as they are made to withdraw using ATMs and banking agents.
2. SMS transaction notification costs
This is the gorilla in the room when it comes to onboarding underserved MSMs into the digital economy. For instance, a typical shopkeeper in Nigeria may serve between 10–100 customers per day. The profit on each FMCG sale is never more than $0.025. However, the cost of SMS notification for the sale of goods could be up to $0.01.
The result — The math simply won’t add up for MSMs as profits will be greatly reduced by accepting digital payments.
Conclusion
The following questions need to be honestly addressed by FSPs if they are desirous of capturing and holding onto this MSM market segment;
1. If digitally and educationally literate merchants can fall prey to SMS fraud, how much more illiterate MSMs who constitute the large bulk of the merchant segment in Nigeria?
2. If MSMs can potentially loose 40% of profits to payment notifications alone (which is revenue to the FSP), will they continue accepting digital payments even if they are supposedly building a digital footprint for accessing loans in the not-so-definite future?
To forestall a scenario where cash remains King, there is a need to urgently redesign the defacto payment transaction notification model from a security and cost standpoint. The race to digital DFS utopia will ultimately depend on it.
