Micro-Merchant Ecosystems For Low Income Communities | Fixed Store

These merchants account for over 90% of retail value and are a key link in the digitization journey for most Indians and transformation across the broader commercial value chain. The fixed store ecosystem is incredibly diverse, with significant variation in the number of customer and supplier transactions, average transaction size, customer profiles, business turnover, and margins. This diversity points to the fact that there is no singular digitization solution that can work across this merchant category, and any product or service aimed at fixed store merchants will need to respond to this diversity with customized experiences and price points. Digitizing the fixed store ecosystem is a complex task, requiring overcoming serious challenges from both the supply and demand sides. On the supply side, traditional banks are yet to find compelling incentives in investing in the merchant acquisition side of business. On the demand side, there are several challenges, including a disinclination on the part of merchants to declare formal incomes for tax reasons, ease and comfort of cash transactions, entrenched cash habits of consumers and suppliers, and a gap in relevant solutions and business models aimed at digitizing this ecosystem. Despite these challenges, there are favorable headwinds to address the digitization potential of this segment. These include policy and institutional reforms such as GST, tax breaks for digital businesses, new licenses for payment banks, and favorable merchant discount rates for digital payment technologies. Additionally, the development and proliferation of affordable and convenient technologies, such as the India Stack, including Aadhar and UPI, have opened up the participation of public and private sector in bringing the mass market into the financial mainstream through technology-driven innovations. A study by Catalyst revealed that almost 90% of small traders and retailers surveyed showed a strong aspiration to grow their businesses through new customers, increased sales, and greater product diversification. However, merchants often lack the necessary tools and avenues to effectively meet their business goals. For example, formal credit is largely unavailable to fixed store merchants, despite clocking a large velocity of transactions. Often, the inability of merchants to record their transaction histories or a systematic capture of their business metrics makes their credit worthiness impossible to evaluate. The study identified several critical pain points that fixed store merchants face related to digitization, including a lack of tools and avenues to achieve growth, an ad-hoc approach to transactions and record keeping, the cost of non-compliance, and razor-thin operating margins. To address these pain points, Catalyst has identified four design principles for digitizing the fixed store ecosystem: demonstrating the immediate and tangible link of digital payments to greater business value, providing actionable business insights in the short term with least disruption to workflows, designing digital solutions with a view to reduce time, effort, and money involved in key business workflows, especially tax compliance, and pricing needs to be directly tied to value created.