Merchant Acceptance of Digital Financial Services

by Raymond Pucci 0

While Digital Financial Services (DFS) have become ubiquitous and accepted throughout most of the world, this is not the case in many developing nations. As reported by Banking Technology, the problem is not with the payments industry supply side, but rather on the acceptance side with merchants of all sizes.

Digital financial services (DFS) have the power to transform the lives of millions living in poverty. However, the lack of merchant acceptance presents a significant obstacle to its success. Sacha Polverini, chairman of the International Telecommunication Union’s (ITU) focus group on digital financial services and Carol Benson, managing partner at Glenbrook Partners, look at how to overcome these challenges and promote wider uptake of DFS in the communities that need them most.

DFS have taken off at speed in many developing countries. An increasing number of poor and unbanked are receiving funds electronically, whether through government benefits, salary payments or money transferred from a family member.

However, if they are unable to use this electronic money in their daily lives in the same way they use cash – to buy their essential daily items – they are forced to ‘cash-out’ this money, converting it back into paper and coins. This is time consuming, risky and costly and can create disincentives to receiving electronic payments in the first place.

In order to promote uptake of DFS and achieve a fully operational digital ecosystem, mobile money needs to be as easy to use and as flexible as cash. This means ensuring as many merchants and retailers as possible accept customer’s payments in digital form. It is one of the key elements driving the cashless society.

However, merchant acceptance remains a challenge in many countries. In some regions it is non-existent. Technical and fiscal issues, consumer awareness, education and protection remain barriers. But the single biggest challenge is cost.

Finding solutions to this mismatch of digital delivery and merchant acceptance will vary greatly depending on the economic, political, and cultural landscapes unique to every country. Many lesser developed countries rely heavily on government agencies for basic economic and infrastructural needs. Successful outcomes will depend on the level of trust and cooperation between the public and private sectors—something not always the reality in many nations.

Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

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