Abstract
The availability of digital payment technologies (such as internet banking, mobile money, and credit/debit cards) has rapidly increased in the developing world, and is a cornerstone for financial inclusion initiatives in developing countries. Despite significant efforts to promote digital payments, rates of adoption remain modest in some low-income countries. In particular, the rate of adoption in India remains low despite significant efforts to promote adoption. In this paper, we consider possible reasons for the low rates of adoption among merchants in Jaipur, India with small fixed-location store enterprises. Using survey data for 1,003 merchants, we find little evidence that supply-side barriers to obtaining necessary infrastructure or meeting prerequisite requirements to adopt digital payments explain the low level of adoption. Merchants are able to obtain infrastructure to transact digitally (such as bank accounts and smart phones), fees on digital platforms are affordable, and merchants are sufficiently literate to be able to use digital payment systems. We conclude that adoption is both feasible and inexpensive. Therefore, low rates of adoption do not appear to be the result of supply-side barriers, but due rather to demand-side factors or taxes. We find direct evidence of such demand-side factors, such as a perceived lack of customers wanting to pay digitally, and concerns that records of mobile payments might increase tax liability. Our results thus suggest that simply lowering the costs associated with adopting these technologies is unlikely to be successful in increasing adoption of digital payments.
Highlights
In recent years, digital transaction methods have become a cornerstone for financial inclusion policies
We show that 98.6% of sample firms are feasible prospective digital payment users, in that they have the necessary documents, business income, and literacy so that they could satisfy all of the prerequisites for digital payment adoption if they so chose
We show that 98.6% of sample firms are feasible prospective digital payment users, in that they already satisfy the prerequisites for digital payment adoption or they have the necessary documents, business income, and baseline literacy such that they could realistically choose to satisfy all of the prerequisites
Summary
Digital transaction methods have become a cornerstone for financial inclusion policies. Mobile money platforms have been introduced in more than 90 countries [1], and 30–40 billion dollars per year are devoted to digital inclusion initiatives by large international funders [2]. There are several possible benefits of digital payments: reducing frictions of transacting in cash (e.g., making change), reducing distance-related costs (e.g., depositing cash), increasing financial transparency (e.g., cash-related fraud), increasing security (e.g., reducing theft of cash), and improving business record-keeping Digital payment adoption by small merchants in Jaipur, India
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