The last time you bought something from a street market vendor, you probably didn’t swipe your credit card through a small white cubical reader set atop the vendor’s smartphone when it came time to pay.
But that might change soon. Mobile point-of-sale (mPOS) devices – such as Square and iZettle – use smartphones to process digital transactions. They are mobile, operating on wireless networks, and are significantly cheaper than traditional credit card payment devices.
mPOS systems are not only more accessible for small businesses, but can also increase access to financial services for many customers around the world (including 60% of the population in Indonesia) who remain unbanked.
Despite the benefits of mPOS systems, however, the vast majority of small merchants in developing countries use cash or traditional transaction devices instead.
In Indonesia – where over 99% of all transactions by volume occur in cash – a Dalberg team recently worked with CGAP, Telkomsel, and frogDesign to find out why merchants haven’t adopted mPOS devices, and what might motivate them to do so.
The team spoke with over 40 traditional merchants, including restaurant owners, taxi drivers, and electronics retailers, and other micro and small entrepreneurs who typically handle cash transactions daily with their customers to better understand their motivations.
Dalberg’s Gaurav Gupta and Swetha Totapally, who worked on the study, explain what they found:
“While the responses varied significantly by merchant and merchant segment, three key themes emerged from our findings:
- Value-added services providing business solutions increase merchant interest in mPOS. Most of the merchants interviewed had already been offered traditional POS by Indonesian banks and were less interested in mPOS for its payment acceptance features alone. Many had POS devices that were infrequently used, others didn’t care about being able to accept card payments, and some simply believed the technology was too new for them.Instead, we found that merchants are excited by value-added applications on the smartphone, such as data analytics, marketing and inventory management that are complementary to mPOS and provide business linkages to Telkomsel. Indeed, they saw these applications as potentially transformative business solutions. Specifically, they were excited by features that would improve business processes and relationships with customers.
- Merchants prioritize accuracy, speed and transparency. Traditional merchants were concerned about how safety, security, and network quality could impact their business and cash, as well as the need to build consumer trust in digital transactions. Their personal experience with dropped calls and lost SMS messages made them cautious about adopting a device that relies on wireless technology. This was especially true for rural businesses, where the signal was less reliable.Additionally, when there were occasional glitches during prototype demonstrations, participants simply became disengaged. Merchants who use POS devices, for example, are used to generally reliable service and fast transaction times, so are hesitant to move to a new device that could be more risky, resulting in lost income for the merchant or client. The product at minimum needs to be at least as high quality as existing solutions.
- Trust is an issue: Strong preference exists for at least a partial association with bank and transaction receipts. There is a trust deficit around security of new payment systems, especially those which are offered by telcos rather than banks. mPOS is seen as a money-related solution, and merchants consistently said that they would feel more comfortable if the product was offered by a bank instead of a telecom provider. Some merchants were comfortable with the idea of a co-branded product, given the offering also relies on wireless technology, which a telecom is better suited to provide than a bank.We also heard stories about people who have fallen victim to SMS scammers and credit card manipulation. People fear that when they use a card they will be charged more than they should be without knowing about it. While this may largely be an urban myth, this concern was expressed by many of the merchants we spoke with. As such, many merchants specifically stated that SMS or e-mailed receipts would be insufficient and physical receipts would be an important part of any mPOS solution. Similarly end-clients have trust issues with traditional merchants, which they consider less professional than modern retailers.”