Increasing Digital Payments in India using an Ecosystem

ABOUT US

Catalyst is an initiative funded by United States Agency for International Development (USAID) under the mSTAR Program to increase adoption of digital payments in India, using a targeted ecosystem approach.

Our vision is to realize an inclusive digital economy that meets the needs of all Indians.

  • Our research into Indian consumer and merchant behavior has generated interesting insights on how to catalyze last mile payments.
    Key Insights for Consumers
    Create opportunities for daily use
    High-frequency low-value transactions (such as managing loose change, tracking expenses, etc.) are a better catalyst than low-frequency high-value transactions for digital payments habit formation
    Micro savings are a valuable hook
    People feel that they are unable to be disciplined about their spending targets and end up "wasting money" if there is free cash lying at home
    Communicate and educate benefits
    Many consumers have limited awareness of digital payments, because they perceive it to be irrelevant; focusing communication on one sharply defined use case with a clear benefit can be an anchor for broader adoption
    Assisted first time use is important
    First time use of a new digital payment method is tough for users and carries perceived financial risk; assisted first time payments can mitigate this hurdle
    The payment instrument should match the purchase type
    Larger and formal-looking payment products are associated to expensive purchases; similarly, smaller & informal artefacts may get associated to smaller purchases
    Learn More >
  • Our research into Indian consumer and merchant behavior has generated interesting insights on how to catalyze last mile payments:
    Key Insights for Merchants
    No upfront costs can increase trials
    Keeping a minimum deposit in current accounts for obtaining a POS machine is an impediment to adoption; merchants prefer models which are transaction linked
    Consumer demand is the key catalyst
    Merchants cite lack of consumer demand as the key factor preventing adoption of digital payments; most merchants are willing to adopt payments technology if customers ask for it
    Digital money + Physical proof
    A large proportion of users transact through non-digital methods and physical artefacts such as paper receipts help in instilling trust as opposed to non-solid digital receipts
    Credit as a hook
    Access to credit is a more severe pain point than the need to digitize cash, and therefore can be a powerful incentive to bring small merchants on digital payment platforms
    Cash + Digital hybrids can be important
    Managing daily change is a significant pain point for merchants and they often have to waste time and money to arrange change
    Learn More >

CATALYST IS UNIQUELY POSITIONED TO PUSH THE NEEDLE

Catalyst has three distinct engines of activity, coordinated in a manner in which we hope their sum will be greater than its parts. Our Digital Payments Lab involves implementing a set of coordinated initiatives in a local geographical ecosystem to shift consumer, merchant and supplier behavior from cash to digital payment transactions.

Phase 1

Build digital payment labs in urban and rural geographies to test and to demonstrate workable cash-light systems for consumers, merchants and suppliers, targeting a 10x boost in payment digitization rates.

Phase 2

Institutionalize and scale successful initiatives in close partnership with public and private sector stakeholders, thus crystallizing replicable models for implementation.

  • Partnering with specialized research agencies to embed structured analytics to assess impact and sustainability of Lab interventions and develop new knowledge in digital financial services space
    Building in strategic models and products that leverage lab learnings but can be scaled across wider geographies
    Convening policy & regulatory agencies as well as industry & innovation stakeholders to enable, institutionalize and help scale successful experiments
    Structured Knowledge Creation
    Strategic Innovations
    Policies & Partnerships for Change
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    02
    03

CRACKING THE PAYMENTS JUGGERNAUT

Define

Distinct economic geographies (cities, rural clusters or small towns) where local networks of merchants, consumers, distributors financial services providers, and governments transact with each other

Test

Technology and business models by rolling out initiatives and experiments that combine technologies, business models and institutional innovations to drive large-scale digital payments penetration

Support

Policies and regulations that enable digital payments through analyses and recommendations based on success on the ground

Scale

Successful digital payment initiatives across the country by leveraging strategic partnerships and government programs to inform and institutionalize

OUR ROLE - BOTH THAT OF A SPEEDBOAT AND TUGBOAT

Thought Leadership
Targeted Funding
Project Delivery
Knowledge Management
Convening and Advocacy Platform
Thought Leadership

Design project portfolios, partnerships, end-to-end solutions, enhanced interfaces and hypotheses to be tested on the ground

Targeted Funding

Incubation grants and USAID credit guarantees to promote entrepreneurial efforts to solve market failures

Project Delivery

On-the-ground Project Management Unit to track progress and coordinate stakeholders

Knowledge Management

Collaborative, multi-dimensional research on adoption and use of digital finance, and its long term impact

Advocacy Platform

Multisector partnerships to address key challenges, disseminate learnings, scale successful initiatives, and advocate enabling policies

EVOLUTION OF CATALYST

EVOLUTION OF CATALYST

In November 2015, the Government of India (GoI) and USAID formalize a partnership to promote interoperable digital payment solutions in India, with the objective to expand merchant acceptance and build consumer confidence towards greater adoption and use of such solutions.

INITIAL LEARNINGS

INITIAL LEARNINGS

In its first phase, USAID commissions Dalberg Social Advisors to conduct structured research and implement ground-level experiments with different payment stakeholders across multiple environments (e.g., urban, rural) and contexts (e.g., consumer retail, lending, supply chain). The program generates insights and ideas to overcome barriers faced by small merchants and low income consumers in the adoption and use of digital payments. USAID also convenes 40 partner organizations including private, public and non-profit sector organizations to advance this program.

BEYOND CASH

BEYOND CASH

The seminal report highlights the lack of compelling digital payment value propositions grounded in specific needs and behaviors of end-users. It shows how the vast majority of merchants not using digital payment solutions are simply unaware of associated benefits, and tend to have unconscious biases that prevent their understanding of implicit costs of cash. More interestingly, the report also underscores high satisfaction and endorsement rates among users of digital payment technologies citing benefits linked to speed, security, and lower transaction frictions (e.g., ease of use, no loose change requirements).

CATALYST LAUNCH

CATALYST LAUNCH

Catalyst launches in October 2016 as a dedicated, independent initiative to build scalable templates for operational payment ecosystems. Housed in IFMR LEAD, Catalyst will establish “digital payment labs” in distinct economic geographies and, within these labs, test & design scalable solutions.

PARTNERSHIPS FOR ACTION

PARTNERSHIPS FOR ACTION

The Catalyst Inclusive Cashless Payment Partnership expands to 200+ organizations including major banks and FIs, telcos, fintech innovators, business correspondents, MFIs, local governments, policymakers, regulators, think tanks & knowledge partners, trade associations, donor and development agencies, and domain experts.

CASH-LIGHT JAIPUR

CASH-LIGHT JAIPUR

In late November, Catalyst signs an MoU with the Govt. of Rajasthan, to set up its first “digital payment lab” Jaipur, a city of over 3 million residents. The goal is to systematically activate last mile digital transactions across consumers, merchants and their suppliers, make Jaipur into a “cash-lite” ecosystem, and then scale successful interventions across the country. This will amplify existing policy efforts like Jan Dhan Yojana, Direct Benefit Transfers, and development of the India Stack.

MERCHANT LITERACY

MERCHANT LITERACY

Catalyst launches a vernacular literacy campaign to help small and informal merchants navigate the complex and fast evolving landscape of digital payment solutions by making available credible, accessible and relevant information. To disseminate its content, Catalyst partners with Niti Aayog, the Confederation of All India Traders, Tally Solutions and iSpirt to take the campaign to over 60 million merchants across the country.

WATAL COMMITTEE REPORT

WATAL COMMITTEE REPORT

Catalyst and its partners provide inputs to the Watal Committee Report on Medium Term Recommendations to Strengthen Digital Payments, which are recognized by its author. The Report advances seminal recommendations to create a safe, sustainable and inclusive cashless payments ecosystem.

DIGITAL PAYMENTS LAB

DIGITAL PAYMENTS LAB

Based on learnings from a systematic digitization drive in a dense local Jaipur market, Catalyst sets up multiple digitization experiments across the merchant payment ecosystem, spanning supply chain payments, direct-to-merchant propositions, newspaper vendor collections, city-wide transit payments, and integrated digital finance in an urban slum.

Fintech for the Last Mile Incubator

FINTECH FOR THE LAST MILE INCUBATOR

To address gaps between existing products and unserved segments, Catalyst launches the ‘first of its kind’ incubator to promote innovative and scalable fintech solutions that address the needs of traditionally underserved users. It on-boards five exciting companies targeting varied user segments, employing different strategies, and leveraging different digital technologies.

Mapping the Merchant’s Mind

MAPPING THE MERCHANT'S MIND

In partnership with People Research on India’s Consumer Economy, Catalyst publishes novel research on digital payments use, behaviors, and perceptions across different urban micro-merchant segments, including fixed store merchants, home-based businesses, individual service providers, and street & roving vendors.

Regulatory Sandbox

REGULATORY SANDBOX

Building further on its support to Watal Committee, Catalyst engages with its partner ecosystem to distill a set of case studies that address specific regulatory impediments that are holding back business model innovation in mass fintech applications. Report forthcoming.

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