Merchant Payments

Retail payments in a typical economy tend to represent around 10% of employment, 15-20% of GDP and 25-50% of consumer expenditure. In advanced economies, a substantial majority of this spending is now electronic, whereas in developing markets retail is still an almost entirely cash based space. This may however be about to change, thanks to the rapidly growing uptake of electronic wallets e.g. in the form of mobile money accounts.

Such a change could have a significant impact on efficiency of the economy as a whole, but potentially also on financial inclusion. By making financial interactions more transparent, it can help dispel the informality and lack of information that prevents financial service providers from serving large portions of the population in many countries, extending and deepening access to services for retailers and their customers alike. And by creating sizeable new market opportunities, it can further sharpen competition among providers, which should in turn lead to lower prices and better products for their users.

Digital financial services providers have seen this opportunity and are starting to try and seize it, yet are struggling to get the business model right and overcome the challenges of a two-sided market with a strong incumbent—cash. CGAP’s merchant payment work aims to help establish digital retail payments as a compelling use case for both merchants and consumers by understanding and overcoming these challenges.

Our work includes efforts to understand the pain points of merchants and consumers around retail transactions, to identify bottlenecks and opportunities for digital solutions to add value, to improve the core usability as well as value added services that strengthen the proposition as well as to explore what lessons can be learned from developed markets with more advanced retail payment ecosystems.