Empowering Merchants: Solving Operational Challenges with Digital Payments
-By Priyasy Bokadia April 28, 2023 5 min read


The financial industry in India is undergoing a payments revolution and merchants have become one of the top priorities for payment aggregators and gateways after consumers. India recorded about 32,700 million digital payment transactions between April-July 24 (FY 22-23), according to the latest data by the Ministry of Electronics and IT driving digital growth in India. Digital payment systems have led to the payment sector’s growth by offering a real-time, low-cost, flexible, dynamic, and multi-currency payment ecosystem.

With digital payment solutions being rapidly adopted by consumers, SME merchants had no option but to adopt digital payments to provide fast, secure, and frictionless payment solutions to consumers. However, merchants faced several transaction issues while adopting digital solutions - from recording and settlement to reconciliation.

Back to basics

Managing cash flow of day-to-day transactions of a small business was not an easy task but yet an important key to a stable & sustainable business. Additionally, lack of liquid money to grow the business and improve operations further had adverse effects on SMEs. And, even if the merchants somehow manage to tackle it, payment processing and bookkeeping were still a headache and reduced a merchant’s profit margins. Which left merchants with less time to focus on the growth of their business.. Currently, most SMEs do not have a process in place that helps them capture customer feedback and implement it. Listening to your customer's feedback and addressing their issues and solutions leads to an improved customer experience and higher store footfall.


When it comes to conducting business and processing financial transactions, merchants nowadays confront a number of obstacles. Currently, one of the main problems for retailers is the time and effort needed to reconcile payments from various UPI applications. It is challenging to remember which UPI app was used for a certain payment given the wide variety of UPI apps available today which causes confusion and errors and makes merchant's life difficult. Having to switch between multiple applications for various business tasks creates more issues for the merchants can solving them. They may, for example, use one app for inventory management, another for payment processing, and yet another for Khata maintenance. With multiple apps come security threats and data breaches. To overcome this range of issues for merchants there is a need for Fintechs and banks to join hands and facilitate payment and operation solutions for the growth of the SME sector.

Is there a solution?

The operational issues merchants face must be tackled by banks and organizations like NPCI to enable smooth and seamless digital payment solutions. McKinsey’s Global Payments 2021 report states that merchant acquirers like banks can improve their service quality by considering options beyond core banking or core payments acceptance for offering solutions to merchants for adopting e-commerce. According to a PwC Global Fintech Survey, 73% of the respondents perceived that the banking industry is most likely to be disrupted by FinTech. But is this disruption a blessing in disguise? Can banks and fintech collaborate to solve daily operational issues for SMEs and their merchants? Will the partnership between banks and fintech make things better for merchants?

To help merchants and SMEs adopt smooth digital payment solutions, the Reserve Bank of India (RBI) has stated that post-March 2022, only payment aggregators (PA) licensed by RBI can continue to operate PAs. This measure was taken to curb the number of PAs to eliminate operational bottlenecks and smooth operations. Further, only two interoperable QR codes will be applicable in India: UPI QR and Bharat QR. So, all payment system operators (PSOs) must use one or more of these two interoperable codes. It will also help ease the reconciliation and merchant settlement process and improve user convenience and system efficiency. It is imperative for merchants to abide by the various rules and guidelines to avoid delayed payments, fraud, and cyber security risks.

The larger view - What do the studies say

The Indian digital revolution is expected to thrive owing to the measures taken under the Digital India campaign, including helping merchants ease their digital payment solutions, increasing the use of smartphones, and the availability of cheap internet, among others. India is witnessing a digital boom due to the adoption of digital technologies, demand for seamless payments, government measures, and widespread smartphone and internet penetration. As per stats by Forrester Research, the retail sector in India was worth $883 billion in 2021, with grocery retail share at $608 billion, and is targeted to reach $1.3 trillion by 2024. It is worth noting that the growth is led by SMEs, with 75% of the retail market share held by mom-and-pop stores.

According to McKinsey’s Global Payments 2021 report, real-time payments have transformed the global payments ecosystem. The report states that India registered 25.6 billion transactions in 2020, an increase of 70% over 2019. Digital payment innovations like Unified Payments Interface (UPI) have helped India transition toward cashless payments. The National Payments Corporation of India’s (NPCI) July 2022 data shows UPI transactions (P2M and P2P) reaching 6.29 billion transactions volume-wise and Rs.10.63 in value. Likewise, Quick Response (QR) code solutions like BharatQR have further aided the digital payments revolution in the country. The Phone-Pe BCG report stated; there are currently over 30 million merchants who accept QR code payments; five years back, only 2.5 million merchants used to accept QR code payments in India.

The latest PhonePe and Boston Consulting Group (BCG) study highlights the acceleration of India’s digital payments sector, with the industry expected to triple growth to over $10 trillion by 2026.

In conclusion, merchants need cost-effective services that can help solve their daily operational payment and settlement issues with the rise of digital payment adoption by consumers. Merchant issues have usually been the least priority for the banking sector with their customer-first approach. But it is the banks who acquire merchants through current accounts and the weight of solving merchants' operational efficiency lies with them and has always been neglected. However, the entire narrative changed when payment aggregators entered the market with QR codes and challenged the existing payment model by banks and made merchants' daily business operations easier. If the banks do not adapt and take action it is only a matter of time before technology will defeat the trust and legacy. Payment aggregators who have made payment reconciliation easy for merchants will soon be the only POC for credit and lending services if banks do not provide innovative solutions to their merchants.