Traditional retail at the crossroads of inclusive payment services: How serving the needs of the traditional retail sector can accelerate financial inclusion—examples from Indonesia

Traditional retailers should be incorporated in efforts to expand payment and financial services to under-banked markets. Traditional retailers and their suppliers constitute a significant portion of developing countries’ payment flows and yet have limited access to financial and payment services. They also sit at the crossroads of the cash economy, conducting a large volume of repeat transactions with suppliers as well as unbanked consumers. While incentives for end consumers to pay retailers electronically instead of in cash remain weak, suppliers to these retailers are better equipped and under more pressure to transition to electronic payments. Suppliers’ incentives can be harnessed to expand adoption of digital payments. Electronic payments can bring greater value to retailers and their suppliers if they are integrated with solutions that unlock gains in operations, sales and inventory finance. Because suppliers are generally already banked, only one party to the transaction, the retailer, needs to be persuaded to transition away from cash. If retailers pay suppliers electronically, their own incentive to accept electronic value, instead of cash, from consumers increases. This can help to reach the tipping point at which the switch from cash to electronic begins to be pushed not just for remote but also face-to-face transactions. Non-bank payments and supply chain services for this segment of the economy can help to unlock these economies of scale. Operational and business links between new payment networks and banking services can be mutually beneficial. Mobile and e-money providers have advantages in reaching small retailers, some of which act as agents. Meanwhile banks and supply chain integrators reach suppliers and distributors serving these retailers. Policy makers should encourage these actors to align to serve the needs of the retail industry in a manner that will boost overall payment service uptake and usage.