Cashless SMEs for Digital India

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Paras Singh | 26 Apr, 2017
The Indian small and medium enterprise (SME) sector holds about 8 percent share in the countryâs GDP, with 45 percent contribution to Indiaâs manufacturing GDP and 40 percent to exports from India. This makes an important contribution to Indiaâs economic growth.

Since long, the Indian SME owners have been conducting their business the conventional way, be it their core enterprise operations, marketing or high dependency on cash. Whether it is about making payments to their vendors, suppliers or receiving payments from their customers, cash has been the preferred (and in many cases, the only) mode of transactions.

However, cash transactions have their own drawbacks - there is a lack of transparency, need extensive bookkeeping work and reconciliation of cash takes time. Also, there is room for errors due to extensive manual work involved. Business processes take more time to complete as the physical movement of cash takes time, and this can impact cash inflow drastically - a pain area for small businesses.

In the global business ecosystem, Indian SMEs should jump on the digitalisation bandwagon to reap the benefits that come along. This will not just establish them as greater contributors to the Indian economy, but also open new business avenues for them to leverage.

How Going Cashless/ Digitalisation Helps Indian SMEs

Businesses should strive for improvement and perfection at each stage of growth. Technology and innovation play a major role in ensuring this for SMEs. Businesses that use technology manage to move ahead, and those who donât, remain stagnant and fade out sooner or later. Here are some advantages of digitalisation or going cashless for SMEs in India:

Faster, Safer Payment Cycles

Cash transactions delay business processes as they need multi-level approvals, reconciliation times are high and errors could be many. Physical cash movement involves security threats and withdrawing/ depositing cash in banks is another time-consuming task.

Legal Implications

Cash-only businesses have very little transparency. One has to maintain physical account books, and pulling out old records means a lot of work. Moreover, unless the financial records are maintained clean, the tax department can question business owners for unaccounted cash anytime.

Operational Efficiency

Digitalisation aids in enhancing business efficiency. There are Enterprise Resource Planning (ERP) software available today that are designed for small businesses. These can enhance business efficiency and maximise the ROI without high-cost implications.

Wider Marketing Avenues

Itâs time that Indian small businesses adopted online marketing if they havenât yet! As per a report by IMRB International (a multi-country market research, survey, and business consultancy firm), the number of internet users in India could touch 450 million active users by mid-2017. By going the digital way to market their offerings, businesses can reach out to consumers beyond their geographical location, and go global over time.

Ways in Which Indian SMEs Can Go Cashless for a Digital India:

In the last 5-7 years, several steps have been taken to enable a cashless economy. The introduction of the Aadhaar system is one such initiative in the direction of Digital India. Read on to know ways in which Indian SMEs can go cashless!

Net Banking/ Account Transfers
Net Banking is a convenient option for SMEs to receive payments. Net Banking includes three services for customers to make payments - National Electronic Funds Transfer (NEFT), Immediate Payment Service (IMPS) and Real-time Gross Settlement (RTGS). There is a transaction fee (starting from INR 5 to INR 55) for using the services. While RTGS is used for a minimum amount of INR 2 lakhs, there is no minimum limit for the other two services.

Plastic Money
These include:
- Debit Cards: Issued by banks and are linked to user's bank account
- Credit Cards: Issued by banks and other entities
- Prepaid Cards: Issued by banks and other private partners, they are a good option to cash and cheques

Unified Payments Interface (UPI)
In this payment system, money can be sent or received using a smartphone. One can simply download the UPI App of any bank and link their bank account to it (which happens automatically if the mobile number used is registered on the bank account). With UPI, one does not need to remember or use bank details of the sender or receiver to make a transaction. Itâs a one-touch payment system, wherein the payment is authenticated with an MPIN.

The customer is not required to present any card or remember net banking/ e-wallet passwords. Merchants who accept payments using UPI can ensure customer delight.

Aadhaar Payment App
All the SMEs need is an Aadhaar-linked bank account, an Android smartphone with internet connectivity, a biometric reader and the Aadhaar Payment App to get instant credit into the bank account. This does away with the need for POS terminals. Also, the merchant is not charged any Merchant Discount Rate (MDR) for using this payment method.

Thereâs no need for customers to have an internet connection to make a payment, merchants can accept payments using this app.

E-Wallets
E-wallets are used by consumers to make payments for products and services. Likewise, business owners can use e-wallets to accept payments for their products, services and to make payments to their vendors or suppliers.

E-wallet transactions can remove the liquidity issues of both consumers and business owners as a cheaper and faster payment method. Paytm, MobiKwik and FreeCharge are some popular e-wallets in India. One can visit their respective websites to know more about their payment acceptance services.

Point of Sale (POS) Machines
All that the customers need is a debit or credit card to swipe on the machine and the PIN code for the card. Usually, POS machines cost around INR 3000 and can be integrated with a bank of choice.

Some banks, for example, SBI, install POS machines at business outlets that avail their merchant acquiring services.

Launch Your Store Online
E-commerce has been around for quite some time, and is here to stay! The business model of e-commerce giants such as Amazon, Snapdeal and Flipkart can easily be replicated by offline retailers across India, and it doesnât cost a lot.

By integrating their online store with a payment gateway, online sales can be done on the business website. This will not just help make the SMEs go cashless, but also make their entry possible into markets beyond their physical location. Also, payment gateways are more secure. CCAvenue, Citrus Pay, and PayPal are some highly used payment gateways in India.

In the latest budget, the union government announced that cash transactions above 3 lakhs would mean that whoever receives the cash (the business owner) will have to pay a penalty of a like amount.

In spite of varied options that can help with cashless transactions, there are a few hurdles in making SMEs go largely cashless, some of these challenges are:

- A large section of Indian population is still unbanked
- About 90 percent of workforce is employed in unorganised sector
- Preference for cash

The above challenges are huge and may not be possible to overcome entirely in the immediate future. There is a need to create awareness of the usage and benefits of the above mentioned cashless transaction platforms among consumers as well as SMEs. By leveraging technology and with government intervention, the vision of a cashless economy and a Digital India may be achieved sooner than expected.

(About The Author: Paras Singh - Head of Digital Marketing, Biz2Credit, India is an expert on Fintech marketing. He often writes on matters related to product and services marketing for the Fintech industry. He can be reached at: paras@biz2credit.com. The views expressed are personal.)