What explains low adoption of digital payment technologies? Evidence from small-scale merchants in Jaipur, India.

The availability of digital payment technologies (such as internet banking, mobile money, and credit/debit cards) has rapidly increased in the developing world, and is a cornerstone for financial inclusion initiatives in developing countries. Despite significant efforts to promote digital payments, rates of adoption remain modest in some low-income countries. In particular, the rate of adoption in India remains low despite significant efforts to promote adoption. In this paper, we consider possible reasons for the low rates of adoption among merchants in Jaipur, India with small fixed-location store enterprises. Using survey data for 1,003 merchants, we find little evidence that supply-side barriers to obtaining necessary infrastructure or meeting prerequisite requirements to adopt digital payments explain the low level of adoption. Merchants are able to obtain infrastructure to transact digitally (such as bank accounts and smart phones), fees on digital platforms are affordable, and merchants are sufficiently literate to be able to use digital payment systems. We conclude that adoption is both feasible and inexpensive. Therefore, low rates of adoption do not appear to be the result of supply-side barriers, but due rather to demand-side factors or taxes. We find direct evidence of such demand-side factors, such as a perceived lack of customers wanting to pay digitally, and concerns that records of mobile payments might increase tax liability. Our results thus suggest that simply lowering the costs associated with adopting these technologies is unlikely to be successful in increasing adoption of digital payments.