Banking At The Merchant-A Global South Perspective

Introduction

I am inspired by the writings of my peers. Alex Johnson’s most recent blog post (https://fintechtakes.com/articles/2024-05-03/merchants-future/) is very detailed, well-informed and a pleasure to read-as always. Please do make time, if you could, to go through it.  The convergence of merchants and banking is an exciting possibility. Merchants accept payments made via cards, wallets and other bank-driven products. They are acquired by banks. Of course, BNPL continues to be quite popular in offering credit at point of sale. SoCash in Singapore has offered cash out at checkout. PayTM had a rather successful mass-retail point-of-sale lending programme for a while. But can we go beyond that? The history of credit in-store is different out here than in the US. The format and socio-cultural place of the convenience store, too, is not the same. Yet, technology has been staying ahead and consumers live in different realities at the same moment. They walk along dusty(or muddy) streets to shacks to buy things; they use smart-phones to scan and pay and are distracted by short videos; the brands they buy are often global and mostly offered by multi-nationals; there are others who shop online in large volumes. This makes banking at the merchant a distinct possibility and a challenge. If it can succeed, the economics of consumer banking may change. 

Banking in mass-market physical stores

 In our part of the world, mass-market merchants have been penetrated by both wallets and banks via QR codes and voice boxes. So in many ways they are already an extension of the banking ecosystem. There are around 1.3 Million sari-sari stores in Philippines, 3.5 Million warungs in Indonesia and 13 Million Kirana stores in India. This does not take into account the numerous other retail operators at the semi-formal and informal level. For instance, there are street pushcarts and vendors. There are hawkers who pay a fee to malls and at marketplaces.  I would suggest that looking at bigger format physical stores does not make sense because the SEC B-C segment is unlikely to find reason to bank there. The store formats and interactions are not conducive. SEC A account holders prefer to go online or to the branch. What might be the reason that people would want to bank at their local convenience store? I write here without the benefit of formal primary research on the ground. There is evidence, from the likes of Palawan Express in the Philippines, that pawnshop businesses can expand successfully into providing other financial services such as remittance cash-out.  That is encouraging since these shops are brick-and-mortar and often found in malls. But there is also the matter that consumers do have a defined expectation from pawnshops. That is not the case for general retail. I would argue that we do not have enough evidence about how long-term habit-formation will occur. Therefore, apart from specialised retail contexts(pawnshops), straightforward banking at mass market retail will be a challenge. 

Re-thinking the purpose of the physical store in banking

Re-looking mass retail’s role may lead to a much more favourable outcome. Let us think of merchants as data processing nodes as opposed to  just receivers of payments. CPG companies are pretty good at picking up consumer insights inside shops. For instance, a pricing promo can test how much the sampled market would be open to paying. Specific brand offers can both lift take-up but also give significant data of responsiveness to the promo execution itself and the accompanying context(season, day, time, location of store). Taking that as a guide, financial institutions can incentivise in-store consumers to provide more information about their needs and preferences as well as inclination towards specific campaigns. That may be targetted towards those spend some time in or around the shops. Given a certain degree of social interaction between shopkeepers and customers, this becomes much easier. The instruments used could be flyers or posters; demos of products via tablets carried by staff can be done as well. Incentives can vary from vouchers to participation in lucky draws and In any case, the point of sale itself provides a lot of valuable data, such as basket sizes; spends by season, day of week and time of day; kind of product and brand purchased. In the supply chain of consumer data, the mass merchants can become quite important for banking products and help shape how these are packaged and presented. It is possible to go a step further-sometimes. Depending on the number of merchants recruited to a specific campaign(and the interest of the financial institution to scale it up), the campaign can seek responses via QR code(with incentives sent to the GCash account of the user or allowing a voucher to be stored on phone for later use)  and process the responses instantly via sentiment analysis(for example) or straightforward analytics(if that be the need). I mention sentiment analysis because this store environment embedded in the community is good for capturing qualitative and open-ended findings through a relatively close-ended process. The extent to which a near-real time stimulus or notification could be sent back to a QR code user would be interesting to observe-it might be possible depending on how things are set up. We can see, the, how it works- a signboard encouraging visitors to a store to participate in a demo or send an opinion to an FI and getting a reward along with a possible further call for action. In Southeast Asia and many other markets with a reasonable smartphone penetration among the masses and the widespread use of Facebook and Tik-Tok, offline and online can come together to bring banking products to the broad base

Online Checkout and Open Banking

I would, however, move onto a more exciting segment- banking via Pay By Bank interfaces at online checkout. In recent months and years, Pay-By-Bank has started coming out as the rail of the future. It usually exists in two flavours- the more well-known instant payment where chargebacks are not possible(yet) and payment sizes are capped; the lesser-known but developing, pay by account where transactions are secured and uncapped and where mandates might be added. While both categories may operate off their own ACH architectures, the latter has the advantage of allowing the end-user to choose one of several bank accounts to pay from-and hence also access a diversity of banking products. A consumer can, therefore, shop online and decide to pay from one of a number of bank accounts-and accept an offer to subscribe to a deposit scheme or endowment plan or buy a card from one of these (or another) bank within the bank network. He/she may even be offered and agree to take (or not) a event-specific line of credut. This is where I see pay-by-bank really come of age in our part of the world. The consumer is able to receive offers from banks within an appropriate context, decide on taking any of these and permit the use of data to provide benefits to him/her. The delivery of benefits is contingent on a robust data framework being present and banking at checkout can be a strong driver for this. This is, obviously, a path to Open Banking and it becomes very relevant in this part of the world given the role of e-commerce and online shopping. 

In Conclusion

The paradox that is the Global South is an area of great potential. There is the co-existence of physical, humble, everyday stores and sleek online merchants; underbanked people consuming media via smartphones; persisting gaps in credit being present side by side with high use of online wallets, rapid growth of bank accounts and pay-by-bank. The core proposition of banking at merchant is about bringing consumer insights to banks and banking offers to consumers, both in the context of shopping. Thereafter, the longer engagement between financial institution and consumer follows. Over time, as data processing comes closer to the edge and user interfaces become more intuitive, there is a chance of seeing customised financial products. For now, there may be constraints as banks have to deal with the evolution of compliance and growing threats from bad actors. Countering this will require a mature data framework which in turn will lead to Open Banking. Then, banks will truly go selling where we are shopping.