Digitizing Payments in India: Inducing Behavioral Change Through Peer Comparison

Bharat Inclusion Initiative
Published in
5 min readAug 8, 2018


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Over the last decade, financial inclusion — access to and use of formal financial services — of the underserved and excluded populations has become a priority goal of National Governments as well as International Organizations. Transaction accounts (such as bank account, mobile wallet, payment card, or similar electronic instruments) that allow individuals to store money, and send and receive payments are often seen as a building block towards this goal, and a gateway to other financial services.[1] With technological innovation and enabling regulation, the use of transactional accounts for digital payments is a low-cost and efficient way to bring low-income households within the purview of formal financial system. Further, research has also shown that digital payment accounts allow individuals to improve their income earning potential, thus reducing poverty while helping them manage financial risks better[2].

In India, Pradhan Mantri Jan Dhan Yojana (PMJDY) has led to a considerable increase in bank account ownership with an additional 310 million more Indians owning a bank account since the scheme’s launch in 2014. According to the Global Findex, 80 percent of the adult population in India owned a bank account in 2017 compared to 53 percent in 2014 and 35 percent in 2011. However, a large proportion (48 percent as of 2017) of these accounts remain inactive, i.e. they had no transaction over the last 12 months. Furthermore, while mobile phone ownership is nearly ubiquitous in India, unlike countries like Kenya, mobile money accounts remain extremely low with only 2 percent of the adult population owning such an account (2017, Global Findex). The prime reasons for low adoption and usage of digital payments are often habitual (making payments in cash) and may stem from fear of handling technology.

Some of the most frequent and regular transactions that individuals make are as customers of micro-merchants such as food and beverage outlets, kirana stores, medical stores, consumer electronics vendors, beauty parlors, and barber shops. However, these merchants operate in primarily cash-based ecosystems. Fewer than 6 percent of micro-merchants accept digital payments[3], and cash and check cumulatively account for 97 percent of all retail transactions in India.

Given the high up-front costs (in terms of time, effort and money) of setting up a new system of accepting payments, one of the prerequisites for micro-merchants to start transacting digitally is for their local ecosystem, comprising those they economically transact with (customers and suppliers) to be equipped to transact digitally as well. This creates a vicious circle where customers, merchants and suppliers are individually unable to as well as less inclined to undertake transactions digitally. A recent study by IFMR LEAD has found that the formal nature of agreements between merchants and their suppliers (in terms of supplier choice, stock required and frequency) makes digitizing the supply size transactions much easier. However, for merchants to accept digital payments there needs to be a regular demand for the same from their customers. If majority of their customers aren’t equipped to transact digitally, the merchants have very little incentive to adopt and accept digital payments as well.

One potential way to incentivize both consumers and merchants to adopt digital payments could be peer comparison. There is a growing body of work in behavioral economics which shows that comparing individuals with their peers, colleagues, neighbors etc. can be an extremely effective way (and sometimes more so than financial incentives) to change behavior. It is human behavior to make efforts to conform to what is believed to be the social norm, and therefore, messaging about social norms could change people’s perceptions about what is normal, thus leading to behavioral change.[4] If individuals believe that others who are part of the same socio-economic group use a particular technology, then the fear of falling behind might encourage them to gain knowledge about that technology, and maybe even learn to use that technology.

As part one of our experimental study, we aim to test whether peer comparison can lead to increase in (i) knowledge (ii) acceptability, and (iii) adoption of digital payments among low-income consumers and micro merchants. We also expect to gain insights into the impact of adoption of digital payments on the business outcomes and practices of micro-merchants i.e., on their patterns of saving, receiving, borrowing, investing money as well as, on their business practices such as maintaining cash flows and budget. With increasing push towards the use of digital payments, it is imperative to identify impact of payment digitization on the business performance of micro-merchants in developing countries, as it has implications for growth of millions of micro-enterprises and their eventual alleviation out of poverty.

[1] World Bank, Universal Financial Access 2020 initiative

[2] Suri and Jack (2011). Risk sharing and transaction costs: Evidence from Kenya’s mobile money revolution. Working Paper.

[3] Dalberg, 2016

[4] Datta, S. and Mullainathan, S. (2014), Behavioral Design: A New Approach to Development Policy. Review of Income and Wealth, 60: 7–35. doi:10.1111/roiw.12093

About the Author:

Magda Hassan, Jaideep Prabhu, Khushboo Gupta and Parul Agarwal are Bharat Inclusion Research Fellows who are working on understanding the ‘Impact of Digital Technology on Financial Inclusion and the Performance of Micro-Entrepreneurs’. They tweet at @jaideepprabhu, @hassanmagda, @parulagarw, @khushboogupta92.

About Bharat Inclusion Initiative:

Bharat Inclusion Initiative (BII) is an incubator platform at CIIE that provides entrepreneurs the domain knowledge, training, financial support, mentorship, and market access they need to bring inclusive, for profit-business to life. BII’s core design is to promote technology driven entrepreneurship towards the delivery of affordable services to the Bharat Segment- the poorest 200 million households in India who survive on less than $5 per person a day through programs, fellowships, and funding where possible.

The program focuses on solutions leveraging technology open access, inclusive technology platforms such as the India Stack. It integrates financial inclusion research with entrepreneurship and training to transform these solutions into scalable, viable and high impact businesses. We are keen on partnering with entrepreneurs who are driven by building next-generation digital services for India. Reach out to us at bharatinclusion@ciieindia.org or ask your questions in the comments section below.



Bharat Inclusion Initiative

We aim to build knowledge, foster innovation & entrepreneurial activity towards improving financial inclusion and livelihood for the poor.