Why Digital Economy Is Tough To Start?

This is in response to the following post. Forget the 3-wheeler fellow. Let’s take a vendor selling a Rs. 100,000 phone with a Rs. 8,000 margin. Card taxes alone can take about Rs. 3,900 — half of the vendor’s margin — for almost doing nothing. What about his other expences? This creates a vicious cycle, especially for small daily-dose-vendors, driven by card taxes and service provider fees. It cuts into their daily earnings and sustainability.

This is not alone a civil society issue. This is daily wage, duopoly tactics, financcial policy and reforms issue.

Breaking The Cycle

To break free from this, we should encourage local routing with FREE or less than 1% transaction fees, at least for some time, until a critical mass of vendors adopt these systems. This is exactly how India successfully adopted digital payments through its UPI system and platforms like PayTM. They made transaction fees free until widespread adoption was achieved.

Probably, PickMe’s payout periods and commission structures also play a critical role. While PickMe may have reached the critical mass to justify higher fees, other yet-to-be-launched digital app services cannot follow suit. If they try, people simply won’t use them as long as the cash-based, zero-transaction-fee option remains available.

Lessons From China

China’s WeChat employed a similar strategy for low-end penetration.

Commission For Merchants

WeChat Pay typically charged merchants a commission of around 0.6% per transaction. This rate was subject to adjustments, with reports indicating it was reduced to 0.2% for certain non-profit transactions on campuses in response to backlash from users and institutions.

User Fees

For users transferring money from WeChat Pay into their bank accounts, a commission of 0.1% was applied. This also extended to payments made to credit card debts starting in 2018.

The Need For Policy Intervention

So, as I said, forget the three-wheeler fellow. What we need are solid, government-backed financial policies and smart financial solutions to address these challenges. ප්රශ්නය වැරදි පැත්තෙන් අල්ලාගෙන දුවලා පැනලා බැනලා වැඩක් නෑ

To promote digital payments, we must:

• Begin with local routing and very low or free transaction fees to encourage adoption among ordinary people.
• Follow India’s example, where cash was largely banned, zero transaction fees were implemented, and other tactics were employed to achieve critical adoption curve.

A Call For Smart Solutions

හිසරුදාවට ගොඩ පැලැස්තර දාලා වැඩක් නෑ. we need structural changes to the core issue:

• Implement a local routing system like LankaPay.
• Introduce a government-backed or private bank card or wallet with minimal transaction fees, free or starting at just 0.5%.

Modern third wrd problems require modern, smart solutions. For example, WeChat, which is somewhat akin to PickMe, even applied a 0.1% payout fee to encourage users.

Meanwhile, apulse for PickMe for their local startegies against Uber, PickMe may have reached the critical mass to justify higher fees, but other yet-to-be-launched many digital services cannot follow suit. If they try these higher fees, people simply won’t use them as long as the cash-based, zero-transaction-fee option is freely available.

Why should we pay a 3+% VISA tax locally? Add to that 5% to 10% service provider fees, and it becomes an unbearable burden for small daily dose vendors. Specially in this shrunken third-world-econmy.

On the other hand, we have to be smart and reinvent. Companies like Google give away digital products for free and generate revenue elsewhere. Likewise, smart digital services should need smart strategies to beat the low end adoption curve and take the country forward.