Four Opportunities for Digitizing Micro-Merchants: What We’ve Learned Building 80+ Prototypes for Financial Inclusion at the Last Mile
When it comes to digitizing small, independent merchants, there’s one thing that’s clear: the benefits need to be immediate.
To understand why, join us for a moment in Patna, India. It’s a hot summer afternoon and a design research team from IDEO Last Mile Money is sitting down with a small shop owner named Kareem. We’ve met up with him to test some ideas we have about how he might be able to sell to his customers digitally, rather than relying on cash-only transactions as he does now.
Kareem owns a “closed format” shop, which has all of the goods for sale behind the counter. Our interview is regularly paused as customers walk up to make a purchase. Each time a customer arrives, they provide an order, Kareem grabs and packs the items, and then he tallies payment. Customers like shopping at Kareem’s store because it’s convenient: it’s close to their homes, he lets them buy on credit, and he goes out of his way to make sure he is stocking what they want.
But speed is crucial for Kareem. With an average order value hovering around Rs. 200 ($2.60 USD) and a gross margin of 10–12%, Kareem has to receive 40–50 customers a day to make a decent living. If customers see a crowd at the counter, he knows they’ll walk away to another store. So his entire focus through the day is to make sure each customer is being serviced quickly and efficiently.
Kareem understands he’s missing an opportunity by not offering digital transactions. “Times are changing. I’m in competition with the big stores but I can’t give my customers the same experience as them,” he says.
When shown some potential prototypes for a digital storefront, Kareem’s questions cut straight to the heart of the issue. He asks, “When would I be able to set this up? I don’t have any free time. It will take a minimum of six months to start getting orders. I also can’t afford for this service to have any problems or for my customers to get angry with me.”
Kareem’s questions highlight a key insight when designing products to digitize merchants: the benefits need to be immediate. Gains that take time to land or accrue benefits slowly are not enough of a hook to drive adoption, and a merchant will consider other options — or stick with what has worked in the past.
Designing for the digitization of merchants
At Last Mile Money, a program from global design firm IDEO, we’ve spent the past three years building and testing prototypes that seek to answer this fundamental question.
We’re interested in understanding what drives small, independent merchants like Kareem, and we’re exploring how we can build products and services that meet their nuanced needs — so that they can carve out a better financial future. In total, we’ve built over 80 prototypes — many in partnership with multinational corporations, such as Unilever, or growing startups like Finja in Pakistan, Marketforce in Uganda and other markets, and Wasoko in Rwanda.
From our high level vantage point, having worked with multiple different merchants across multiple countries, we’ve started to see a handle of trends emerge. Here are the four big opportunities that we’re seeing a growing need to design for.
1. How might we help merchants stock what they can sell, rather than sell what they can stock?
For many independent merchants around the world, inventory is bought and sold on credit. For example, merchants often access store inventory from distributors through trade credit, and sell it to end customers on a monthly credit system. Many of these merchants experience a constant shortage of working capital, especially in times when their customers delay payments — meaning merchants are restricted to stocking whatever they can afford to pay for in cash or borrow for.
Yet most of today’s financial credit products are not built to serve micro-merchants, who often don’t have the conventional business performance data for credit risk analysis and additionally may feel unwelcome or uncomfortable with using traditional financial services.
One effective way of tackling this is to offer more efficient inventory financing tools that meet merchants where they are. For example, working with Finja, a digital financial services platform in Pakistan, we’ve built a simple, intuitive smartphone app that helps merchants order products on low-cost, Sharia-compliant credit from FMCG companies like Unilever.
To ease the financial impact and provide immediate benefit, merchants can access flexible repayment journeys. With Finja, we experimented with repayment journeys that support pauses and delays, with interactions that act as guardrails and help explain the impact of these decisions for merchants in simple, user-friendly terms.
2. How might we help merchants see greater value from using digital money over cash?
Many micro-merchants live in a world where cash is king. Their customers pay in cash, and most traditional distributors want to be paid in cash as well. It’s also perceived as free because there is often a clear cost associated with digital money — not only in terms of transaction fees but also taxes for merchants with taxable income levels. Perhaps even more important is the counterintuitive fact that cash is often faster than scanning a QR code, filling in a long USSD flow, or swiping a card and then waiting for a transaction confirmation which might never arrive. Cash feels simpler and more secure because it’s tangible.
In this environment, it’s challenging to introduce digital payments without a significant value-add. We have a few ideas on how to make digital payments more widely adopted — and they center on making digital money balances more useful.
Some designs we’ve experimented with: helping merchants use digital money balance as collateral to unlock credit for themselves and their customers; earning yield on a balance that can be used to award discounts to end customers; and using digital balance to power a side gig as mobile money agents. In these projects, we’ve also seen the importance of making digital money feel as seamless as cash by giving merchants more control over their funds, through other value-adds like doorstep cash-in and cash-out services with roving agents.
3. How might we help merchants see early wins from digital commerce, while drastically reducing the manual effort of putting a store online?
In India, kiranas are small neighborhood shops that offer a variety of household goods, from food to toiletries. While these shop owners largely deal in material goods and take orders in person or over the phone, there is an opportunity for them to earn additional income through digital purchases.
Working with Hindustan Unilever Limited, we designed ZyadaShop, an online selling tool for kirana owners and other small merchants with the promise to grow their monthly earnings. Imagine if every kirana store had its own digital store — a low-cost onramp to modernization that could increase their monthly income by 50%. Even taking one or two online orders a day can help merchants grow their income by suggesting upsells and discounts. Selling online can build resilience against future shocks, and in the long run, unlock new financial services.
We appealed to shop owners by providing several benefits upfront. First, we set up merchants to sell their bestsellers first, so they see early wins. The shop is also designed to automate catalog creation and make inventory management more contextual and smart, offering nudges to re-order when an item is about to sell out. ZyadaShop also offers automated WhatsApp marketing, so that kirana owners can easily stay top of mind with their customers — an easy way to boost sales with minimal effort.
4. How might we help merchants earn more money by offering digital financial services to their communities?
Today, more and more merchants are willing to experiment with offering cash-in/cash-out (CICO) services as a side gig — ranging from integrating government-to-citizen services to banking services. As adoption increases, it’s becoming more clear that adoption and onboarding processes must be designed for individual contexts — what might speak to a delivery driver in Nairobi might be completely different from what a shop owner in rural Sulawesi needs from an app.
Two years ago, we built and published an open-source Digital Confidence Toolkit in collaboration with Google, which provides easy-to-use tools for teams building products for new internet users.
We recently worked with Eko, a financial services platform in India, to bring the Digital Confidence principles to Eko agents who sell digital products in their communities. Through a smartphone app, Eko merchants and agents can get better at discovering and selling digital financial products to their customers, including insurance, saving deposits, digital payments for OTT subscriptions, and more. We reimagined the app experience to help merchants surface a handful of services that they could sell, helping them feel confident in adding on new digital SKUs to grow their income.
Collaborate with us
These are just some examples of the work that we’ve done over the past three years, and we’re just getting started. Designing digital services for micro-merchants and agents around the world is a growing and exciting space — if your company or fund is working in this area, we’d love to hear from you and explore ways to work together. Reach out to our team to start a conversation, or subscribe to our newsletter to stay in touch.
