Merchant Payments: A Key to India's Drive for an Inclusive Digital Economy?

In the aftermath of the 2007–2008 global financial crisis, we have become increasingly aware of the unique and often heavy costs borne by the poor to use the financial services many of us take for granted. This is just as true in the world’s wealthiest nations as it is in its poorest. But in emerging markets, cash-based economies can impose additional costs on the poor.

Consider Rambabu, a tea vendor in Kota, India. He sells over 500 cups of tea a day, and one of his biggest challenges is providing small change to his customers. To make the small change he needs, Rambabu pays beggars 100 rupees to exchange 1,000 rupees into small denominations. That’s a 10 percent surcharge. Rambabu also struggles to safely transport and store his earnings at the end of the day.

Rambabu isn’t the only one impacted by India’s cash economy. High fees in the informal market can further reduce the disposable income of those ...

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