Digitalization of merchant’s transactions
Digitalization of merchant’s transactions
Business Model Description
Develop applications that use point-of-sale (POS) terminal, not only allowing customers to pay electronically, but also enabling them to buy pre-paid airtime and pay their utility bills at the store, as well as use food vouchers. Furthermore, the same platform can allow merchants to consolidate the purchases of their inventory and create a digital log of transactions.
Expected Impact
This initiative intends to formalize micromerchants and provide digitalization to the largest mass consumption channel in the country.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
Sector Classification
Technology and Communications
Development need
>Only 42.56% of households in Colombia have a computers and/or tablets and around and 73% have a mobile phone (1).
Policy priority
> Modernization law of 2019 intends to modernize institutions and focalize investments to facilitate the deployment of high cost infrastructure in the ICT sector. Auctions of the connectivity expectrum have taken place (2)(3).
Gender inequalities and marginalization issues
>Only 6.11% of women work in the ICT sector, without growth over the last years (24).
Investment opportunities
>The IT sector is expected to grow with prospects for U.S. companies derived from the Trade Agreement (4).
Key bottlenecks
> The main bottlenecks and obstacles include rural connectivity infrastructure development and deployment, access to technology and devices and skill development among less educated population.
Technology
Development need
>Low penetration of technology in companies: internet of stuff (14,8%), robotics (11,1%), 3D printers (4,8%), virtual reality (1,7%), Big Data (16,8%) and AI (9,7%). Only 16% of large companies as of 2017 sold through digital channels. (23)
Policy priority
>Modernization law of 2019 intends to modernize institutions and focalize investments to facilitate the deployment of high cost infrastructure in the ICT sector. Auctions of the connectivity expectrum have taken place (2).
Gender inequalities and marginalization issues
>Only 6.11% of women work in the ICT sector, without growth over the last years (24).
Investment opportunities
>Micro commerce is the sector that is growing the fastest in digital adoption in Colombia (+37%) Digital transformation and efficient management through Big Data and AI, digital economy adoption, digital and mobile banking (5).
Key bottlenecks
>The main bottlenecks and obstacles include capex intensive connectivity development, transport infrastructure lags and low skills and adoption of technologies.
Software and IT Services
Pipeline Opportunity
Digitalization of merchant’s transactions
Develop applications that use point-of-sale (POS) terminal, not only allowing customers to pay electronically, but also enabling them to buy pre-paid airtime and pay their utility bills at the store, as well as use food vouchers. Furthermore, the same platform can allow merchants to consolidate the purchases of their inventory and create a digital log of transactions.
Business Case
Market Size and Environment
< USD 50 million
> 25%
> There are ~300.000 micro-merchant stores in Colombia. A Solution that provides digital payments and vendor integration can cost $150 USD/year, making this a $45MUSD opportunity (13).
> Micro commerce is the sector that is growing the fastest in digital adoption in Colombia (+37%) (22).
Indicative Return
> 25%
Series A investors of a similar start-up in Africa (Flutterwave) have gained 45-50% in IRR (14).
Investment Timeframe
Long Term (10+ years)
Most profitable exits are likely to be after 10 year investments, however average holding period of VCs is around 5 to 7 years (16).
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Impact Case
Sustainable Development Need
> 90% of merchants are informal, have no access to credit and are lagging behind in digitalization (6).
> 93.6% of internet users use cash in their monthly expenses (7).
Gender & Marginalisation
>Micro-merchant stores are considered female entrepreneurships because 57% of micro-merchants in the country are female, and 64% are heads of households, therefore merchant digitalization is part of solving the digital gender gap (12).
> Gender gaps still exist in terms of levels of access to financial services, favouring men. In 2018, 80% of adult women in Colombia had access to at least one financial product whereas 82.6% for men.
> According to a survey performed in 2018 by the MINTIC, 52% of surveyed women said that they would not consider a career in ICT due to gender-based stereotypes, including parental disapproval (24).
Expected Development Outcome
> Increase micro-merchants' access to credit so that they can plan for the future and recover faster from economic shocks.
> Provide micro-merchants with technology and tools to increase their competitiveness.
> Aid formalization through subscriptions to digital platforms, and provide information for banks to provide tailored financing alternatives.
Gender & Marginalisation
> Reduce the digital gender gap, working towards solving other inequalities such as income levels.
> Challenge social stigmatization regarding women using technology.
Primary SDGs addressed
8.3.1 Proportion of informal employment in total employment, by sector and sex
8.10.2 Proportion of adults (15 years and older) with an account at a bank or other financial institution or with a mobile-money-service provider
Current level (2018): 52% formality in 2018 (8).
Current level (2018): 67% of adults have a financial product. (8).
Target level: 60% of formality by 2030 (8).
Target level: 70% of adults with a financial product by 2030 (8).
Secondary SDGs addressed
Directly impacted stakeholders
People
Corporates
Indirectly impacted stakeholders
Corporates
Public sector
Outcome Risks
>There is a risk of increased automatization reducing current manual jobs, temporarily increasing unemployment.
> Increased health problems due to a sedentary lifestyle where all purchases take place electronically.
Impact Risks
External risk: >Lag in connection advances or inequality in the implementation for rural population hindering education, business performance and ultimately income and quality of life.
Drop-off risk: > Adoption of technologies might be delayed by the lack of skills of the target population. > Micro-merchants might not be able to understand the benefits of using the technology and refuse to adopt it.
Gender inequality and/or marginalization risk: > Challenging gender stereotypes about the use of technology risks unequal access or benefits.
Impact Classification
What
Positive and significant outcome due to increased efficiency and technology adoption.
Who
Underserved stakeholders working as micro-merchants in peri-urban Colombia.
Risk
Failing to develop digitalization could reinforce low productivity and thus poverty traps.
Impact Thesis
This initiative intends to formalize micromerchants and provide digitalization to the largest mass consumption channel in the country.
Enabling Environment
Policy Environment
(Business for people (Tiendas para la gente -2019)): government program designed to provide resources for micro-merchant to reactivate their business following the Covid-19 pandemic crisis. Digital workshops are a fundamental part of the program (17)
(MINTIC (2019)): Transforming to a digital micro-merchant: program led by the MINTIC to encourage the digital transformation of the traditional channel (18)
(Bogotá Local (2020)): program led by the city of Bogota to offer support to SMEs affected by the pandemic (21)
Financial Environment
AppsCo is an accelerator program led by MinTIC and a government led entrepreneurial fund that invests $2,000M COP every year on 25 technology-based start-ups (20).
Financial incentives: Bancolombia: Has a $ 30,000MCOP credit line for merchants seeking to cover the traditional channel's most pressing financial needs (21).
Other incentives: UNDP: the UNDP is supporting community stores through a methodology proven in the region with the intention of reactivating local economies, with the stores becoming productive nodes that will dynamize local economies (19).
Subsidies: Alcaldía de Bogotá: the city of Bogotá is providing subsidies for micro-merchant stores for salaries to foster recovery from the Covid-19 pandemic (21).
Regulatory Environment
(Law 1978 of 2019): telecommunications network providers may execute projects for the benefit of the most vulnerable communities that contribute to closing the digital divide (2).
(Orange economy (2018)): The government aims to promote Colombia as a regional and global target market for the development of the orange economy, and to double its contribution to GDP from 3.5% to 7% between 2012 and 2022 (20).
(Modernization law): It aims to accelerate the expansion and upgrade of the network, tighten the regulatory framework and close the digital divide (20).
Marketplace Participants
Private Sector
Asobancaria (financial institutions association): Leading Project F, design to reduce the use of cash and make Colombians more connected to the use of electronic media and services (7). Tpaga: mobile wallet that has just received a new capital injection for $ 1.5MUSD from strategic investors, led by the Corbeta group (25). Companies like Teaté and Bavaria have ongoing business models targeting micro-merchant digitalization.
Non-Profit
The UNDP is supporting community stores through a methodology proven in the region with the intention of reactivating local economies, with the stores becoming productive nodes that will dynamize local economies (19).
Government
The MINTIC and the national government are important actors in the digital transformation of the traditional channel, since they are currently promoting it through policies and campaigns.
Target Locations
References
- (1) MINTIC (2020) Indicadores básicos de TIC en los hogares. Accessed february 8th 2021
- (2) MINTIC (2019) ¿Qué es el Proyecto de Ley de Modernización del Sector TIC? Accessed february 8th 2021
- (3) Oxford Business Group (2020) - New ICT laws and attention to innovation increase Colombia's internet coverage. Accessed January 26 2021
- (4) International Trade Administration (2020) – Information and Communication Technology. Accessed January 26 2021
- (5) EMIS Insights (2020), Colombia ICT Sector Report 2021-2022
- (23) Semana (2018) Analítica de datos, una de las tecnologías con más futuro en el 2018. Accessed February 8th 2021
- (24) MINTIC (2018) Así usan la tecnología las mujeres en Colombia - Accessed February 8th 2021 -https://www.mintic.gov.co/portal/inicio/Sala-de-Prensa/MinTIC-en-los-Medios/64128:Asi-usan-la-tecnologia-las-mujeres-en-Colombia
- (6) Bernal et. Al (2018). La calidad de vida laboral de los tenderos. Revista Ploutos, 8(2), 48 -59.
- (7) Asobancaria (2017) – Proyecto F, Diagnóstico del uso de efectivo en Colombia. Accessed February 8th 2021
- (8) DNP (2018) Objetivos de desarrollo sostenible. Accessed February 8th 2021
- (9) Serviinformación (2016) – V! Censo Comercial InfoComercio; Tiendas de Barrio. Accessed February 8th 2021
- (10) DANE (2018) – Estratificación socioeconómica. Accessed June 3rd 2020
- (11) La República (2019) - Tiendas de barrio, el canal tradicional que se sigue reinventando. Accessed February 8th 2021
- (12) Cámara de Comercio Santa Rosa de Cabal (2018). Caracterización del sector tendero en Colombia.. Accessed February 8th 2021
- (13) Bancolombia – Así evoluciona la producción en las industrias 4.0. Accessed May 23rd 2020 . Accessed February 8th 2021
- (14) Crunchbase – Flutterwave Investment Rounds. Accessed May 24th 2020
- (15) La República (2021) – Fintech son el tercer destino de inversión. Accessed February 8th 2021
- (16)Finextra (2020) – Fintech to drive biggest VC exits over next five years. Accessed February 8 2021
- (17) Prosperidad social (2020) -Avanza el proyecto piloto Tiendas para la Gente en el marco de la reactivación económica del país. Accessed February 8th 2021
- (18) MINTIC (2020) MinTIC lanza campaña para que los tenderos se transformen digitalmente -Accessed February 8th 2021
- (19) UNDP (2020) -Modelo de tiendas comunitarias de PNUD Colombia reactiva la economía en zonas rurales - Accessed February 8th 2021
- (21) Alcaldía de Bogota (2020) - Beneficios para el micro empresario. Accessed February 8th 2021
- (25)La Nota Económica (2018) - Microcomercio, el segmento que más crece en pagos electrónicos en Colombia. Accessed May 28th 2020
- (26) Portafolio (2019) – Alkosto aporta a Tpaga para llegar a las tiendas. Accessed June 2nd 2020