Due to the low credit card penetration rate in India, consumers typically purchase products on credit from the local mom-and-pop stores, said a series B fintech startup founder at TechNode Global’s ORIGIN 2020 conference on Wednesday.

However, merchants are becoming increasingly cautious about extending credit during uncertain times, said Harsh Pokharna, co-founder and CEO of digital bookkeeping startup OkCredit during a fireside chat with Tarana Lalwani, director of venture debt firm InnoVen Capital. “We saw a dip in user engagement during the pandemic as merchants were extending less credits, and non-essential businesses were closed during the lockdown,” he said. 

“But as the lockdown eased, we are now witnessing strong recovery in demand for the app,” said Pokharna, noting that OkCredit witnessed a double-digit recovery in September.

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While the pandemic has shuttered many mom-and-pop stores, Pokharna said that it has also accelerated the adoption of digital payment due to the fear of handling virus-contaminated cash. “India has been a cash driven economy. But with the government driving awareness of digitization, consumers are now seeing the advantage of digital payments,” he said. 

“As people get increasingly comfortable with entertainment and communication mobile applications, they realize how businesses could benefit from the applications too,” said Pokharna. Indian internet users are fond of social media, with an average of 17 hours spent on the platforms weekly

Switching to digital payments is not as straightforward as providers assume, said Pokharna, as many costs must be paid in cash. “Merchants now have to withdraw cash from the bank to pay suppliers and employees,” he added.

India’s digital sprint is also creating a digital divide. “There are barriers hindering the provision of equal digital economy opportunities,” said Pokharna, naming two: First, “small merchants lack the understanding and knowledge for existing technology.” Second, it may be prohibitively expensive for merchants to adopt such technologies.