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The Impact of Digital Finance & Payments on SMEs

Man using mobile payments online shopping and icon customer network connection on screen, m-banking and omni channel, all on mobile screen are design up

Digital finance is a powerful means for SMEs to expand access beyond financial services to other sectors, including agriculture, transportation, water, health, education, and clean energy. In an evolving landscape, with so many options, a smart SME owner must assess what digital finance can do for their business then align this with their growth strategies.

McKinsey define Digital Finance as ‘All types of financial services, such as payments, savings accounts, credit, insurance, and other financial products. All types of users, including individuals at all income levels, businesses of all sizes, and government entities at all levels. All types of providers of financial services, including banks, payment providers, other financial institutions, telecoms companies, financial technology (FinTech) start-ups, retailers, and other businesses.’

MasterCard and Unilever have reached a strategic partnership to launch joint initiatives targeted at SMEs in emerging markets. Unilever’s network of distributors in developing countries will be fine tuned with digital payment and acceptance solutions from MasterCard to enable better access to formal financial tools for smaller retail outlets while also developing entrepreneurial capacity, particularly for women. Both companies will also concentrate on strengthening the use of electronic payments across wholesale and retail. MasterCard President and CEO Ajay Banga said, “Too many small merchants and micro entrepreneurs are stuck, like their customers, in a cash economy that doesn’t work for them. With Unilever, we can bring a unique combination of technology and know-how to help these shop owners build a better future and serve their customers who are themselves on a path towards financial inclusion.”

Giving SME’s the tools for Digital Finance is one thing, enabling them to effectively utilise these is a second challenge. In India, The central government on has launched a major training programme, for more than 13,000 SMEs, on adopting digital payment modes. “The objective of ushering in transparency in the system along with reducing corruption can only be achieved with evolved participation of all sections of the society,” Minister of Electronics and Information Technology, Ravi Shankar Prasad said. These training programmes will introduce digital payment mechanisms like UPI (Unified Payments Interface), USSD payment, BBPS (Bharat Bill Payment System), AEPS (Aadhaar Enabled Payment System) to traders. A representative of one of the organizers said, “These regional workshops would also serve as master training on digital payment modes for traders, who would be involved with further proliferation and promotion of digital payment initiatives among their fellow traders.”

 

Financial Services: Payments for SMEs
A key trend in recent years is digital payments for SMEs, with the launch of Apple Pay heralding the move of digital payments into the mainstream. But in Asia is hasn’t all been a bed or roses. More than two years after Apple Pay took the United States by storm, the smart phone giant has made only a small dent in the Asian payments market, snagged by technical challenges, low consumer take-up and resistance from banks. The service is currently available in some Asian countries including; China, Singapore and Hong Kong and among a limited range of banks; American Express, Bank of China, DBS, Hang Seng Bank, HSBC and Standard Chartered Bank, resulting in an uneven banking landscape with users and retail staff not always sure what will work and how.

 

Savings accounts for SMEs
Access and costs are the key drivers for SMEs opening new bank accounts. Opening a bank account for an SME may prove challenging in the current market with banks in Hong Kong not granting new corporate accounts to SME start ups even if they have already created a legal identity. Singapore may prove an easier option with DBS launching a digital account for SMEs with no minimum balance required and a corporate online banking and mobile app. Today, almost 60% of DBS SME business accounts are applied for online, compared to 12% in 2014. Close to half of the bank’s SME customer base has conducted transactions via DBS’ corporate online and mobile banking platforms in the past year. SME owners can open the DBS Digital Account online conveniently in five minutes, without having to visit a branch.

 

SME access to credit
More and more online credit providers have started to offer loans to not only consumers but also to SMEs around the world. Outside of digital banking platforms, new alternative online and digital platforms that target consumers and small SMEs include:

  • Peer-to-peer (P2P) SME lenders
  • Online balance sheet lenders
  • Loan aggregator portals
  • Tech and e-commerce giants
  • Mobile data-based lending models

 

Financial service providers to SMEs
FinTech, computer programmes and other technology used to support or enable banking and financial services, has recently captured a lot of public attention and is fast growing amongst venture capitalists. It is also a powerful tool to support SME growth. Marketplace lenders, via multiple products, connect risk-taking institutional investors with SMEs in need of funding. Online platforms, payment processors and telecoms companies can build upon existing business relationships and make use of their customer knowledge. Invoice finance platforms can provide an effective tool to overcome liquidity shortages and improve the working capital situation of SMEs. Online supply chain finance will integrate existing supply chains more deeply. FinTech in trade finance is still nascent but can potentially unlock a global customer base previously inaccessible to SMEs. With FinTech, SMEs can participate in many solutions that were previously only available to larger companies. FinTech providers need to become collaborative partners, comply with regulations, act transparently and become even more coordinated in the future. Development Finance Institutions (DFI) could play a catalytic role in driving the adoption of marketplace lending, especially in emerging markets.

FinTech is just beginning and Chinese companies are recognised as leaders in FinTech investments. Alibaba’s payment subsidiary Ant Financial raised US$4.5 billion in 2016, the largest funding round ever recorded for a consumer tech company. However, China’s FinTech experienced a crash in its peer-to-peer lending industry, triggered by the revelation that P2P startup Ezubao was engaged in fraud with 900,000 investors being cheated out of US$7.6 billion. This resulted in the Chinese government taking steps to regulate the market which sent public P2P lending company Yirendai’s stock price plummeting. The Singapore government opened the door to FinTech pledging to create a regulatory sandbox and an innovation lab for FinTech startups to try out their ideas without compromising their users’ security or contravening local laws. Other countries like Thailand and Hong Kong are likely to follow Singapore’s example and create regulatory sandboxes of their own, while the Japanese Ministry of Finance and the Bank of Japan have already established working groups.

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Grant Morgan
Grant Morgan
Grant is a highly experienced and motivational sales leader with a wealth of experience within fintech and the wider tech market space from companies such as Bottomline Technologies, Ideal Hardware plc, and Panasonic. Having worked with customers from micro SME to large multinational through a variety of sales channels, Grant has extensive knowledge of supplying business’s with financial, payment and collection systems, working with partners such as HSBC, J P Morgan Chase, Barclays, and Worldpay.

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