‘Pandemic acted as catalyst to realign MSMEs’ traditional model, reduce dependency on offline services’

With the increasing use of smartphones for payments globally, 67 per cent of businesses believe in using data effectively to manage funds.

• By Arvind Ronta

Technology for MSMEs: The ripple effects of the ongoing pandemic on the Indian economy have been huge and caused businesses in multiple sectors to face severe losses. The outbreak has been a major catalyst for several businesses to adopt end-to-end digital services and re-evaluate their business plans to sustain in and after the recovery stage. However, with 60 percent of micro small, and medium enterprises (MSMEs) expecting a bleak future, according to Financial Stability Report July 2020 by RBI, it will be critical for them to navigate to a digital-first business model for the whole business value chain to survive and recover.

Aftermath of pandemic on MSMEs

The economic disruption caused by the pandemic has completely altered the livelihoods of almost all global and 63 million local MSMEs, as per the PwC report — A Wider Circle. Bearing the maximum brunt of the crisis, 43 per cent of small businesses globally stated not being able to survive beyond six months, according to a US Chamber of Commerce and MetLife survey, and 70 per cent of MSMEs in India have reduced their workforce, as per an AIMO survey. Globally, SMEs are seeking quick and immediate paths to recovery as many navigate the overnight move to digital commerce. However, businesses with digital profiles are benefitting and thriving today with a sudden shift in consumer buying habits.

Hygiene is playing a critical role in commerce, now leading to a significant rise in new digital consumers. With this segment experiencing online shopping and contactless payments for the first time, drastic changes in digital buying habits have been observed in what to buy, where to buy, and ultimately, how to pay and get paid. Businesses that offer seamless and quick checkout experiences while ensuring security and hygiene will witness continued loyalty.

Globally, 78 percent of consumers have changed their shopping habits in the wake of Covid-19, including shopping online whenever possible and using contactless payments at checkout, according to the Visa Back to Business Study. A rising need for touch-less experiences and affordable payment options at the point-of-sale (online or in-store) will continue to enhance customer buying power during the recovery phase.

Enabling digital resources critical for MSMEs

More offline merchants adopting digital-first solutions will play an important role in expanding the merchant acceptance infrastructure in the country. Besides, with fintechs accelerating the pace of onboarding new merchants, collaboration in the entire ecosystem will smoothen the digital transformation journey of MSMEs by enabling end-to-end digitization. There are real examples right here in India where, in the midst of the lockdown, Kirana stores are going online, listing their profiles and catalogue on platforms which, in turn, enable ‘online to offline’ (O2O) commerce opportunities across the cycle of “discovery, order, payment, and fulfillment.”

Experiencing near business closures, MSMEs have been receptive to gravitate towards end-to-end digital payment experiences for customers. 40 per cent of small business owners are now open to partnering with online delivery and supply platforms, as per an EY survey — Sentiments of India – Pulse of the country, Kiranas. Many consumers too are now opting for contactless delivery and contactless payments across all points of purchase i.e. digital, face-to-face, and omnichannel.

Secure and immediate access to funds digitally

With 90 percent of SMEs contributing to global economies, according to The World Bank, their immediate need to go digital for economic recovery needs support from all industry players to be successful. Instant access to funds is a top pain point for small businesses with 76 percent reporting it a key concern during the last four months of the pandemic, as per a survey by PYMNTS in collaboration with Visa —  The Road To Recovery: Main Street SMBs And Closing The Cash Flow Gap. SMEs can implement secure, real-time settlement to send and receive money quickly, pay employees and suppliers digitally and speed up cash flow.

Hence for smooth processes of MSMEs like business payments, inventory, sales order and fraud management, etc., efficient partnerships between fintechs, big technology players, and payment networks are critical. Scalable digital technology solutions are crucial to improve accessibility and affordability for previously underbanked/unbanked MSMEs. However, fintechs that also drive innovation can help pave the road to recovery by aiding consumers and businesses to manage their money, invest, receive loans, and send payments worldwide from the comfort of a device.

Realigning business models & ensuring secure digital experiences

For MSMEs to thrive end-to-end and secure digitization of the entire chain – business payments, payrolls, reimbursement, and supplier payments – is necessary. Furthermore, with increased digitisation changing consumer habits in tier 1 & 2 cities, using analytics will aid MSMEs to drive critical business decisions in the future.

As buyers and sellers venture further into digital commerce, they need greater security, transparency, and protection. Security infrastructure that is multi-layered and built on advanced technologies of tokenisation and authentication will become more critical than ever. With the increasing use of smartphones for payments globally, 67 per cent of businesses believe in using data effectively to manage funds, as per the Masters of Balance – 2019 Global eCommerce Fraud Management Report by CyberSource. This certainly showcases the requirement for mobile-first payment security solutions to combat fraud risks in the connected world of commerce. Solution providers are increasingly leveraging advanced machine learning and AI algorithms to prevent cybersecurity attacks, and hence providing more confidence to a new breed of first-time online businesses.

It is indeed a fact that the pandemic acted as a catalyst to realign MSMEs’ traditional business model and reduce dependency on offline services. The role of interoperable payment networks, banks, e-commerce enablers, marketplaces, and social media platforms will be more critical than ever to further strengthen and expand the MSME digital footprint in the country.

Arvind Ronta is the Head of Products for India & South Asia at Visa. Views expressed are the author’s own.