Economies soar when the private and public sectors help small and medium-sized businesses go digital

This article has been recently published in Financial Times.

The COVID-19 pandemic accelerated the process of business digitalisation, making its benefits for small and medium-sized enterprises (SMEs) ever more apparent. These benefits ranged from serving a larger customer base across multiple channels, leveraging data to optimise capital and utilise resources, and developing cyber-resilience in a dynamic landscape.

Governments have long been crucial to this process, incentivising SMEs to adopt digital technology through policy development, funding support, educational programmes and other methods. The private sector, meanwhile, has been on hand to unlock SMEs’ digital potential through its business network, technologies, data insights, cybersecurity resources and more.

Now, as economies recover from the pandemic, the public and private sectors continue to work together to enable more SMEs to access those benefits. This creates a virtuous cycle, with SME digitalisation resulting in the expansion of a more open economy and a more inclusive business environment.

Small businesses, community-wide impact

SMEs are key to thriving economies, accounting for more than 97 per cent of all businesses and employing over half of the workforce in the Asia-Pacific region. According to Euromonitor International, “digitalisation, connectivity and demographics” are key drivers that will spur e-commerce sales to reach $2tn in Asia-Pacific by 2025. As the region’s SMEs grow, they should then provide more jobs and bring greater prosperity to the communities in which they operate.

Digitalisation can also help bring more SMEs into the formal economy, giving them greater access to credit and financial services, as well as an expanded customer base and access to potential business partners. In the Asean region alone, the International Labour Organization this year estimated that 244mn workers operate in the informal economy, placing them outside the reach of public sector assistance and protection for employees. Hence, it is vital to accelerate SMEs’ development to drive greater inclusion.

Three steps to digital-powered growth

At Mastercard, we believe that public-private partnerships will continue to facilitate the digital transformation, bringing growth to SMEs, communities and economies. This transformation can be anchored on a three-step approach.

Get digital: While digital-literacy programmes provided by the public sector can help SMEs understand the broad benefits of digitalisation, more localised digital-capability programmes can further support them in implementing digital business practices in a relevant manner.

One localised programme is Strive Malaysia, a Mastercard initiative that aims to unleash the growth of Malaysian SMEs by providing women entrepreneurs access to the technology, networks and resources needed to scale their operations in the digital economy. These programmes enable SMEs to digitalise their day-to-day operations and supply chains, and navigate electronic payments with embedded cybersecurity features to break the cash cycle in a safe and secure manner.

Governments can act as a catalyst for such programmes by delivering grants, development schemes and subsidised loans through digital channels. In the Hong Kong government’s successful Consumption Voucher programme, HK Telecom partnered with Mastercard to deliver digital vouchers to residents, encouraging retail spending via their Tap & Go mobile wallets and expanding digital adoption amongst local merchants.

Get paid: While the cost of point-of-sale (POS) systems may be beyond the reach of many SMEs, consumers in Asia-Pacific are increasingly demanding digital payment solutions. The region is home to the most enthusiastic adopters of digital payments in the world, with 88 per cent having used technologies such as digital wallets and QR codes in 2021.

Cost-effective solutions are needed for SMEs to make and accept payments. Two such solutions are Mastercard QR, through which real-time payments can be received without a POS machine, and Tap on Phone, which allows businesses to accept payments from any contactless card or mobile wallet.

Governments can take the lead here by digitalising their own processes and interfaces, from receiving and making payments digitally to using analytical and engagement tools for SME-related programmes. In Australia, Mastercard and its bank partners have worked with various state governments to enhance their procurement solutions, including enabling greater SME vendor participation in public procurement tenders and providing shorter payment cycles on their digital platforms.

Get capital: Many SMEs require greater capital to grow their businesses but lack access to formal credit, resulting in their adoption of sub-optimal practices and the use of high-cost informal funding sources.

One effective way for SMEs to unlock access to credit is by building their transaction profiles. Digital payment solutions provide SMEs with an accurate capture of their transaction data, helping them to monitor cashflow and indicating the health of their business operations, which can be used for credit risk scoring.

This extends to SMEs in rural areas. Mastercard’s Farm Pass digital platform enables farmers and production organisations to digitally record harvest, income and payment data, helping them to build accurate transaction histories that they can then use in loan applications.

Optimising capital and improving cashflow is critical for SMEs, and digital payment tools such as commercial, rather than personal, cards can be employed to better manage both B2B and B2C transactions. Mastercard Installments Card for Businesses, for instance, splits every company purchase into manageable chunks and offers the flexibility to defer or extend repayments, allowing SMEs to optimise their liquidity and credit usage. 

A symbiotic relationship that benefits all

In summary, the private sector must continue to collaborate with governments to drive SME digitalisation through innovative solutions, ecosystem development, cybersecurity expertise and more. Mastercard, for example, is working with financial institutions, corporations, governments and non-profit organisations to connect 50mn companies to the global digital economy by 2025.

The combined strength of the public and private sectors can empower SMEs while creating a more vibrant and transparent economy, resulting in a socio-economic multiplier effect that ultimately helps everyone.