4 July, 2022

Enabling the Digitalisation of SMEs

How FinTech can Unleash Digital Opportunities

Small and medium-sized enterprises (SMEs) play a critical role in all economies, accounting for more than 90% of business and 50% of employment worldwide.^[1] However, when compared to larger enterprises and multi-national corporations (MNCs), SMEs (and micro-enterprises) are generally more susceptible to ecosystem changes and disruptions, as they tend to have relatively fewer resources to navigate such challenges. In this context, the emergence and advent of accessible, cost-effective digital solutions—especially FinTech—is proving to be a game-changer for SMEs weathering the impact of the COVID-19 pandemic.

The COVID-19 pandemic: A major challenge for SMEs worldwide

The pandemic was especially challenging for SMEs. Surveys have shown that more than half of SMEs faced severe revenue losses, and a third were unlikely to survive beyond a month if not provided with external funding or support. This number rose to 50% of all SMEs if aid were to be withdrawn for three months.^[2]

At the same time, this period of uncertainty has provided many SMEs, especially those considered more ‘traditional’, with both opportunities and drivers to digitalise their operations and payment channels, as seen for example in the rise of e-commerce platforms.

In many economies, the extent and effectiveness of these drivers have been largely government-driven, but many SMEs are effectively embracing digitalisation and becoming more resilient to disruptive environments (lockdown measures, movement restrictions, and the inability to physically serve and connect with customers).

Even prior to COVID-19, governments around the world were acknowledging and supporting SMEs’ efforts to ‘go digital’—helping them to modernise, as well as enabling them to take better advantage of digital technologies to drive economic growth and recovery.

As such, the digital space is now recognised as a cross-cutting enabler across all industries, empowering all businesses, but especially SMEs.

Financial services: A critical driver of digital transformation for SMEs

FinTech has and will continue to play a major role in the way SMEs will become more digitally enabled. It provides increased convenience, lowers costs, and allows businesses to expand the way that they make and receive payments.^[3]

It also offers many other benefits to SMEs, enabling them to:

Adopt alternative and more innovative financing techniques (e.g., crowdfunding, cryptocurrency, mobile loan applications).
Ensure more efficient, cost-effective, and secure daily operations or provisions of services (e.g., blockchain, digital/mobile payments, insurtech, robo-advising, budgeting applications, cloud-based customer relations management platforms).
Expand their market coverage and offer new solutions that serve previously under or unserved groups.

If harnessed properly, FinTech thus has the potential to fundamentally change the financial system as we know it. In fact, FinTech services can support the three-pronged challenge of financial, economic, and social inclusion.

For example, FinTech democratises financing and entrepreneurship for traditionally underserved groups such as women-led SMEs (WSMEs), or entrepreneurs from other diverse groups who were among the hardest hit by the COVID-19 crisis.

Enhancing policies and regulations to unlock FinTech-driven opportunities

Despite the proven advantages of FinTech for SMEs’, and in particular WSMEs’, digital transformation and access to new digital finance options are often restricted by a number of non-financial factors, such as Internet access and digital literacy.

In many countries, major social, regional, gender, and generational divides are present when it comes to accessing digital technlogies, which in turn leads to a widening FinTech adoption gap. This highlights the need to be more cognisant of the non-financial aspects that affect the real, on-the-ground adoption of FinTech solutions.

In particular, several policy and regulatory concerns remain a priority area for governments, as well as a fundamental challenge that needs to be addressed to better facilitate the adoption of FinTech.

Maintaining a balance regarding issues such as data protection, cross-border data flows, licensing, outsourcing liability, online consumer protection, cybersecurity, anti-money laundering, combating the financing of terrorism, Know-Your-Customer (AML/CFT/KYC), and risk management, to name but a few, while still promoting innovation, experimentation, and fair competition within industries, is often an ongoing priority that necessitates continual adaptation to keep up with technological developments.

Multi-jurisdictional sandboxes and co-regulatory frameworks are just two of several examples that can provide multi-stakeholder cooperation and agility in FinTech regulation, setting the pace for and incentivising SMEs to adopt FinTech at a more significant level.

How Access Partnership can help

Access Partnership’s FinTech Growth (FTG) team works with governments and industry to develop policies and frameworks that support the responsible development and inclusive implementation of FinTech.

From policy analysis and formulation to economic impact assessment, we offer public and private sector decision-makers specialised advisory, research, and training services that maximise the benefits of digital transformation.

Contact Sarah Lee or Jonathan Gonzalez team to find out how our expertise can help you navigate the policy and regulatory challenges of a rapidly evolving digital world.