SMEs can gain a lot from using digital finance. Source: Shutterstock

SMEs can gain a lot from using digital finance. Source: Shutterstock

Why SMEs need to think long and hard about digital payments

GOING digital is not an option anymore — not even for the smallest of SMEs.

To compete in the global market, SMEs must embark on the digital transformation journey and climb to a level of digital maturity that puts them at par with competitors at least as far as customer experience is concerned.

In most cases, this has more to do with the cataloging, procurement, invoicing, and payment process than creating a flashy website or exciting digital marketing content.

Customers, whether in the B2B or B2C market, love doing business when the transaction is seamless all the way through. For SMEs, this means digitizing the procurement and payment process must be prioritized before they do anything else.

An Economist Intelligence Unit and Mastercard study The Digitalisation of SME Finance in Asia highlighted that technology creates new opportunities for SMEs in the region, but equally, creates an interesting starting point for SMEs looking to go digital.

In an exclusive interview with Tech Wire Asia, Mastercard’s Executive Vice President of Digital & Emerging Partnerships and New Payment Flows, Asia Pacific, Rama Sridhar explained why digitizing finance (especially payments) is a good starting point for SMEs looking to go digital. 

“Digital transformation may sound like a daunting task requiring significant investment, but it really starts with the simple first step of switching to e-invoicing.”

By adopting e-invoicing, sellers are able to bill and receive payments in a secure manner, with reduced time and cost of reconciliation. Buyers are able to make payments securely by email via the e-invoice. This e-payment and collection process sets the foundation for a business to digitize its entire cash conversion cycle.

“SMEs looking to begin the digitization process can also start by reaching out to their respective acquiring bank to explore the variety of products and solutions available, and find the best fit for their business structure.”

An emphasis on digital procurement and payments

SMEs understand the importance of digitizing payments and how this can enhance their business’ efficiency and productivity.

In many cases, it is the perceived high cost of investment that hinders them from adopting digital practices. Business leaders also struggle with finding the right talent to manage and harness the full capabilities that digitalization can offer.

“Mastercard believes that a collaborative and holistic effort between companies and governments is the best way to create the infrastructure and integrated networks required to help SMEs tap the growth opportunities that cross-border trade offers.”

According to Rama, offering access to appropriate technology that they can integrate without needing highly-skilled tech expertise allows SMEs to remain focused on their core business functions.

For example, Singapore Customs and a number of leading technology companies developed an online trading service – the Networked Trade Platform (NTP).

NTP takes the concept of a single window system one step further by bringing together logistics functions such as the movement of goods as well as regulatory and financial elements for players across the trade value chain.

Mastercard’s involvement in Singapore’s NTP project helps remove friction in the global trading system and make it easier for businesses to participate in global trade, said Rama, which only goes to show how digitizing this segment of the business first can really help SMEs become more competitive.

Small businesses don’t realize that cash is costly

A common misconception that SMEs in emerging markets have is that using cash is simpler, less costly, and more efficient.

However, cash has a slew of invisible costs which are unduly endured by SMEs, from inefficiencies in resource and time management to security risks.

For instance, cash must be stored, accounted for, and safely transported.

“Small and new businesses usually cannot afford the costs associated with protecting and managing cash flows. This is where new age digital payments play a critical role.

“Innovative digital payments solutions remove geographic barriers and allow everyone to become active participants in the marketplace.”

Businesses can easily adopt easy-to-use payments technology such as QR codes and mobile wallets to set up a transaction pipeline that can be directly linked to their accounts.

These allow even micro-merchants to keep abreast of their incoming and outgoing cash flows in real time, send e-invoices faster, ensure the security of their hard-earned money, in addition to offering today’s digital consumers seamless payments experiences.

With greater transparency and visibility of their cash flows, SMEs can reduce the amount of time, resources, and effort spent on maintaining a paper trail, focusing instead on higher-value business areas.

Digital payments systems enable businesses to enjoy a smooth payments experience across markets and points of sale, which helps them to further the scope of their business. Digital payments today benefit SMEs and consumers significantly while forcing traditional financial forces to adapt to the new world.