Innovation

Four problems fintechs can solve for SMEs during COVID-19 and beyond

Otto Williams, Vice President, Strategic Partnerships, Fintech and Ventures, CEMEA at Visa

Otto Williams, Vice President, Strategic Partnerships, Fintech and Ventures, CEMEA at Visa, recently joined Saudi-based fintech and industry experts for a virtual panel discussion on driving collaboration with and empowering the fintech and start-up community in the Kingdom of Saudi Arabia. Here is a recap of the insights Otto shared on some of the advantages fintechs hold for supporting and fostering SME growth and best practices for partnering with fintechs. 

 

SMEs are key to the health and well-being of economies around the world. They play an essential role in the lives of their customers and in the success and vibrancy of local communities. According to the International Monetary Fund (IMF), small businesses in the MENA region represent close to 96% of registered companies and nearly half of total labor force, yet their access to finance is only 7% of total bank lending[1].

Small businesses have long been underserved by the traditional finance sector and the coronavirus pandemic has only worsened the situation, constraining economies, culling jobs and decelerating growth in harsh liquidity conditions.

Fintechs may hold the key to small business recovery. With their unique models, innovative technologies and agile infrastructure, fintechs have already been engaging targeted segments that are either under-served or not served at all – they now have the opportunity to solve not just an inclusion problem but also a far more pressing business recovery problem.

Serving SMEs with faster, easier, more affordable and more transparent models, they also raise overall consumer experience expectations and build loyal customer bases far quicker than traditional providers.

Whether it’s Square in the US aggregating hundreds and thousands of merchants, or Visa's partner fintechs in the region like Hala, Hakbah or stc pay, the sector is fast becoming the go-to for small businesses across MENA.

From banking to capital markets, insurance and wealth management, it is now vital that they have easy access to the financial solutions they need to survive the COVID-19 crisis and thrive beyond it.

Here are four problems small businesses face that fintechs are solving:

1. Onboarding barriers

Opening a traditional bank account and setting up to accept payment credentials have long been pain points for SMEs in the region, and many have struggled to get through tedious paper-based processes that require going to a bank in person even in a time of pandemic restrictions. Fintechs, on the other hand, are both faster and friendlier with digital onboarding solutions that have typically been developed in regulatory sandboxes and help small businesses gain access to financial services without the fuss.

2. Payment acceptance

Saying they don't accept a certain type of card payment is not an option for small businesses. It's revenue they simply cannot afford to walk away from, especially in current times. That’s where fintechs who collaborate with networks like Visa’s come in. Our CyberSource platform, for example, allows for payment acceptance across all card schemes as well as other payments types that fintechs can onboard and bring to SMEs. Our global network of over 60 million merchants and three billion cardholders also means that small merchants in Saudi Arabia for example can seamlessly make sales to any consumer with Visa credentials anywhere in the world.

3. Working capital management

Any small business owner will tell you that managing working capital while dealing with the pressures of make payrolls, paying rent, and all the other various expenses, is a constant struggle. But stress levels are being pushed to the limit as the virus outbreak continues to batter markets. That’s where collaboration with lending comes into play; micro financing has been really transformative for many SMEs across our region wherein the businesses get access to working capital in the form of micro-lending using alternative scoring so they don’t have to wait for credit scores and bureaus to actually be able to collect data from formal sectors. Instead, they use alternative data sources and scoring mechanisms, that attract venture investment firms or individual peer-to-peer lenders to contribute liquidity to funding pools.

4. Fraud fears

Fraud remains a growing concern especially for small businesses without the more sophisticated security infrastructure and resources of giant enterprises. But poorly deployed systems come with tremendous risk, which is why fintechs are leveraging Visa’s globally proven fraud and risk capabilities to step in with tools and solutions that enable SMEs to manage fraud better and protect their businesses.

What underlines all this? Standards and interoperability. This is what really provides the foundation for collaboration and drives the success of the model for enabling SMEs, and bringing them into the financial system. It also is critical in empowering SMEs to adopt fintech solutions that have been proven successful in a lot of markets globally and can be successful in our markets here. This includes QR code and acceptance point of sale standards like contactless which, for example, enabled the expansion of Apple Pay into the Kingdom.  Ultimately, standards and interoperability will empower SMEs to leverage fintech solutions to drive growth and deliver the seamless and secure digital payment solutions consumers increasingly seek.

The panel was part of The Future of Fintech event organized by Seamless in partnership with the G20 Saudi Secretariat and Saudi Arabian Monetary Authority. To watch a recording of the full panel, click here.

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