How fintech can help MSMEs go digital

How can fintech help MSMEs transition to digitalization and address its challenges?

The shift from offline to online commerce will not happen if the technology does not provide significant benefits to MSMEs or does not match the typical business practices of small business owners.

Large-scale digitization of business operations for small businesses is a recent development. For the efficiency of their business operations and financial needs, small businesses have fallen behind due to various reasons.

Traditional digital adoption challenges included:

  • A lack of accessible cell phones.
  • Poor data connectivity in rural areas.
  • A lack of digital knowledge.
  • A reluctance to make the change.

On the infrastructure side, we’ve made great strides in driving digital adoption. As MSMEs slowly embrace digital in India, we as technology innovators must actively work to create digital platforms that deliver real value specific to the challenges faced by small businesses.

The transition from offline to online will not happen if the technology cannot provide MSMEs with significant value or does not match the business models typical of small business owners.

Due to digital first consumers or the first solution phenomenon, there is often a lack of reference for the problem you are trying to solve while innovating for MSMEs. Here is some of the business and user-related information about MSMEs that we have learned from our ongoing interactions with MSMEs.

For the fintech community to ensure a seamless transition from the MSME community to digital and overcome issues related to digitalization, it is crucial to keep these MSME business behaviors at the forefront while growing for the segment.

Beware of cash

For the foreseeable future, the Indian economy will continue to be cash-dominated, in semi-urban and rural areas. Money management is a big challenge for all local small businesses.

While it’s great that we have an online payment system in place, we also need to focus on technologies that make cash management easier and help businesses collect overdue payments.

The most important benefit of digitization for an unorganized sector is adequate cash flow

Consider a vendor who sells vegetables and regularly handles cash transactions for 25% of their customers. It takes time and resources to manage change, record customer payments in a notebook, send reminders for late payments, etc.

In practice, more than 25% of consumers who shop in small shops prefer cash transactions. So, they are trying to innovate to make it easier for MSMEs to conduct money-driven businesses.


Benefits of cloud backup

Anything tangible could be misplaced. Accounting books and even a smartphone, to be honest. But data hosted in the cloud is something you cannot lose. The permanent security of merchant data is among the most important advantages of digitization. For MSMEs, losing or damaging a phone, laptop or business document page is a common problem.

Data backup is therefore a great added value. The fact that users know that their password-protected data can be accessed at any time and from any device is a crucial motivation for MSMEs to go digital.


Delivering smartphone technology with the simplest, most intuitive user interface is just the first step in design for the smallest of retailers in the economy. It would be beneficial if you considered simplicity outside of the user interface. Can technology simplify accounting, finance, and payments enough for everyone to enter and interpret data?

Can small businesses access data analytics for business in clear, understandable information? Can they avoid time-consuming paperwork and administrative headaches when looking for business loans? The extent to which technology streamlines the procedures and methods of MSMEs significantly affects the value they place on digitization.


Improve the trust factor

Every data entry or transaction in the MSME supply chain can have real-time visibility through digitization. MSMEs are a particularly trust-driven community in India as they respect their ties and business relationships with their partners. Therefore, it is crucial to focus on finding solutions that can reduce errors and complaints.

Meanwhile, when records are kept in physical books, there is a significant likelihood of error and it can be difficult to spot and correct them later.

With digitalization, everyone involved in a business transaction can instantly produce and exchange records on their mobiles. The digital process can reduce disagreements that may arise in the future.

The ecosystem will become more efficient as we automate more and more facets of MSME finance and business. The biggest benefit that digitization has brought to this community is the reduction of time spent on tedious manual work.

A retailer can save daily hours by automating general ledger administration, payment collection and cash management. Time is the most important factor for any MSME as it directly affects the amount of their income.

Without a doubt, digitization is a game-changer for MSMEs. Since there is no small concern for the MSME community, I think it is essential to actively listen to them.

We must be attentive, understand and find the appropriate solutions to these problems. Ongoing product testing also helps determine whether the technology fits well with MSME business behavior patterns. The tech sector needs to ensure that the digital transformation of MSMEs goes smoothly.

Article reviewed and published by Gauri Malhotra.

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