Beyond ease of transactions, digital payments to help MSMEs ride wave of economic recovery

Updated: Aug 18, 2020 12:20 PM

Credit and Finance for MSMEs: It is evident that the benefits of becoming a part of a robust digital payment ecosystem are recognized by MSMEs. From that perspective, Covid-19 is simply accelerating a shift to digital payments that were already underway.

A strong & robust digital payment infrastructure can be a boon for the MSME sector.
  • By Ravi B. Goyal

Credit and Finance for MSMEs: The Covid-19 pandemic could possibly be the most serious challenge that financial institutions have had to face in nearly a century. Inarguably, the current crisis seems to have a more widespread and deeper impact, leaving no country, economy, or sector unscathed. In such a backdrop, it is imperative that the engines of the country’s economic growth, that is., its Micro, Small & Medium Enterprises (MSMEs) are given optimal support not just by the government through SOPs but also through innovation in the ecosystem.

Rise of Digital Payments

At a time when physical proximity and contact have to be minimised, digital payments have proved to be a much-needed panacea. Digital payments, once a convenience, have now become a necessity. This is evident from the growth in digital payments in India. According to a recent survey done by a merchant payment solutions company, 57 per cent of respondents used digital payments 5-6 times a week in July 2020 while 21 per cent of them claimed to use it thrice. About 20 per cent of respondents used digital payments less than three times a week. This should come as no surprise considering that India is estimated to see the fastest growth in the transactions of mobile payments in terms of value, with a CAGR of over 20 percent between 2019 and 2023.

Digital payment volumes also received a boost through the government which is leveraging UPI and Aadhaar to provide monetary assistance through direct benefit transfers to their bank accounts Further, the finance minister and National Payments Corporation of India (NPCI) have also urged people to increase the use of digital payments in order to make payments contactless. After the onset of the pandemic, the NPCI reported that April 2020 saw 403 million approved AePS transactions compared to roughly 172 million in March 2020.

Also read: YoY bank credit to MSMEs in June highest in Q1 but deployment to manufacturing units remained negative

Digital payments Driving MSME Growth

In the backdrop of such a landscape, a strong and robust digital payment infrastructure can be a boon for the MSME sector. Digital technology has created a multitude of avenues for small businesses to thrive and bolster in this digitally inclined world. The recent Covid-19 crisis has emphasized the importance of digital selling. For MSMEs to survive and foster in this competitive world, going digital is undoubtedly the only way forward. Digital payments integrated with their business systems can help MSMEs in several ways:

  • Enable business growth by giving consumers a form of payment system for which they have shown a preference
  • Reduce the payment cycles
  • Transact in a secure environment
  • Convenient and user-friendly payment system
  • Enable customised payment services
  • Easy reconciliation and prevention of frauds & human errors resulting in liabilities
  • Creating and operating their own loyalty schemes
  • Partner with issuers to provide discount schemes with instant customer gratification

An MSME that has adequate digital payments infrastructure is well-positioned to embrace such opportunities and gain an advantage over its competitors. According to the ‘Indian MSME Impact Report, 2019’ by fintech company Instamojo, transactional convenience and monetary incentives to customers create value for about two-thirds of the MSMEs surveyed, while another 20 per cent see value being created from customer preference for digital payment technology, data security, and synchronization. The study also revealed a high level of MSME user satisfaction in digital payment technology. Nearly three-fourths of the respondents were very satisfied with their experience of digital payment products, while more than half of the MSMEs who responded to the survey considered payment gateway solutions to be very valuable. It is also understood that payment systems integrated with business systems of MSMEs are more popular and provide more leverage on the business.

It is evident that the benefits of becoming a part of a robust digital payment ecosystem are recognized by MSMEs. From that perspective, Covid-19 is simply accelerating a shift to digital payments that were already underway. Going forward, MSMEs that leverage digital technology will be well-positioned to ride the wave of economic recovery and lead the growth from the front.

Ravi B. Goyal is the Chairman & MD of AGS Transact Technologies Ltd. Views expressed are the author’s own.

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