Digitalization readiness key to unlocking SME growth potential, says new Mastercard white paper

• SMEs say digitalization is essential to staying competitive in a transformed business and economic environment
• White paper follows release of Mastercard MEA SME Confidence Index 2021
• Market insights for South Africa, Nigeria, Kenya, Ivory Coast, the UAE, Saudi Arabia and Egypt reveal a blend of diverging perspectives and widespread agreement on key benefits of a cashless economy
• South Africa is the leader in digitalization across the MEA region, with more than 9 in 10 companies present on social media and/or a company website

Small and medium enterprises (SMEs) in South Africa and across the Middle East and Africa (MEA) region are recognizing digitalization as essential to staying competitive in a transformed business and economic environment. The insight is one of many in a new white paper by payments technology leader Mastercard, which explores the way small businesses are viewing digital payments, online presence and the benefits of an evolving cashless economy.

The white paper, titled ‘The Digital SME: How Are Small and Medium Enterprises in the Middle East and Africa Embracing a Digital Future?’, is an in-depth follow-on study from the data-rich Mastercard MEA SME Confidence Index 2021. This piece of research released findings about the importance of digitalization and rising confidence levels as SMEs across sectors, products, and services in the region, adapt to the new and evolving economic landscape.

Overall, 64% of South African SMEs say they believe e-commerce will have a positive impact on their business. The findings also indicate that South Africa, by far, is the leader in digitalization across the MEA region, with more than 9 in 10 companies present on social media and/or a company website. Over three-fourths (79%) of South African SMEs surveyed accept online payments, 48% accept cards, and 41% accept mobile payments.

According to the Index findings, 61% of South African SMEs experienced no challenges when accepting digital payments. When asked about the biggest benefits for a cash-free economy for their business, the majority (90%) of South African SMEs said ‘digital solutions provide more efficient transactions and payments across multiple channels’ and ‘a more convenient way of paying their suppliers and employees’. Other benefits identified include faster access to revenues (85%) and the ease of not handling or processing cash (79%).

The white paper also found that digitalization has progressed globally since 2018, but has seen higher traction among larger corporations and financial institutions than among SMEs. It accelerated in 2020-21 to enable continuity of business, with the OECD estimating 70% of SMEs globally intensifying their use of digital technologies due to COVID-19 restrictions. Currently, according to the Mastercard MEA SME Confidence Index, digital payment methods used by MEA SMEs include mobile (59%), online (49%), and cards (48%).

“An empowered SME sector is a growth engine for the economic development of countries across the Middle East and Africa. But the challenges are many, chief being access to funding and digitalization which have emerged as huge needs. The Mastercard MEA SME Confidence Index found that 89% of SMEs in the region see potential in digitalizing their business which is encouraging for everyone within the digital economy,” said Gaurang Shah, Head of Products, Middle East and Africa, Mastercard.

Increasingly, SMEs are recognizing the practical benefits of digitalization in day-to-day operations, as opposed to viewing it as a long-term project for the future. There’s a solid case for this when data shows that 41% of SMEs that implemented digitalization initiatives, had stronger revenue growth in 2020 than non-adopters. Digitalization of SME operations also brings the benefit of generating data that institutions need to view an SME as a “real” business with potential and make more informed credit decisions. This helps bring small businesses into the financial mainstream.

Partnerships play a key role in the digitalization of SMEs

The white paper also found that partnerships play a key role in the digitalization of SMEs. A stable, growing, connected small business can be the key to financial inclusion for the whole community. As a technology company, Mastercard has leveraged the power of partnerships to deliver inclusion by providing financial, technology, product, and services support to SMEs across the world.

“Connecting businesses to one another within the ecosystem, to help them grow and prosper, is a key objective for Mastercard. For a neighborhood vendor or store, there are simple solutions to reduce the risk and cost of cash, and open up sales to more customers. At Mastercard, we continue to leverage our technology, insights, global expertise and partnership approach to empower every business, especially SMEs, everywhere to grow digitally, become stronger than before, and prosper in a more connected, equal, and inclusive world,” said Amnah Ajmal, Executive Vice President, Market Development, MEA, Mastercard.

SA SMEs plan for growth

Although challenges related to the COVID-19 pandemic remain, six in 10 business owners in South Africa say they are proactively planning for and anticipating growth in the next year, guided by need to upskill their staff, better data, digitizing business operations and accepting digital payments across multiple channels.

According to the Index, 88% of South African SMEs say digital and online payments are important to helping them grow their business both now and in the future. Contactless payment technology has also been identified (86%) as a safer and more efficient way to transact, and another 75% have seen a rise from their customers who prefer to transact digitally since the pandemic.

According to the Organization for Economic Cooperation and Development (OECD), up to 70% of SMEs globally have intensified their use of digital technologies in the wake of COVID-19. However, the gaps in SME digital adoption have not been filled. The challenges include access to infrastructure, lack of a data culture and digital awareness, and financing gaps for transformation costs, among others. Access to financing remains a key concern for SMEs worldwide, with the IFC estimating an unmet need of USD 5.2 trillion per year.

Through technology services, cyber assessments, insights, grants, digital training, mentoring platforms and knowledge initiatives, Mastercard will contribute $250 million over five years to support small businesses’ financial security globally. As part of its goal to build a more sustainable and inclusive world, Mastercard has committed to connect 50 million small businesses, including 25 million women entrepreneurs globally, to the digital economy by 2025.

Download the report here.