ETRADE ALLIANCE WEBINAR #3:
How to Use Fintechs to Promote MSME Ecommerce in Developing Countries
The third installment in the eTrade Alliance’s webinar series addressed the role of new and innovative financial technology service companies (i.e., “fintechs”) in supporting MSME ecommerce in developing economies.
The panel was composed of:
Moderator: Michael Poor, Manager, and Financial Services Lead at Nextrade Group
Speakers: Dr. Kati Suominen, the founder and CEO of Nextrade Group; Wameek Noor, Director of Global Government Engagement and Development Finance Institutions (DFIs) at Visa, and Visa Economic Empowerment Institute (VEEI) Fellow; and Cristina Carreon, Director of Government Relations at Mastercard.
The webinar opened with a round of introductions to the panelists, in addition to remarks from Michael on the explosive growth of financial services technologies worldwide, ranging from digital payments and digital banking to new technology-based forms of lending.
Dr. Kati Suominen led off the speakers with a presentation on the research Nextrade has produced for the eTrade Alliance on the constraints MSMEs face in engaging in ecommerce and cross-border trade, with a specific focus on the role of financial services in alleviating such constraints:
KEY TAKEAWAYS INCLUDED THE FOLLOWING:
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Digital financial services are critical in supporting the ecommerce enabling environment for MSMEs
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MSMEs that digitize their businesses, particularly through the use of digital payments and financial services, expand their market access, and are more likely to export and experience growth in sales
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MSMEs consistently cite limited access to working capital as a challenge for fulfilling their orders received online and cite limited access to longer-term growth capital as a key constraint to financing their digital transformation
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In addition to access to capital, interoperable cross-border payments and trade financing are also cited by MSMEs as challenges in engaging in ecommerce and cross-border trade
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Mexico was highlighted in the research— data showed that online seller MSMEs use fintechs as a source of financing working capital, and do so specifically because of the speed and ease of access
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Advantages of fintech lending for MSMEs include: quick loan approvals, lower monthly payments, and flexible payment terms
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Barriers to adoption of digital financial services include: lack of awareness and familiarity that such services exist, lack of trust in new technologies and fear of fraud, and low levels of digital connectivity
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Public-private partnerships like that of the eTrade Alliance can support the growth and awareness of digital financial services available MSMEs
Following Kati’s presentation, Wameek presented on the importance of digital financial services for MSMEs specifically in the context of the current global macroeconomic setting, and on what his firm, and eTrade Alliance partner, Visa, is doing in this space.
KEY TAKEAWAYS INCLUDED THE FOLLOWING:
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Frictions for MSMEs in ecommerce and digital transactions include access to working capital and interoperability in digital payments
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Covid-19, Russia’s war on Ukraine, and tightening global financial conditions are making access to capital particularly difficult for MSMEs; digital financial services are tremendously valuable in alleviating the impacts of these factors– e.g., faster and more secure government financial disbursements, and alternative sources of funding and lending
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Remittances are a lifeline for low-income communities; digitization produces resilience
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Domestic mobile money models (i.e., digital wallets) provide a good means for MSMEs to digitize– one of the most prominent examples being MPESA
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Fintech innovations that support MSMEs include: new lending products built off digital payment rails that use alternative forms of data (e.g., transaction history– products purchased, price, volume, consistency) to assess creditworthiness and establish credit history; pay-as-you-go models that reduce the necessity of large capital expenditures; digitized group savings and lending models offering capital “top-ups” to MSMEs in need of short-term financing to cover expenses, such as inventory costs
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Global adoption of digital payments is critical to facilitating cross-border ecommerce
Learn more about the fintech work and programs Visa has launched in Wameek’s presentation here:
Following Wameek, Cristina reiterated the important role MSMEs play in the global economy, their need for access to financial services, and the work Mastercard is doing to support such needs. Seen here:
KEY TAKEAWAYS INCLUDED THE FOLLOWING:
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Financial services are a key component of MSME’s survival and growth
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Primary challenges for MSMEs are 1.) unmet payment needs, 2.) struggles to get paid, 3.) limited access to working capital, and 4.) lack of digitization
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More and more consumers are transitioning online, which represents a growth opportunity for MSMEs engaging in ecommerce; MSMEs need access to digital payments to tap into this opportunity
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Increased online consumption is also producing greater amounts of data, which can be utilized by MSMEs for assessing their customer preferences and increasing their sales
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Fintechs in Latin America are growing rapidly and are quite dynamic; 86% of fintech startups are in Brazil, Mexico, Colombia, Argentina, and Chile, followed by Peru, Ecuador, Uruguay, and Venezuela
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Fintechs in LATAM specifically target segments of the population that are not served by traditional financial services - the “bottom of the pyramid”
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All-inclusive financial services (i.e., one-stop-shops with banking services, digital payments, and access to credit offered together - commonly referred to as embedded finance) are the most desired by MSMEs because of ease of use
Following the presentations, the panelists engaged in a group discussion on the topic of fintechs, the value of digital financial services for MSMEs, and how such services can be leveraged to promote ecommerce activity by MSMEs in developing countries. Some key highlights included:
What can be done to promote fintechs as a tool for online seller MSMEs?
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Government support, both in legislation and regulation— it is important for governments to better understand new financial technologies and develop new laws and guidelines that foster the advantages of financial services innovations
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Harmonization and interoperability of national fintech regulations and finetch services are crucial for facilitating digital cross-border trade
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Government guarantees on loans issued by fintechs to online seller MSMEs expand access to credit
How can public-private partnerships like the eTrade Alliance support and promote the use of fintechs?
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Through the creation of market development funds (MDFs), which are pooled sources of funding supplied by public entities and private enterprises, and provide industry-specific digitalization programs and support
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Engagement with stakeholders across the ecosystem, including national governments, central banks, private banks, and fintech companies, to pilot solutions and create technology homogeneity and services interoperability
The webinar concluded with a short Q&A session, with some questions submitted by the audience in advance.
For full coverage of the discussion, watch the complete recording of the webinar here: