The 2021 Global Index found that Covid has driven the growth of digital payments worldwide, including an increase in digital payments to merchants. How are these global trends playing out in our sample of small firms?
In this video we created for Financial Inclusion Week, we sift through data to tell the story of businesses straddling the borderlands between the cash and digital economies. We look into the accounts and transactions of a handful of firms in Nigeria and Colombia—where there is a lot of potential for increased digital usage, but also at times a puzzling lack of uptake; and we compare and contrast with businesses in Kenya where digital payment infrastructure has penetrated much deeper.
The data emerging from the study so far points to the small firm owners as a distinct group, with characteristics, needs, and constraints that make them different from other groups—such as individual consumers, larger firms, and even retail firms of similar size—that have been more commonly considered in relation to their take-up of digital financial services.
Digging into the accounts and transactions of the firms featured in this video, we see that even where business owners are comfortable using digital transfers, often into multiple different accounts, nearly all continue to use cash for most purposes and transactions. One driver of these behaviors is the preferences of the people the business owners interact with. A leather worker in Lagos, Nigeria, for instance, uses cash because both his workers and his customers prefer it. In other cases, business owners explain their practices in ways that run counter to the usual set of arguments for switching to digital. For example, although digital payments automatically create (digital) records of all transactions, a woman who owns a stamp-making business in Bogota, Colombia tells us that she prefers cash for record-keeping purposes—she can tell at a glance by the size of different envelopes stored inside how her business is doing.
Our analysis at this point in the study points to a few interrelated considerations and takeaways about how to design digital financial services that encourage business owners to adopt and use digital modes of transaction:
First, we should expect digital adoption—and the next step, digital usage—to take time. In the research, for this video, we gathered data on credit card uptake in the US and found it took 30 years to go from half to three-quarters of American households having a credit card (though debit card adoption was much faster, following in part the trail blazed by credit cards). The digital financial services ecosystem is rapidly advancing, and as a consequence, there are more and more reasons for people to use those tools. But we shouldn't necessarily see the lack of usage now as a failure, or expect wholesale adoption very quickly as the ecosystems continue to develop.
Also worth noting is that liquidity flows and account usage for small firms are generally much more complicated than for individual consumers. It follows that digital adoption among this group would not necessarily follow the same patterns or timelines as for consumers.
When we do see business owners taking up digital, frequently it is because they are either being pushed (by consumers eager to pay digitally) or pulled (by suppliers who want to be paid digitally) into adoption.
And finally, we would be unwise to assume that the value propositions for retail firms apply to other types of firms. Understanding small (non-retail) firms as a distinct group, and then thinking through their needs in terms of security, record-keeping, ease of use, and cost, is a key part of designing and marketing digital financial services that will help bring small firms along on the digital journey.