Jorge de Lara
Vice President and General Manager for GCS
American Express Mexico and Latin America
Expert Contributor

The Cash-Free Future of Small And Medium Businesses

By Jorge de Lara | Wed, 09/15/2021 - 13:00

The decreasing use of cash in recent years has been a reality in many countries, particularly within urban environments. Emerging markets, however, tended to remain particularly tethered to the use of paper money, with many small and medium enterprises (SMEs) handling their operations almost exclusively in this manner. When the pandemic hit over a year ago, everything changed. Hundreds of businesses had to rethink their models overnight, with many being forced to figure out remote ways of conducting transactions. According to the 2020 Payment Methods Survey carried out by the Bank of Mexico, the use of cash went from being preferred 93 percent of the time to 86 percent of the time. A considerable decrease for the period and one that directly speaks of a profound shift within a still mostly cash-based SME ecosystem.

This is, in part, a direct consequence of companies finding a lifeline in e-commerce. The study on SME Online Sales for 2020 released by the Mexican Association for Online Sales (AMVO) showed that six out of 10 SMBs currently sell through the internet, a stark 94.6 percent increase over 2019. Such trends indicate an overall transformation in the market, with consumers expecting each industry and each business, both big and small to adapt to socially distanced demand.

While the pandemic continues to present enormous challenges to the economy, SMEs should not seek to roll back any digital tools adopted and must instead aim to capture the opportunity to revolutionize the core of their operation, reducing the time to recovery of their markets and jump-starting long-lasting competitiveness. Digital transactions, which present considerable advantages to small organizations in terms of agility and optimization, will very likely become the norm in the coming years, and business owners who dive fully into digital tools will not only be part of this future, they will also find completely new growth paths within a global marketplace.

Digital Payments

Consumers will likely show an increasing preference for businesses that offer different payment methods and thus adapt to their needs, while SMEs that are able to optimize their day-to-day by automating operational payments will increase their agility. Business owners are already taking note of this reality, with the Global Business Spend Indicator by American Express revealing that, in the next 12 months, 70 percent of businesses surveyed in Mexico are planning to adopt or increase their use of automated payments, 74 percent will adopt or increase automation when receiving payments from clients, and 73 percent will automate vendor transactions.

Even before the pandemic, automated payments brought diverse advantages for companies, including transparency, stronger compliance, and more efficient accounting processes. The pandemic, however, presented SMEs with the existential choice of either adopting payment automation or face the possibility of being cut off from consumers altogether. This, in turn, made e-commerce ecosystems more robust as different solutions became more sophisticated to meet the explosion in demand. From portable payment terminals to digital retailers improving their distribution networks, the digital marketplace has never been as vibrant and SMEs have an unprecedented audience to tap into if they are able to reduce their dependence on cash and continue to invest in the digital transformation of their transactions.

The Digitalization Challenge

I truly believe that SMEs in emerging markets have a digital future. There is already a great deal of momentum being gathered as business decision-makers realize that companies that can rapidly adopt these solutions are not only much more competitive in today’s world but that they are the ones who will ultimately define where the industry goes.

Perhaps what is most important for the market is to recognize the challenges this motion will have to cope with and ultimately overcome. While technological tools are becoming more accessible and intuitive, small-business owners still face what might seem like a chaotic and even daunting digital environment. These are some of the biggest challenges I think SMEs will face in the coming years in this regard:

Cost: As mentioned, automated payment solutions are undoubtedly more accessible today than ever before, particularly given their scalable nature. Nonetheless, they do represent a cost that should be duly considered, particularly for a small business. If the upfront expense is strategically planned for, even considering financing if necessary, this investment should eventually prove its soundness.

Security: At first, it might seem like the tangibility of cash holds a certain trustworthiness. However, this quickly becomes less apparent as a business begins to operate and cash flows are much harder to keep track of, with financial leakage becoming an ever-present threat. An appropriate automated payment solution should greatly reduce such risks, while also providing increased reliability in terms of financial management. The key is to choose the right solution, one that is built with data security as an embedded principle, ensuring the protection of both the company’s assets and the client data being handled.

Learning curve: Every organization taking steps toward a fully digital operation will face a specific learning curve, determined in large part by their industry and business model. That said, emerging markets still face a great challenge when it comes to their population’s preparedness in digital skills. Businesses, both big and small, have a fundamental role to play in this regard, with investment on training and upskilling employees and collaborators being paramount. This will make a company more innovative and competitive while feeding the ecosystem and the market, building a stronger economic platform upon which to carry out their business.

Those are three very concrete elements I believe need to be addressed to help SMBs achieve a globally competitive cash-free future. Perhaps the biggest challenge is harder to pin down and it concerns our own mentality. For many small-business owners, cash still seems like the safest bet, a reticence which is understandable when facing a risky economic environment.

Having said that, automated payment tools have come a long way in being much more intuitive, with an unprecedented number of options to choose from. While due research should help SMEs feel they are making the right choice, experts believe the risks of not digitally transforming are too great to ignore, urging business owners to let fear go and adopt such tools to ensure survival. I tend to share this view, particularly considering how much this sector stands to gain from this new digital reality.

Photo by:   Jorge de Lara