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There is a substantial benefit for a merchant to convert cash transactions to digital. The increasing use of technology to conduct payments in today’s world, including in emerging markets, presents an opportunity to leverage technology and data to enhance the reach and relevance of financial services to micro, small and medium enterprises (MSMEs). The data generated from digital transactions can support the building of transaction history, which can be used to automate or support credit decisions to MSME borrowers. Through building such a history, un(der)served MSMEs/merchants may gain greater access to credit as financial institutions are able to overcome information asymmetries and cost concerns, which typically restrain lending to the segment.
While the benefits of digitizing provides a ‘pull’ factor, there is also a ‘push’ factor: the cost of cash. Merchants may view transacting in cash as the quick and easy option, but it puts significant back-end stress on operations.
At Enclude, we work with industry stakeholders at both at the ‘issuance’ and ‘acceptance’ sides of the ecosystem, and believe that synergies between the two are imperative to achieve a prosperous financial ecosystem. However, merchants should not wait for all of their customers to be transacting in cards before they make the switch to digital. The cost of cash is real and it is already preventing their business from digital opportunities, including an increased access to credit.