Understanding The Needs Of SMEs To Capture Growth Opportunities

By Aldo Laubscher South Africa Country Manager, Visa

Small and medium enterprises (SMEs) are becoming an increasingly attractive market across Sub-Saharan Africa (SSA). Globally they make up 90% of businesses and account for more than 50% of employment. In emerging economies, they account for 40% of GDP and are expected to create at least 90% of new jobs by 2030. COVID-19 pandemic accelerated the rise of SMEs and drove the growth of entrepreneurship in the already expanding gig economy as people searched for new ways to make money due to changes in personal circumstances such as job losses and salary reductions. As the rise of SMEs and the gig economy continues, they offer a large customer base opportunity for both issuers and acquirers to tap into. However, SME needs can’t be met using a traditional Customer Value Proposition (CVP). They have a number of unique characteristics and need a product which sees them as not only a consumer, but also as merchant, small business and invoice payer. This means that if traditional banks want to tap into the SME market, they need to learn lessons from neobanks and fintech entrants, who have created tailored CVPs.

Sizing the SME Opportunity

There are approximately 52 million Small Medium Enterprises (SMEs) across South Africa, Nigeria and Kenya. These SMEs are predominantly micro-enterprises (i.e., ~98% of SMEs in Kenya and 99% of SMEs in Nigeria are micro-enterprises). Trade/Retail is the dominant sector for SMEs in Nigeria (42.3%), Kenya (63%) and South Africa (39%). Commercial payments flow across Sub-Saharan Africa is estimated at $2 trillion, primarily driven by South Africa at $594bn.  

In our recent opinion paper titled The Rise of Small and Medium Sized Enterprises (SMEs) shows that commercial payment volume in Nigeria is $425bn and in Kenya it is 80bn SMEs in SSA contribute significantly to GDP and labour force. For example, in South Africa, the contribution of SMEs to GDP and labour force is 34% and 68% respectively. In Nigeria, SME contribution to GDP and labour force is 50% and 76% respectively. In Kenya labour force contribution from SMEs is as high as 93% and contribution to GDP is 40%. The opportunity to serve the SME market across SSA is huge.

How Can banks create a CVP that attracts SMEs?

The Rise of SMEs opinion paper also explores six keys to unlocking the SME opportunity. Visa’s suite of capabilities, powered by insights from VisaNet data, can be leveraged with our network of partners to help unlock SME potential by designing a CVP that is not only tailored to SME needs but also provides a best-in-class experience.

  • Providing a convenient and user-friendly experience

SMEs are looking for a product that adds value and makes their lives easier, which means offering quick underwriting and approval, a streamlined user experience and a focus on positive results. Using Visa’s credit scoring solutions, go-to market and payment strategy knowledge and customer experience and lifecycle management plans can support banks with offering a product that runs smoothly and benefits SMEs.

  • Embracing digital capabilities

SMEs want digital capabilities so that they can manage their accounts and businesses remotely. This requires an offer of services such as digital onboarding and virtual issuance. Utilizing the Visa Token Service allows the provision of an easy and secure virtual product.

  • Offering end to end business management and integration

Offering business admin features, such as sending and paying invoices is a great way to attract SMEs. One of many businesses management features Visa can help banks offer is integration into cloud accounting.

  • Ensuring your CVP is personalized and customized

Targeting SMEs is all about meeting their needs and providing them with the right product, so it goes without saying that the CVP offered must be able to adapt to unique user needs. Visa can carry out a segmentation exercise to help tailor banks’ CVP to the different personas that exist within the SME market.

  • Understanding the nuisances of your local market

SMEs can’t be approached from a global perspective; a local approach is needed to develop a truly holistic approach. VisaNet data allows us to provide unique insights to any market so that banks are providing benefits that are locally relevant.

  • Knowing that SMEs need to be looked at from both the Issuing and Acquiring perspective

SMEs have needs that fall into issuing and acquiring categories. Visa can help decipher SMEs’ overlapping traits and behaviors and provide banks with a host of capabilities that can be delivered at each step of the SME customer journey.

As the rise of SMEs continues it is important that both Issuers and Acquirers do not dismiss opportunities and take the time to ensure that they have a value proposition offering that meets the needs of the SME sector.

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