The Impact of Digital Transformation on Underserved Microbusinesses: Findings from Accion’s Partnership with Mastercard
Categories : Customer and Users of Digital Payments, MSME's
In November 2018, Mastercard Center for Inclusive Growth and Accion launched a first-of-its-kind partnership, with the aim of digitally transforming the lives of 10 million underserved people, of which 4 million micro and small businesses and individuals would regularly use digital tools and services. The program included several components: the digital transformation of micro and small business-focused FSPs in emerging markets, support to fintech globally serving micro and small businesses, COVID-19 support to small businesses in the U.S., and research on the impact of COVID-19 on micro and small businesses. This has been the largest project undertaken in the more than 60-year history of Accion and was the Center’s largest partnership at the time.
- Accion’s work supported the digital transformation of nine FSPs across Asia, Latin America, and Africa — helping them design innovation hubs, digital lending and payments products, JIT loans, and digital tools, as well as building resilient digital infrastructure to better serve the needs of small businesses and individuals in the digital economy.
- Accion Venture Lab supported 47 fintechs with strategic and operational advice including product design, customer segmentation, process definition, partnership negotiation, board definition, and employee retention strategies.
- Responding to the pandemic, the Center for Financial Inclusion (CFI) housed at Accion undertook a longitudinal, six-wave research study (from June 2020 to October 2021) of the impact of COVID-19 on the lives of micro and small business owners (including partnership and non-partnership customers), along with the policy and investor responses to the pandemic. Roughly one year later (from Q3 2021 to Q3 2022), Accion Global Advisory Solutions conducted another longitudinal study focused on understanding the extent to which micro and small businesses using digital tools created or supported by the program saw an increase in their financial health and business growth.
- Accion Opportunity Fund (AOF) and Mastercard have provided working capital and resources to small business owners in the United States to help them recover from the pandemic. Over AOF’s history, more than 90 percent of AOF’s loans have gone to entrepreneurs who are Black, Latinx, low and moderate-income, and the program has looked to scale AOF’s services nationally, use alternative data to improve credit decisions and strengthen digital channels and outreach.
In the 12 months prior to Q2 2022, the number of active digital users (one year active) has increased by more than 1.1 million across all program partners, including 800,000 in the last six months alone. Across their FSP partners, nearly 50 percent of digital users are active on a monthly basis. FSPs are seeing financial benefits from this increased digitalization, such as cost savings, operational efficiencies, and enhanced customer experience, thereby building support for the business case for digital transformation.
Beyond driving institutional-level benefits and increased adoption over the past four years, the question was: Has the digitization of FSPs really helped micro and small businesses? What has been the effect of digital usage on the lives of microbusiness owners, and the impact on their businesses and financial health?
As of Q2 2022, on average, partners more than quadrupled their number of monthly active digital users since joining the program.
When FSPs and fintechs take an intentional approach to designing digital products and supporting processes to serve the needs of micro and small businesses, there is potential for greater uptake and usage. CFI’s research reveals that digital adoption is not an easy or automatic process for small businesses, finding, for example, that usage of mobile money and e-commerce platforms decreased after an initial spike early in the pandemic. Additionally, over time, many micro and small businesses reverted to their old ways of doing business once restrictions on movement were lifted. Yet with the support Accion provided to FSPs and in turn to their customers, program product users demonstrated high levels of adoption and usage. This paper summarizes the results of the second longitudinal study completed by Accion Global Advisory Solutions, as noted above, of the impact of digital tools created or supported under the partnership on micro and small businesses. This study was conducted between Q3 2021 and Q3 2022. Findings show that nearly 80 percent of product users interviewed across five countries perceived an increase in their capacity to manage financial challenges, such as repaying their loans on time or accessing credit for their needs, to products produced by the partnership. Globally, women-owned micro and small businesses also reported significant improvements in their financial health over a 12-month period, with more than 70 percent reporting that the MAP digital products contributed to this improvement. The early stages of the program recorded digital uptake primarily amongst the male customers of FSP partners, but by Q2 2022, more than 70 percent of active digital users were women.
This paper presents key learnings from speaking to customers, contextualized by details from our advisory support at each program partner. It also identifies areas where more research and work are needed. A further survey will be conducted in early 2023, as the final chapter of this longitudinal study, and we will publish an updated set of findings.