Digital Payments: Empowering MSME Advancement as a Catalyst for Growth

Digital payments are quickly emerging as the catalyst for propelling Indian MSMEs (Micro, Small, and Medium Enterprises) towards holistic growth. While currently only 0.8% of MSMEs in India have active online commerce use cases, integrating digital payment platforms is a game-changing first step in bringing them into the country’s expanding digital economy. MSMEs that currently contribute about 30% of the country’s GDP, 48% of total exports, around 40% of the total workforce, stand to gain significantly from this digital transformation. 

Reduced costs, increased reach

Digital payments streamline various business processes, reducing the time and cost associated with traditional cash transactions. Automated payment systems enable faster transactions, real time tracking and reduced human error. For MSMEs, especially with limited resources, these efficiencies can lead to significant cost savings and improved cash flow management. These payment systems, when integrated with KYC verification suites, can optimise the purchase-to -pay cycle, making the entire process secure and efficient. 

Better data, better insights

Digital payment platforms also generate a wealth of data. When accessed, MSMEs can use this data to better understand their customers—what offerings are working better? When and why are customers dropping off from purchase? Armed with these insights, MSMEs are better placed to tailor their value propositions to the right customer segments. A 2023 study by FICCI revealed that 67% of MSMEs that adopted digital payments reported improved customer satisfaction. 

Improved security, reduced risk

A common concern from MSMEs is the perceived risk associated with going digital. However, India’s fintech ecosystem has matured, making digital payments safer, and more stable than ever before. Today fintech security products in the market leverage the best that AI has to offer to ensure fraudulent activity is nipped in the bud and businesses can conduct their transactions hassle-free. 

Enhanced financial inclusion

Digital payments bridge the gap between unbanked and underbanked businesses and the formal financial system. For MSMEs, access to digital payments facilitates easier transactions and provides digital transaction records, thereby removing the inherent challenges of assessing their creditworthiness. This integration into the broader economy is fundamental for their growth and sustainability.

The future of fintech in India's MSME sector looks promising, driven by transformative trends. AI and machine learning are set to revolutionise credit scoring, fraud detection, and personalised financial services, empowering MSMEs with precise risk assessments and tailored products. Moreover, decentralised finance platforms promise expanded financial access, bypassing traditional intermediaries. India's shift to a mobile-first economy is pivotal, with projections suggesting over 1.1 billion smartphone users and 850 million internet users by FY2026. This mobile revolution will catalyse fintech adoption among MSMEs, arming them with essential digital tools to thrive. As India pursues its $5 trillion economy goal, the sustained growth of MSMEs, fueled by fintech innovation, will be integral to its economic ascent.

The author is the CEO & Co-Founder of Cashfree Payments