South Africa’s small-to-medium enterprises (SMEs) have time and again been cited as being the country’s barometer for how the economy is performing.

Throughout the COVID-19 pandemic and lockdown, much has been made about the role government needs to play in aiding this sector of the economy, as well as citizens supporting their local SMEs during this tough period.

Is it little wonder then that we saw the country’s GDP slump as low as it did during lockdown?

Despite struggles across the board, though, there were some SMEs that were able to not only survive during lockdown, but flourish. Much of this was dependant on the use of digital solutions, online platforms and embracing contactless payment options to continue to keep their business running.

To gain a better understanding of what challenges local SMEs faced (and continue to face), we recently spoke with Mastercard South Africa’s country manager, Suzanne Morel (pictured below), who unpacked several of the issues, as well as how her company debuted more digital services to assist those enterprises in need.

Here’s what Morel had to say.

Suzanne Morel, country manager at Mastercard South Africa.

The first aspect Morel touches on is the effect that SMEs have on the country. When this sector of the economy succeeds or fails, South Africa as a whole often follows suit. During lockdown in particular, the impact was decidedly negative, with several issues now facing SMEs post-lockdown, according to the country manager.

“SMEs play a crucial role in the economy of South Africa as they account for 98 percent of businesses, are responsible for half of jobs and contribute a third of GDP. Their successes and failures cause ripple effects that impact countless lives and local communities in long-lasting ways, and this will be even more pronounced as effects of the COVID-19 pandemic exacerbate an already struggling economy,” she explains.

“Many of these businesses are informal, operating solely in cash and lack the resources and networks to enable them to navigate this ‘new normal’. They face challenges with cash flow, getting access to credit, and moving online, which brings additional cybersecurity risks. They are also faced with balancing their own health and the health of their employees with the wellbeing of their business,” she adds.

Tackling pain points

While Morel is the first to acknowledge that most businesses have struggled heavily over the past few months, she’s also quick to point out that the ones which have found success, have done so by using technology to negotiate specific barriers in a relatively short amount of time.

Two prime examples of this are accepting physical cash payments and pay points, both of which key concerns among businesses and consumers alike in the early levels of lockdown.

Perhaps unsurprisingly, those SMEs which made use of contactless payment solutions were able to keep operating during lockdown, and tackle some of those aforementioned hurdles.

“Contactless has been a great equalizer for small business. This is mainly due to faster checkouts that reduce long queues and the consumer’s reluctance to touch anything other than their own card or mobile device at the point-of-sale,” notes Morel.

“New technologies like Mastercard’s Tap on Phone, which turns an Android phone into a contactless acceptance device, is further supporting small businesses adapt to this trend. While fintechs like iKhokha offer low-cost mobile point of sale devices to traders in the informal market to accept contactless card payments, while using the transaction history to give cash advances,” she illustrates.

Another element which Morel points to, and one we’ve seen impact the education system too, is connectivity. In many respects, this had a tremendously negative effect on informal and smaller business, according to the country manager.

Internet access, while growing, remains a limiting factor in some parts of South Africa, and we know that not all merchants have access to a smartphone or a traditional Point of Sale (POS) device,” says Morel.

“Ninety-six percent of transactions at informal retailers are still concluded using cash, exposing them to high cash handling and transaction costs, lost sales when customers don’t have cash or want to use it to pay and the threat of crime,” she highlights.

Necessary adjustments

Looking forward, Morel says that much needs to be done as far as the digital economy is concerned, with the pandemic and lockdown painfully pointing out several of the imbalances within our society.

In many cases, there is still a lot of learning needed on the part of SMEs if they’re truly going to embrace digital, in the country manager’s view.

“The rapid shift to a digital economy have further highlighted the critical need to support vulnerable populations, many of whom are disproportionately impacted, and are at risk at being left even further behind,” she stresses.

“We recognize that digital payments will have an important role to play as the government looks to stimulate consumer spending to revive economic growth. SMEs have realized that they must go digital to ensure consistent revenue streams,” says Morel.

The road ahead is indeed difficult for those SMEs already established in the market, but for those informal retailers in particular, Morel advises that they should have a completed picture of their plan to start a business, before they undertake such a venture in this climate.

“While having a good idea is a critical starting point, budding entrepreneurs need to have thought through their strategy end-to-end, be passionate about what they do, and have an incredibly positive attitude to overcome any setbacks and bumps in the road, of which there are many,” says the country manager.

“For most small businesses, it’s all about solving their customer’s pain points, or offering a service or product of superior quality that differentiates them from their competitors. Having a deep understanding of current consumer spending behaviours and needs is critical, as is creating a robust business plan,” she adds.

Solutions are out there

Yes, connectivity remains a significant hurdle. As does a full understanding of embracing digital, but there are a number of great digital solutions currently ready for SMEs to avail themselves to.

Naturally, the Mastercard SA country manager, has highlighted some of the solutions and initiatives that her company have/are bringing to the fore.

One of the more recent announcements is Mastercard’s tailored solution for SMEs to begin facilitating contactless payments.

“We have recently launched several low-cost payments solutions such as SME-in-a-Box with our partners in South Africa, to help SMEs accept contactless payments and move their businesses online.

There are also some solutions that are on the horizon, according to Morel.

“We’ve also recently announced our tokenized service for merchants, which will be rolled out over the next few months. This service creates a safe and seamless way for our cardholders to transact in-app, and online – wherever they would normally save their card details on file,” notes Morel.

For tech startups, we have just launched Fintech Express, a programme that supports digital payment innovators by making it simple to collaborate with Mastercard and our extensive partner network to launch new fintech products quickly,” she explains.

As such, it looks like Mastercard SA is attuning itself to the needs of local SMEs, and in particular those who need digitally-focused solutions.

“These are some of the initiatives we are working on, with several more solutions and services to come, as we remain deeply committed to helping SMEs not only survive but thrive,” she concludes.