The anticipated expansion of the worldwide cryptocurrency market is projected to rise from USD 1.6 billion in 2021 to approximately USD 2.2 billion by 2026, exhibiting a compound annual growth rate (CAGR) of 7.1%. This growth is attributed to blockchain-enabled transparency and an increase in venture capital investments in digital currencies. Governments and central banks around the world are also experimenting and creating their own versions of Central Bank Digital Currency (CBDC).
Aside from making payment settlement systems transparent, digital currencies also offer low transaction charges, simplify obtaining credit, and can move money around the globe in real-time. These benefits will transform the financial landscape and empower both large and small businesses to streamline their offerings and operations. As a result, an increasing number of companies worldwide are using digital assets for investment, operational, and transactional purposes.
Owing to their financial structure and low marginal reserves, small and medium sized enterprises (SMEs) are prone to the effects of economic fluctuations. Other challenges can include:
- Delays in payment receipt and clearance
- Poor credit score making access to lender credit difficult
- Proportionately high taxes and cross-border transaction charges
Often such issues cluster, making it difficult for SMEs to carry out routine business operations smoothly. Additionally, the tight margins they operate on, the small cash buffers they maintain, and the steep financing costs they incur, position SMEs at a disadvantage.
How can digital currencies assist SMEs?
According to an estimate, more than 2,300 US businesses accept digital currencies as a method of payment. They provide benefits in the form of improvements in spending control, reduction in processing time and payment execution, and lower costs compared to traditional payment processes.
SMEs can also deploy digital currencies to advance their operations in the following ways:
- Generating Awareness and Preparedness: Introducing digital currencies can spur awareness of newer methods of payments and digital currencies in the organisation. This can help position SMEs to adapt to future developments in the fintech ecosystem. Such organisations will be equipped to quickly accommodate shifting consumer preferences.
- Tapping Into New Demographic Groups: According to a recent study, up to 40% of customers who pay with cryptocurrencies are new customers, and their purchase amounts are twice those of credit card users. Millennials too consider digital currencies to be a favourable investment. Because of its interest and appeal, digital currencies set the stage for more spending activity from a diverse customer base.
- Access to Credit: With digital currencies, SMEs are able to access new capital and liquidity pools, that were unattainable via traditional lending channels.
- Innovative Features: Digital currencies provide options such as real-time and accurate revenue-sharing whilst enhancing transparency, that are not available with fiat currency, the government backed paper/coin-based currency traditionally in use. Owing to the elimination of middlemen, digital currency transactions have lower processing fees than traditional transaction methods. Merchants can reduce transaction processing costsby 70% by enabling crypto-based payments.
- Value Add to Traditional Financing: Digital currencies provide a new avenue for enhancing the quality of a range of traditional financial activities, such as:
- Enabling simple, real-time, and secure money transfers
- Assisting in fortifying control over the enterprise’s capital
- Higher convenience with single click payment solutions
- Managing the risks and opportunities of engaging in digital investments
However, SMEs ready to venture into the domain must have a clear understanding of the technology and engage with ecosystem members that can equip them with the same. Fintechs are well positioned to assist SMEs by providing a smooth digital landscape and enabling the integration of emerging tech into their business models. The use of emerging tech such as digital currencies, cloud services, open innovation and sandbox could equip SMEs with the necessary actionable insights, skills and safeguards required to establish themselves well in a competitive ecosystem.
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