Financial technology solutions are increasingly employed by startups to ensure sme growth
By Oluwatosin Olaseinde
The uptake in the use of financial technology solutions by small and medium enterprises is not surprising due to the cost as well as ease of use benefits. Let’s take a look at the various ways SMEs benefit from using fintech solutions.
Banji Oyelaran Olayinka defines an SME as “a business with a turnover of less than N100 million per annum and/or less than 300 employees.” Going by this definition, a large proportion of businesses in Nigeria would be SMEs. Indeed, studies by the International Finance Corporation (IFC) show that about 96% of businesses in Nigeria are SMEs.
Fintech, a short form for financial technology, simply refers to the application of technology to financial services. While the terms is commonly associated with small and nimble start ups, innovations such as USSD banking which is also common among mainstream financial institutions would be an example of fintech. Fintech plays a key role in the operations of many SMEs today, for several reasons.
The Payments Side
As Nigerians gradually embrace fintech use, SMEs have no choice but to literally follow the money. SMEs that operate in a niche market targeted at the millennial generation would be left if they didn’t take such into consideration.
Social media platforms such as Facebook, Twitter and Instagram are increasingly becoming a means for SMEs to sell their goods and services, to a large audience. Imagine if all the fintech solutions we use today, were not present. Many of these businesses would barely be able to scale today.
SMEs located in Lagos, for example, can easily service customers across the state and beyond. Why would I have to take a trip from the island to the mainland, when I can easily pay for the goods and services from the comfort of my phone ? I have paid for several dresses and cakes from online vendors this year, and had no issue. Ten to fifteen years ago, I would have had to either pay cash directly or go to a bank, then wait for the payment to clear before getting the goods delivered to me. Millennials and the generation after them have grown increasingly wary of visiting the bank. USSD codes and POS terminals are a major means through which they pay for goods and services.
Fintech solutions such as Flutterwave’s Rave enable SMEs receive payments from countries across the world and are easy to set up. Payment systems are especially key for small businesses because many of them can not accommodate long receivable periods compared to larger businesses. They also get shorter credit periods, so every kobo matters.
The Expenditure Half
On the expenditure side of the equation, fintech also plays a key role in SME operations. Gone are the days when staff salaries were largely paid by hand. Even those with limited literacy can either operate accounts through USSD short codes or use an ATM card.
Services such as Rovedana’s BookAid enable small businesses to keep proper financial records. While many SMEs operate under the radar (thus avoiding taxes), this is increasingly becoming a difficult thing to do. Governments across all tiers are increasingly looking towards tax revenue, as revenue from crude oil is becoming insufficient.
For tax reasons, its best to have as many payments as possible made through the banks. Do not comingle your personal finances with your business earnings. As fintech solutions and technology as a whole keep advancing, small businesses are no longer limited to a state or country. The world is now the marketplace.
Editor’s Note: This article was originally published in The Spark Magazine. Find the magazine here to read other articles.
Oluwatosin Olaseinde is a chartered accountant with over 9 years of experience spanning across accounting, audit, financial management and taxation. She is the Founder/CEO of Money Africa, a platform that enhances financial literacy and wealth management coaching. Prior to Money Africa, Oluwatosin was a commercial finance manager at British American Tobacco, providing commercial & financial advice on capital investment and managing marketing investment budget in the 14 different markets across West Africa.