Deconstructing the Forces Behind the Micro-Merchant Revolution
Consider Bangladesh. Until the early 2000s, it was considered an economic backwater; since 2006, however, its Gross Domestic Product (GDP) growth rate has been one of the highest in the world. The change in its economic fortunes was driven by several macroeconomic and social factors: Better central planning, the empowerment of women, the growth of its textile and shipbuilding industries. There is, however, another factor at play – the rise of Bangladesh’s micro-merchant economy. Indeed, its micro-merchant economy generated $18.42 billion in one year, employing two million people or 1.2 percent of the population, according to the United Nations.
In neighboring India, 45 percent of the country’s annual GDP was attributed to micro merchant businesses, in 2016, according to Business Insider.
Micro merchants have always existed, it’s only in the last few years that we have been able to track the extent of their economic activity. And their contribution to global business output, particularly in developing markets, is rising precipitously.
In this post, we will attempt to unpack the pivotal factors behind the global micro-merchant revolution.
Economies of Scale: Mobile penetration in developing markets
There are 250 million smartphone subscribers in Africa – and the figure is poised to reach half a billion by 2020. In India, the number of smartphone users touched 478 million in 2018. Indeed, telecom providers in emerging markets have vaulted hundreds of millions of people into the digital age, selling mobile data at unbelievably marked-down prices.
Consider the 2016 report by GSMA Intelligence, which attributed 7.7% of the GDP in sub-Saharan Africa to the creation of new businesses enabled by mobile technologies and services; as the data suggests, access to mobile internet plays a pivotal role in unleashing entrepreneurial energies which would have otherwise lied dormant.
Mobile Point of Sale (POS) devices are now ubiquitous
The year is 2016 and the government of India has just demonetized large denominations of its currency. In the immediate aftermath of Demonetization (as the initiative is popularly called), as banks and ATMs across the country were running dry and no cash was available at hand, the day-to-day of business – for many – ground to a halt. Medium and large-sized businesses accepted credit and debit cards, so they were able to conduct business as usual. It was the micro-merchants, however, who were affected the most. Unable to afford regular payment terminals, they purchased mobile POS devices, which were cheaper. Overnight, every kiosk and corner store began transacting digitally – which, until then, was inconceivable given that the vast majority of the country did not trust cashless payments.
The change in mindset was radical; the reliance on mobile POS devices led to the development of one of the world’s largest digital payment infrastructures. The millions of micro-merchants in India now had a digital trail of their business activity. This had important ramifications, as detailed in the next point.
Micro-merchants now have better access to credit
For the most part, micro-merchants deal exclusively in cash. With no receipts, bills or invoices tracking the movement of money, the micro-merchant is unable to prove his creditworthiness when applying for a business loan with a financial institution. This has started changing: In Kenya, for instance, micro-merchants are using mobile apps that can maintain a digital record of their purchases from wholesalers – this effectively allows them to build a credit history on their own terms.
Trust in the online marketplace
Over $1 trillion of sales over the online marketplace was reported in 2016. Whilst North America, China, Japan, and western Europe remain the largest drivers of revenue for online marketplaces, it is the emerging economies of Indonesia, India, Colombia, Philippines and Mexico that are the fastest growing eCommerce markets in the world. One of the most pivotal factors behind the surge of eCommerce activity in these markets is the emergence of RegTech solutions that enable large online marketplaces to verify the identity of merchants selling their wares and services on their platforms. Electronic identity verification solutions, such as Trulioo, not only help online marketplaces expend into new markets more quickly, they are highly effective in onboarding merchants in countries where it’s proven to be very difficult to verify identities. For example, Trulioo is used by one of the world’s leading cross-border payroll solutions to verify the identity of payees in 52 countries across different continents, including Chile, Jordan and Egypt.
Today, micro-merchants from around the world can transact online as free agents of the online economy; we are on the cusp of seeing a world where they are able to transact not just as free agents, but as equals of a financially inclusive ecosystem.
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