In a perfect world, there should be no reason why a small or informal business can’t achieve the same growth trajectory as a formalised business. In fact, their smaller size could mean less red tape, more agility, and faster development. But in reality, small businesses and informal traders are often limited by access to services, opportunities, and information says Zunaid Miya, Managing Director of local fintech Hello Pay.
A World Bank study shows the average informal enterprise in developing economies is only one-quarter as productive as the average enterprise operating in the formal sector. Besides obvious challenges such as lack of capital, small businesses are often held back by struggles in their day-to-day operations too, says Miya. “These issues include challenges such as attracting a customer base, marketing and, critically, managing cashflow. New start-ups usually have to deal with all aspects of the business, from sales and marketing to staff and HR, distribution and logistics to accounting and procurement. They often find it overwhelming.”
This is compounded by the fact that informal businesses are often started by migrants and individuals faced with long-term unemployment, he adds. “A large proportion of immigrants come to South Africa as economic migrants, wanting to find a livelihood to send back home. Many have challenges in finding gainful employment and resort to opening their own business. Others start their own businesses after losing their job and facing extended financial hardship, which was exacerbated by the pandemic. Whether a local or a migrant, most do it as a last resort to support their families and have little to no background in running a business. Typically, these enterprises are started with minimal start-up capital and the focus is on day-to-day fast-moving consumer goods such as groceries, clothing, and electronics.”
Hello Pay created a business-in-a-box solution to assist these small business owners and improve their chances of success. “The fact is that there is support on offer to small businesses, but many simply don’t know that it’s available to them. At Hello Pay, our aim has always been to improve financial inclusion, and that means assisting these entrepreneurs on their journeys,” says Miya.
This complete solution starts with a bank account, which is the nucleus of financial inclusion, as well as mobile point-of-sale (mPOS) devices that enable merchants to receive card payments, and e-commerce payment solutions. Then, SMEs have access to growth funding once the business has six months of transaction history with Hello Pay. Their approved funding is dependent on the number of payments they process and can range from R30 000 to R250 000, which can be paid off over a period of up to 12 months at commercially attractive rates. Its sister company Hello Paisa also offers armed response, basic insurance, immediate remittance transactions and other key elements a small business would need.
There is a misconception that such complete and competitive solutions don’t exist for the informal and small business economies, but that’s not the case anymore, says Miya. “Furthermore, many entrepreneurs simply don’t realise they need such solutions until a few months down the line. Most assume they will just collect money in cash, but then realise they need digital payment options too.”
This is the case no matter the customer base. One recent study showed that although rural and township residents use cards for 60% of their transactions at formal retailers, only 4% of transactions were card-based at informal retailers. This is very likely because these options aren’t available even though there is a clear need for them.
“New business owners need to understand who their target market is, what they need, and make it easy and convenient for them to shop,” says Miya. “This means adopting multiple payment options – even in the informal space today, most vendors adopt two or three options. At a minimum, new businesses need a bank account and must ensure that they can accept cash and card payments. QR code or EFT payment functionality is the next step, and then creating an online site and accepting payments there.
“It might be a little intimidating at first, and there will be a learning curve, but it will be worth it. Adopting different payment solutions and technology will not only grow your business faster but give you other advantages, such as leverage to negotiate better rates. Remember that there is help available to you to make this journey easier – make use of it.”