Building for SMBs means building for communities feat. Mastercard

SMBs are an integral part of the economy as well as the communities they serve. 

“Small businesses make up 90% of businesses and 50% of employment worldwide, and in the US, which has one of the biggest economies, they make up 50% of the GDP,” said Salah Goss, SVP,  Social Impact (Americas) of Mastercard, at the recent The Big Bank Theory Conference held by Tearsheet. 

For many years FIs have been unable to serve SMBs fully, which has hemmed in the growth of these businesses, as well as their owners.

Goss’s work at the Mastercard Center for Inclusive Growth has revealed three critical problems facing SMBs:

a) Lacking access to credit: “Access to credit is the number one inhibitor to growth for small businesses globally,” she said. 
One big reason for why SMBs are unable to access credit is because of the way the financial industry is structured: Few are designing products and services specifically for small businesses. The “missing middle” refers to SMBs being too big to be catered by microfinance and consumer products but too small to fit the target consumer segment of commercial banks. 

Mastercard’s research shows that in regions where the gap between SMBs’ need for credit and funding made available to them is large, most SMBs fail within the first five years of business. 

b) Barriers facing women entrepreneurs: “We also saw challenges for women entrepreneurs. For example, social norms made them feel like they couldn’t start their own businesses. In Pakistan, there was a study that showed about 60% of women-owned businesses felt like they had to get permission from their husband or a male in the family to even start their business. In the US, women SMB owners who had credit needs were either underserved or not served at all,” said Goss.

Research also shows that 80% of women-owned SMBs that are in need of credit are either unserved or underserved. This financing gap is also bad for business for banks, as data shows that women have lower non-performing loans than men and that their growth in volume of credit and volume of deposits is larger than that of men. 

c) Lower levels of digital enablement: “During the pandemic, saying that there was a divide in digital adoption would be an understatement – small businesses fell behind. They were often caught in the cash economy and couldn’t serve customers during the pandemic,” she said.

Until the pandemic hit and brought the world to a stand still, our industry, as well as SMBs, never had to reckon with the possibility of not being able to handle paper money and running businesses without interacting with customers day to day. In some ways, it was antithetical to what SMBs are at their core: closely-knit local businesses that know many of their customers personally and reflect their values. 

But the pandemic demanded a pivot and it’s been an eye opener for the industry, as well as their SMB customers. It jolted them out of their reliance on cash and pushed them to try tools they wouldn’t have before. The pandemic started an adoption cycle which FIs should be making use of now. 

How to serve SMBs and their communities

“How can we get small businesses to be even more successful?” asked Goss. 

Mastercard’s SMB strategy revolves around Strive, an initiative that helps SMBs grow across the globe. 

Strive has three main pillars:

1. Ease access to credit: “We worked with credit unions, microfinance institutions, and CDFIs, in the USA to connect small businesses to affordable credit,” said Goss on Strive’s work. In the US, Strive has helped SMBs access $44.2 billion in affordable credit and is also continuing to bridge the gap between SMBs and federal and state funding from the government.  

Ensuring that SMBs are able to access the credit they need also means building products for them that recognize the informality of their operations. This means that digital credit providers need to build products that don’t rely on perfect bookkeeping or a balance sheet. For example, Strive’s community partner Boost Capital works with SMBs to connect them to financial service providers for loan applications, financial education, and savings products through chat and video calls. 

Provide access to tools: “There is a business called We Grow Gardens. I met the CEO who is an urban farmer in Watts, which is a community in LA, where we support an organization called Think Watts. With the digital payment tools and analytics we were able to give her, her sales actually went up 70%. She could see things like whether a community likes indoor house plants or outdoor flowers. So that intelligence mixed with the ability to accept digital payments really helped her sales soar,” said Goss. 

Along with partnering with Think Watts, Mastercard also introduced Digital Doors which helps SMBs access a suite of tools that help them run their business like tools for building a digital presence and marketing, as well as services that provide access to employee benefits. Banks like Citizens are already working with Mastercard to offer Digital Doors to their SMB customers. 

This kind of partnership allows banks to use the real estate of their digital banking tools and evolve them to serve as an on-ramp to other services, deepening the ties they have with their SMB customers.

Build access to networks: “If you talk to SMBs, their owners talk about the isolation or just how hard it is. So we connect businesses to mentorship and resources,” said Goss. One way Mastercard is doing this is through its Ignite program, which helps women SMB owners access tools like financial management and bookkeeping, but also community art therapy.

“When these women come out of the program, some of them have been able to get access to seed capital to grow their sales, but also to strengthen their resilience in community,” said Goss. 

For the Ignite program, Mastercard partnered with CARE, a global organization that aims to achieve social justice. This partnership resulted in a campaign to reach 3.9 million entrepreneurs in three years in Vietnam, Peru, and Pakistan. This campaign’s focus on how to engage SMB owners that are the hardest to reach has yielded important lessons that can be transposed to America, and can work as a guiding light for initiatives at home: 

• Women-centered design plays a pivotal role in building products that connect with and fully serve women-led enterprises.
• Targeted outreach campaigns are able to increase customer awareness, affect change in the local SMB ecosystem as well as challenge restrictive norms.
• Partnerships help with messaging to reach more ears and also eases the delivery of products & services.
• Despite successful interventions, women continue to face multiple barriers and demands are unmet. 

Mastercard’s work is an example that when it comes to SMBs, companies cannot just stop at product development and call it a day. Building successful and meaningful products for SMBs means a deep engagement with the culture and soul of these businesses – it means an investment into their communities and their future. 

To dive deeper into how Mastercard is building tools and services for SMBs, listen to the full talk:

Tearsheet Podcast · How supporting SMBs creates a thriving economy & community

Sidebar: The new S-M-B of SMB banking

The sidebar is a member-exclusive section where we discuss stories tangential to the main story above. In this sidebar, we discuss what strategies Citizens, Truist, and US Bank are using to connect deeper with their SMB customers.  If you want to read this sidebar, please consider becoming a TS PRO reader by clicking the link below.