Historically underserved by major banks, MSMEs constitute up to 99% of most emerging market economies: a growing range of non-financial suppliers who offer digital-first solutions are poised to cater to their financial needs. “Mom and Pop” shops are a key segment within MSMEs and a bellwether of emerging opportunities.
Kiranas, Spazas, Bodegas, Sari-Sari, and Warang are but some of the many names locals give to “Mom and Pop shops”. These retailers prove the old Scottish saying that a lot of a little makes a lot. Although their global market share has declined slightly from 48% of all retail to 46.3%, in some regions such as Asia-Pacific they still make up more than half (52.1%) of all spending. APAC highlights the importance of these retailers, where more than 230 million microbusinesses executing over 19 billion non-cash transactions: collectively, these businesses are responsible for more than half of that region’s GDP.
Global Micro-Retailers Set for Strong Growth to 2030
Source: KoreFusion Analysis
Our analysis of available data also shows this segment will see CAGR of 6.7% over the next five years, roughly twice the rate of growth the World Bank predicts for the global economy over the same period.[1] With a projected total turnover of US$ 887 billion by the end of this decade, the segment represents a significant opportunity for digitalization, and providers of a range of digital business services are waking up to this trend. We believe these small and micro retailers will increasingly turn to non-bank suppliers for their financial service needs and therefore change how financial institutions engage with new channel partners.
Slow Change Gathers Pace
Historically, such businesses have been hugely reliant on cash and used manual processes to manage their turnover, which can range between US$ 100 per month to more than US$ 10,000. While many have been reluctant to change, a range of external factors are now driving the segment toward digitalization.
At the most basic level, the shift to digital is being led by a global move away from cash payments. Last year, Worldpay reported a decline of 8% in cash use between 2023 and 2024, with that decline projected to continue at 6% CAGR over the next five years.[2] Meanwhile, alternative digital payment tools from e-wallets to government benefit cards are being increasingly adopted by people who shop in these stores, with smartphones as the device of choice.
Some 69% of the world’s population now uses cell phones, according to industry body the GSMA, while 58% had access to fast internet services via smartphones at the end of 2023.[3] This access to fast data via smartphone is having as much of a transformative effect on emerging economies as it is elsewhere.
On top of their attractions for the customer base, digital technologies also have the potential to resolve a range of inefficiencies for the suppliers and banks that serve small-scale stores. These include complex last-mile logistics for what are essentially small order volumes on the supplier side, and the fact that these stores individually have limited purchasing power compared to bigger retailers.
Alongside these drivers, small-scale retailers in emerging markets tend to have poor data trails and written histories, meaning that banks struggle to underwrite loans and credit for the segment – with a knock-on effect on investment and growth. For instance, 48% of Nigerian businesses say they currently rely on family and friends for financing, while 66% of Indian SMEs report needing faster and better access to credit and loans than their banks currently provide.
Poised for Exponential Growth
More than US$2.2 Billion VC Investment in B2B Marketplaces
Source: KoreFusion Analysis
Our analysis of Venture Capital (VC) funding flows shows significant VC interest in non-financial suppliers serving this segment – especially in South Asia. Indian companies such as small business payments and lending specialist BharatPe (US$ 140M, 2021) and B2B online marketplace Udaan (US$ 280M, Jan 2021) are attracting interest from VCs because of their long-term, sustainable growth potential – as well as the possibility to scale these businesses across an entire region.
“A generational change in how people shop is underway, with implications for both merchants and the banks and suppliers that serve them”
Typically, providers to the micro-SME and SME segments will offer a “hook” product – such as digital payment acceptance or online accounting services – to the merchant, then seek to build out service platforms based on that hook. Examples of this strategy in action include Indonesia’s Grab, which began by offering payment services via digital wallet and now offers a range of options in everything from working capital through to a B2B marketplace, advertising services, and digital ID authentication.
As we’ll see in the second article for this series, however, growth in digital services for emerging-market microbusinesses is not without its challenges. That said, there’s no doubt that a generational change in how people shop and pay is underway – with implications not just for the stores themselves, but for the banks and suppliers that have traditionally served this segment.
KoreFusion optimizes SMB payments strategy across 80 countries. We help banks, brands, and fintechs develop embedded payments and financial services for SMBs. For more information, please contact hello@korefusion.com.
[1] TRT World, January 2022: “Global growth to see 30-year low by 2030: World Bank.” https://www.trtworld.com/business/global-growth-to-see-30-year-low-by-2030-world-bank-66536
[2] Worldpay, January 2024: “The Global Payments Report 2024”: https://worldpay.globalpaymentsreport.com/
[3] The GSMA, January 2024: “The Mobile Economy in 2024”: https://www.gsma.com/solutions-and-impact/connectivity-for-good/mobile-economy/wp-content/uploads/2024/02/260224-The-Mobile-Economy-2024.pdf