Small and medium-sized businesses (SMBs) are the foundation of the modern economy. They represent about 90 percent of all businesses and more than 50 percent of employment worldwide.

Digitalization can help SMBs to increase their reach, enhance competitiveness, and improve operational efficiency. SMB digital enablement helps to improve the sector’s resilience, promote innovation, enable new job creation, and increase the economic prosperity of both local communities and society.

Digital payments are a key enabler of SMB digitalization, helping to level the playing field versus their larger peers. For the small businesses, digital payments can drive an increase in the number of clients and revenue, improve customer convenience and satisfaction, reduce operational risks, and ease access to lending.

Governments have a vested interest in the adoption of digital payments within the SMB sector. Cash often makes informal activities invisible to authorities: as digital payments begin to displace cash, it becomes harder for SMBs to remain outside of government purview and reach. As these businesses become more visible—and more accountable from a tax perspective—the reach of the informal economy is reduced. A 5 percent increase in digital payments per year for five consecutive years could reduce the informal economy by 11 to 13 percent and boost tax revenue, according to a Visa–Kearney study.

Governments aiming to remove barriers facing SMBs in the digitalization of their business models can tap into a spectrum of possible actions:

	Demonstrate commitment to digital payments through legislation, for example, by mandating acceptance of digital payments or electronic government-to-business (G2B) and business-to-business (B2B) invoicing. Work proactively with the payments ecosystem to develop complementary policies that set the conditions for innovation and open access.

	Bring together different players from the private sector—banks, payment networks, and technology providers—to drive critical industry initiatives. Set the aspiration, align interests, and help establish common rules of engagement.

	Tap into technology advancements developed by the private sector to improve security, financial literacy and inclusion, competition, innovation, and open access to the payment system.

	Spearhead better access to finance, especially for smaller businesses, through government disbursement (grants, subsidized loans, and so on) and by endorsing innovation by the private sector (for example, credit risk assessment using point-of-sale (PoS) data).

	Increase tax compliance and tax revenue by creating financial incentives for adoption of digital payments. Tax rebates, discounts on digital transactions, and tax lotteries increase the transparency of payment streams and boost tax revenue in a single-digit range for most countries, as demonstrated by recent experience in South Korea and Greece.

Targeted government-led programs can help equip the SMB sector and the entire economy for a more prosperous digital future, provided they are backed by a clear strategy, grounded in appropriate legislation, and complemented by concerted campaigns to educate SMBs about specific digital tools and benefits for their operations.

This study has been commissioned and developed in collaboration between Kearney and Visa, a global payments organization.