Unlocking new markets and faster practices: How digital tools support small businesses to become more efficient and grow

This post is part of a series on our findings from Mastercard Strive’s Small Business Digital Evidence Map. The Evidence Map, developed by Caribou Digital, is the first interactive public tool charting evidence on the impact of digital and data-first interventions on small businesses. It documents the impacts of digital upskilling, digital market participation, digital financial services, and tools for digital business operations programs against seven core outcomes for small businesses. To learn more about the Evidence Map, visit the website and read our previous posts.

Digital business operations tools are products (such as software or applications) that small businesses adopt to become more efficient, share information at scale, and radically transform “how” they manage their business. They can range from the seemingly ubiquitous — social media apps, websites, and email — to the cutting edge, including Internet of Things (IoT), AI, and advanced analytics for marketing, logistics, and financial management.

Small business owners — engaged by the Mastercard Strive program — regularly report low uptake of digital business tools. Fewer than 50% of merchants we contacted through our partnership with Grab in Southeast Asia used additional digital business tools beyond the Grab app. In Uganda, less than 10% of the small businesses we spoke with through our partnership with Arifu and MTN used digital financial management tools.

However, the adoption of digital business tools is growing rapidly. A large study by the World Bank found that nearly 44% of small businesses increased their use of digital technologies during the pandemic. The World Economic Forum recently stated that “digitalization will drive the global recovery for small businesses.” Yet there is little discussion among small business support organizations about how digital tools drive growth and recovery. To answer these questions, we turned to our recently launched Small Business Evidence Map, to understand how small businesses are using digital tools, and the impacts of these tools.

The Evidence Map includes 64 studies focused on digital tools for business operations — making it the most common support type studied. Some studies (17%) examined the impact of digital tools in isolation and the majority assessed digital tools’ impact in combination with digital marketplaces (61%), upskilling (34%), and/or digital financial services (16%). A majority (76%) of the evidence did not specify which digital business tools were studied, limiting the direct application of the impact insights. Despite these challenges, our team uncovered four key insights about the impacts of using digital business tools on small businesses.

1. “Low stakes” digital tools are often the gateway for the adoption of additional, more involved digital tools.

Small businesses are rapidly increasing their use of “low-stakes” digital tools, like email and social media, because they are familiar, often free, and require little time investment.

• In Southeast Asia, Kantar found that between 29% and 70% of small businesses moved their business online or started to sell on digital platforms after adopting digital tools from Google and Facebook.
• DAI found that over 50% of small businesses across 12 countries increased their use of digital tools during the COVID-19 pandemic and that using those digital tools was “important or essential to keeping their business open during the pandemic.” The most commonly used tools included Facebook, Instagram, and WhatsApp.

The long-term impacts of these “low-stakes” tools are largely untested. However, these tools appear to offer an important entry point to deeper digitalization for small businesses.

• In Kenya, researchers found small businesses with an online presence were more likely to adopt e-commerce, delivery, and other more advanced features that improved customer experience.
• In Europe, 94% of “digitally advanced” small businesses increased their use of at least one digital tool during the pandemic, compared to 54% of “digitally uncertain” SMEs.

Despite these gains, small businesses continue to lag behind larger companies in their investments in and adoption of more advanced technologies, largely due to differences in scale, need, access, and affordability between different sizes of businesses.

• A European Commission–led study found that 38% of small businesses (5–9 employees) used AI compared to 55% of larger businesses (> 250 employees).
• Multi-country research from DAI confirmed that while microenterprises (<10 employees) significantly increased their use of digital tools in most countries, they still lag behind larger businesses. See below case for Mexico:

Figure 1: Rates of digital tool use by Mexican businesses pre- and post-COVID-19.

Source: DAI, “Insights from Emerging Markets: MSMEs and Digital Tool Use Amidst the COVID-19 Pandemic—Mexico Country Brief” (DAI, 2022).

2. Digital tools support small businesses to save time and money, often through more efficient customer acquisition and payments.

Eighteen studies in the Evidence Map indicate a connection between the uptake of new digital tools and a business’s ability to save time and reduce costs in their operations. In India, 45% of small businesses reported reducing their operational costs by more than 20% through digitization, and 52% cited a reduction in costs as one of the top benefits derived through digitization. This is primarily happening through two channels:

More efficient customer acquisition: Digital tools — especially low-stakes tools like email and social media — have made it easier than ever for small businesses to engage with their customers.

• Across Southeast Asia, 14% to 32% of businesses reported that adopting simple digital tools helped market their products and services to a wider audience, allowed them to interact more frequently with customers, and make more sales, all in the same or less time.
• In the Balkans, businesses that received a combination of digital upskilling, access to e-commerce platforms, and digital tools to support their marketing efforts saw their customer base grow by almost double that of the control group (from 81.5 to 180 customers).

Faster (and easier) transactions: Digital tools help small businesses manage and process their sales faster and more efficiently.

• In an OECD-led study of six countries, 90% of businesses using digital tools agreed that easier management of digital sales (more efficient payment verification and lower transaction costs) and increased sales volume were some of the main benefits of doing so.
• In the Philippines, researchers found that 39% of women-led small businesses felt that combining social commerce and digital tools for marketing and cybersecurity led to faster transactions.

3. As businesses become more efficient, they may see small but positive gains in revenue and profits, usually from bundling digital tools with upskilling and access to new digital markets.

Twenty-seven studies in the Evidence Map cited evidence of positive growth for small businesses after adopting digital tools. In many cases, these results are modest. Most research measured the percentage of small businesses reporting revenue growth, rather than quantifying the growth.

• A Kantar study found the number of small businesses that reported some measure of growth in revenues after attending training sessions, and adopting new digital tools from Google and Meta ranged from 10% in Laos to 50% in Vietnam.
• In China, researchers have measured revenue using platform sales data and found that training on digital marketing and analytics tools led to a modest 2.6% increase in revenues.
• In the United States, researchers found that equipping small businesses on eBay with access to better-quality data analytics led to a 3.6% increase in weekly sales.
• In Rwanda, a field experiment involving 550 small business owners found that adopting analytics apps significantly affected sales (+45%) and profits (+36%). Unlike other studies that focused on general, low-stakes tools, this study tested the use of marketing analytics apps designed to enhance analytics abilities and financial decision-making. Drawing parallels to our findings on small business upskilling — marketing is a common pathway to improved small business outcomes.

Regarding the mechanisms of impact on business growth, of the 27 studies that documented growth in sales, revenue, or profit, the majority bundled digital tools with other support, including access to digital markets and upskilling. The combination allows businesses to intensify their digitalization journey and more efficiently reap the benefits. While research that compares the depth of digitalization with the degree of growth is limited, two European studies have confirmed that businesses that have implemented digital technologies tend to perform better than non-digital businesses.

• A study by the European Investment Bank found a correlation between small businesses (1–49 employees) that implement digital tools and numerous outcomes, including the likelihood of introducing new, innovative products, practices, or services (by >10%), use of good management practices (+20% more likely), and create more (by 5%) higher-paying jobs (+25% average wages) than those that do not use any digital tools.
• The Connected Commerce Council found that “digitally advanced” small businesses reported 1.5 times more revenue and 1.8 times more sales than “digitally uncertain” small businesses.

4. Broad concepts like “digitalization” and “digital business tools” cannot be applied to practical, tactical strategies to support small businesses’ growth without unveiling the negative impacts and risks.

Despite these positive signals, most efficiency gains and growth are generally attributed to “digitalization” in general, rather than any specific tools. For various reasons, researchers have rarely clarified which tool(s) were studied, thus they use the catch-all term “digital tools.” This practice makes it extremely difficult to determine which specific tools have the most potential for impact. Organizations interested in small business support need more robust research on different tools — especially more advanced tools that build on the digitalization journey (e.g., technology that supports HR functions, customer relationship management, logistics, formalization, taxation, and outsourcing).

More research is needed on the negative impacts of digital tools. The Evidence Map documented only 15 data points on negative impacts in 11 studies (compared to 318 positive data points) from digital business operations tools. These included:

• Negative impacts on revenues after adopting digital tools. In Colombia, fruit and vegetable vendors that adopted Agruppa services for ordering and logistics cut back on sales of products not offered on the platform (since they were going to the market less), and their total firm sales fell 9%. In Kenya, small businesses that had below-average profits and revenues before receiving mentoring saw profits decrease by 10% after receiving advice from a generative AI mentor, whereas above-average firms saw a 20% to 25% increase. The negative impacts for “low performers,” were attributed to “low performing” firms being more likely to ask for advice on challenges like access to capital, which the bot wasn’t able to support.
• Negative impacts on business practices: In Brazil, a combination of digital upskilling and access to data analytics led to increased observance of “information avoidance” related to financial recordkeeping among 40% of small business owners.
• Increased concerns and risks related to digitalization have increased; specific concerns include the high costs of adopting digital tools, IT, and cybersecurity.
• There is a widening adoption gap between male and female business owners due to the tendency for male-owned small businesses to invest more in digital.
• Impacts can nullify, as small businesses abandon new digital tools over time and revert to analog practices. Particularly during the pandemic, a multi-country study byDAI found that, where small business use of digital business tools expanded rapidly, it was often met by a small, but measurable decrease in tool use more recently.

In each of these cases, the drawbacks of digital are alluded to but rarely explored in significant detail to analyze the extent of these negative impacts.

Key takeaways

So what do these findings mean for organizations that are interested in small business support?

1. Adoption of digital tools typically starts with low-stakes tools that are easy and familiar to use. These tools alone may not substantially impact small businesses but act as a gateway to deeper digitalization. This may be particularly important for women-owned small businesses, which often have lower levels of digitalization and are less likely to invest time and money in new technology. Small business support organizations can contribute to digital tool adoption by understanding their small business segment and current levels of adoption to identify relevant pathways forward, starting with low-stakes tools where necessary.
2. Business operations tools help small businesses employ more effective marketing strategies and payment tools that save time, making small businesses more efficient to operate. This appears particularly true for businesses engaging in e-commerce. When working with small businesses engaging in (or interested in) e-commerce, marketing and payment tools may be the most effective tools to promote.
3. Bundling digital business operations tools with other forms of support (especially access to digital marketplaces and upskilling on the use of tools) shows a more promising impact on small business growth than interventions supporting tools alone. Support organizations should consider how they can address small businesses’ multifaceted needs for more holistic support.
4. Significant gaps exist in the evidence base about which specific tools have the most impact and where negative and null impacts exist to ensure that support is targeted to where it can be most effective. Researchers and small business support organizations need to be more transparent with which digital tools they use, and in documenting and sharing the negative and null impacts of these tools.

Mastercard Strive supports small businesses to adopt new, relevant digital tools that support their business operations. After engagement with our programs:

• In Southeast Asia, almost three-quarters of small businesses working with our grantees reported using digital communications apps.
• In the Philippines, ChatGenie rolled out new in-store commerce solutions to over 1,600 small businesses that integrate smart retail features, easier customer communications, shipping, and online payment options — 23% are now regular users.
• In Mexico, FUNDES provides training and access to digital tools, resulting in over 2,150 small businesses adopting new low-stakes digital tools like WhatsApp Business, Facebook Ads, Instagram, and Google platforms.

Our upcoming programs also focus on supporting small businesses to take up new digital tools.

• In Poland, Lady Business Club is developing the GO DIGITAL platform — a bespoke tool that will recommend relevant digital tools to small businesses based on assessments of their digital maturity.
• VIQTORIA will support Ecuadorian startup tool providers to help them adapt and improve their products for small businesses and gain greater access to digital marketplaces and financial services.
• Datasketch is using AI-powered chatbots to deliver analytics directly to small businesses in Colombia to improve their use of data in operational decision-making.
• In Vietnam, SoBanHang will provide small businesses with data and advice to help them manage their operations, including supply chain and inventory management and payment through a virtual card for merchants.

Through these and other programs, Mastercard Strive is supporting small businesses to digitalize, become more efficient, and grow.

The studies in the Evidence Map represent our best knowledge of digital support for small business insights. New studies are continuously emerging, and thus, the Evidence Map will continue to evolve. If you have questions on the Evidence Map, are interested in discussing research priorities, or know of relevant digital support for small business impact studies, please contact hello@strivecommunity.org.