The innovations born out of this pandemic have created a plethora of new digital-native businesses designed to meet shifting market demands and capture new market opportunities.
The convenience and accessibility of digital business is fueling the exponential growth of new small businesses around the world.
The countries with the largest increase in new startups in 2020 were the UK, US, Australia, Germany and Canada.
This global health crisis has disrupted businesses around the world in very different ways, particularly affecting small and medium-sized businesses (SMBs), which account for more than 90% of businesses worldwide. Many businesses have temporarily closed their doors, some have collapsed, but some have grown like never before.
What is less well known, however, is that innovation has also emerged from this worldwide disruption over the past 18 months, as many new digital-native businesses have been created to meet changing market demands, capitalize on new market opportunity, helping with the global shift to a remote working environment, which has allowed entrepreneurship to flourish.
This development is corroborated by new insights from MasterCard’s Recovery Watch: Small Business Growth Rebooting report, revealing a picture of widespread prosperity for small businesses. According to the report, the number of small and medium-sized enterprises (SMEs) worldwide increased by 32% in 2020 as accumulated savings, chaotic job markets and shifting consumer behavior fueled a new wave of entrepreneurship. Countries around the world, from the UK and Canada to Japan and Brazil, have experienced an unprecedented increase in new startups. The top 10 countries have seen growth of almost 30% or more in new ventures. Rarely has the global economic market reacted so consistently, especially to a crisis, yet this growth signals the beginning of a new landscape for global e-commerce business.
To list the top 10 countries with the largest increase in start-ups, Mastercard has created a new methodology for accurate measurement. Findings will focus on businesses that accept credit card payments, based on proprietary analysis methods and aggregated and anonymized sales activity records within MasterCard’s network systems and third-party data sets. The report classifies SMEs using a unique set of indicators and an AI-driven comprehensive algorithm. Metrics include their number of outlets, sales volume, number of transactions, and average transaction size.
The top 10 countries with the highest year-on-year growth in new startups in 2020 include:
1) United Kingdom (101%)
2) United States (86%)
3) Australia (73%)
4) Germany (62%)
5) Canada (58%)
6) Italy (44%)
7) France (40%)
8) Japan (38%)
9) Brazil (35%)
10) Thailand (29%)
Digitization is Accelerating
The convenience and accessibility of digital business is fueling the exponential growth of new small businesses around the world. Almost from the beginning of the COVID-19 outbreak, businesses have relied on digital business, with consumer transactions almost entirely through e-commerce. Millions of citizens around the world need or choose to work, eat, exercise and play from home and narrow their focus to their lives online. In the second half of 2020, many people found entrepreneurial opportunities in this situation that did not exist or were unlikely before.
Furthermore, the number of brick-and-mortar businesses digitizing for the first time tripled in 2020 during the pandemic, a sure sign that digitization is only going to get faster. All parts of the world show a growing acceptance of the shift to online business, albeit to varying degrees. In Brazil, for example, the number of existing businesses moving their business online for the first time increased by 208% in 2020 compared to 2019, compared to 38% in Germany.
Small businesses have had to become resilient innovators to ensure they can stay afloat during the height of the crisis, and competition among online retailers is undoubtedly fierce due to the rise of entrepreneurship. Given the low cost of entry compared to traditional channels, it has never been easier to set up online platforms, daigou, and other new direct-to-consumer channels. This intensifies fierce competition not only among incumbent SME retailers who are just digitizing, but also among new start-ups born out of the crisis.
The shift to digital pays off for businesses that can afford it. Small and medium-sized businesses attract more customers and increase revenue, according to an analysis by Mastercard Test and Learn®. The analysis uses a test-and-control approach to understand how enabling e-commerce payments has affected sales during the pandemic. Compared to their peers, digitally adopted SMEs saw a 5.0% increase in consumer spending and a 4.5% increase in transaction volume. They also generated more revenue from new customers than their peers (6.4% increase in spending). The analysis also found that 34% of e-commerce sales by SMEs are purely incremental, which cannot be achieved with brick-and-mortar stores alone.
Emergence of online Businesses with staying power
Businesses around the world are facing pressures from the pandemic and opportunities for success that vary according to circumstances both within and outside their control, including outlets, government restrictions and financial support, willingness to change, and industry type, among others. But for any small business, making the transition online means investing money and resources in a viable online presence with staying power.
While this option has been around for decades, the COVID-19 pandemic has provided even more urgency and foresight to create future-ready businesses. A viable online business can attract consumers and expand globally, but it also means competing for scale. As we have seen over the past 18 months, SMBs are not only continuing to transform digitally – they are moving eagerly towards digital and choosing digital natives when forming to take advantage of the lowest start-up costs and lower risk. It is these companies that herald a new global economic landscape that will continue to develop.
While starting a digitally native small business or moving an existing business online remains challenging, it has become easier than ever, even against the backdrop of economic hardship caused by the global health crisis. As markets continue to accelerate their shift to digital, we are seeing an expansion of technology to support these actions, further stimulating entrepreneurial opportunities. Digital capabilities and accessibility have historically been an insurmountable hurdle for many looking to start a new small business, but in our time, that landscape is changing. As small businesses continue to be created, it will be increasingly prudent to do more research and track this development across the economic landscape.
Mastercard is committed to supporting small businesses in developing innovative solutions to enable smoother online business transformation and more impactful digital business operation, and encourage other technology industries to focus on investment to promote this innovation.