Fintech startups that depend on retail spending are struggling right now. Whether a recession is coming or already here, discretionary spending is significantly down for the first time since the 2008 financial crisis, according to a recent Goldman Sachs analysis, and isn’t expected to recover until 2023.
But there’s one bright spot in retail: the corner store. New data from the fintech venture capital firm Flourish Ventures shows that customers in emerging markets are depending on their local shops more than ever. That spells a big opportunity for fintech, from companies that can help the often cash-based businesses transition to digital payments to those that make short-term credit easier to manage.
According to the report, 94% of customers plan to use their corner shop the same amount or more in the future, despite global macroeconomic conditions. Additionally, 71% of those surveyed purchased a larger portion of their groceries from corner stores during COVID-19 lockdowns, showing the businesses are particularly resilient during downturn.
There were already some early indicators that this is a need fintech can fill. UN Global Pulse, a United Nations initiative to collect data on emerging areas of innovation, conducted research in 2018 that suggested fintech can accelerate financial inclusion by serving “micro-merchants” who lack sufficient access to traditional banking services. Mastercard began making investments in products to serve underbanked micro-merchants, including convenience stores, in 2020. And this summer, three companies appeared in Y Combinator’s batch that clearly plan to offer services to convenience store merchants: Kashin, Patika and Apprecio. Thirteen companies in Flourish’s portfolio, including Aquaconnect, Dinie, ShopUp and Zaapi, bring digitized financial services to the convenience store market or to the suppliers serving them.
Flourish Ventures has a stated mission of investing in global companies that improve financial health. Therefore, managing partner Arjuna Costa says the research isn’t only vital for helping guide their portfolio companies and the firm’s own future investments — it’s also an investment in the broader economy. The new data “highlights the urgency of getting these solutions right,” Costa told Protocol. “We can have this significant impact on the corner store owner and the customer, so shouldn’t we collectively be putting our best minds and our capital against getting the shopkeeper’s experience and the consumer’s experience just right?”
Four key areas of innovation were highlighted by the report: innovation in how convenience shops procure inventory, store performance analytics and workforce management tools, point-of-sale tech and banking services, including tools that help facilitate store-administered credit. In each area, there is a lot of regional nuance. In Egypt, for example, wholesalers use “cash vans” that drive door to door with inventory items they predict the stores, called koshks, could use, making for a uniquely inefficient process with little ordering flexibility for shopkeepers. In India, where the stores are known as kiranas, it’s common for families to obtain goods from the local corner shop and then settle their tab at the end of the month, making neighborhood stores de facto short-term lenders.
Many of these businesses operate predominantly in cash, balance their books with a paper and pen or manage inventory using personal judgment. Helping shopkeepers — many of whom are without the resources to perform deep research or analytics — track and systematize these processes can have massive impacts on their bottom line. The report stated that there could be a 60% to 100% increase in corner shop profits were they to implement effective fintech solutions. The biggest potential increase in profits comes with banking providers, who can increase store profits 20% to 60% if they decrease the cost of credit.
The study surveyed a total of more than 800 customers and 800 businesses from India, Indonesia, Egypt and Brazil. However, Costa says the study was built so that entrepreneurs and investors can apply these learnings to a wide range of countries because the four countries chosen are emblematic of regional trends. Costa also told Protocol that Flourish will soon break down the data into specific countries for stakeholders who could use more specific information.
“If you’re looking from a global perspective, you should be starting to see that this is working in Brazil, and this is working in India,” Costa said. “Clearly, there’s something going on here that needs to be paid attention to.”