Tradable digital tokens: A potential solution to help boost SME cash flow?
New payment systems like programmable money could help streamline settlement processes and reduce payment costs, says Amazon APAC Payments’ director
Access to finance remains a significant challenge for smaller businesses across the world. Micro, small and medium-sized enterprises (MSMEs) globally face a financing gap of US$5.7 trillion (S$7.5 trillion), according to the International Finance Corporation’s platform SME Finance Forum.
Against this backdrop, US-headquartered tech giant Amazon is exploring blockchain-based technology to validate the feasibility of converting payables into tradable digital tokens.
Independent sellers, most of whom are SMEs, generate more than 60 per cent of sales on Amazon Stores globally, according to Sujit Misra, director, Amazon APAC Payments.
“We know that for MSMEs, having the ability to quickly and simply secure funding to manage and grow their business is imperative,” said Misra. “Many current solutions are limited in their ability to provide funding for SMEs in a way that doesn’t require substantial process and time.”
Leveraging blockchain
How can blockchain-based solutions potentially help address these financing challenges?
Amazon will be demonstrating its concept, developed with partners HSBC and payments infrastructure provider StraitsX, at the Singapore FinTech Festival (SFF) this year.
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SFF attendees visiting Amazon’s booth will be able to experience how MSMEs could obtain tradable digital tokens (known as tokenised payables) on the blockchain. The tokens leverage regulated digital currencies, smart contracts and programmable payments.
In the demo, MSMEs that receive the tokenised payables can place them on a blockchain-based exchange for lenders to purchase the token at a small discount, providing cash flow to the MSMEs.
The technology showcase is meant to be conceptual, and there are no plans to launch a service or product related to the demo, according to Amazon.
The overall aim is to explore how innovations in trade finance and cash management could serve MSMEs, including Amazon selling partners, in the future, said Misra.
“While we are uniquely positioned to understand and surface seller pain points, we see the solution as an industry issue that can only be solved by leveraging the strengths of various sectors and players,” Misra added.
Building on innovation
The experiment builds on existing fintech developments in Singapore.
The Monetary Authority of Singapore (MAS) started exploring potential use cases for purpose-bound money and the digital Singapore dollar in 2021 with the launch of Project Orchid. Purpose-bound money refers to a protocol that specifies conditions upon which an underlying digital currency can be used.
Amazon worked with the MAS and partners like Grab and StraitsX to demonstrate programmable payments for online commerce at SFF 2023.
“New payment systems like programmable money could achieve goals such as streamlining settlement processes and reducing payment costs,” noted Misra, “in order to support business development and economic growth in a world where digital transactions are now table stakes.”
Programmability could lower working capital costs, reduce reconciliation efforts, and decrease operational costs for Amazon’s business partners such as merchants and sellers, resulting in lower costs and prices for them and customers, Misra added.
“We believe purpose-bound and programmable money could become an important part of new payments systems before the end of this decade because of the potential for merchant and consumer benefits.”
This was produced in partnership with the Monetary Authority of Singapore and the Global Finance & Technology Network.
For more stories, go to https://bt.sg/sff2024
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