How Does Going Cashless Unlock Credit for Small Businesses?

David Vélez says going cashless unlocks credit for small businesses because a digital sale leaves a cash-flow record a bank can underwrite. In most economies, business is still offline, so a cash sale is never recorded and a small seller cannot borrow against daily cash flow.

A taco stand on a corner in Mexico City sells through cash. The transaction is not recorded anywhere and then it goes away, so the stand cannot get credit today. The seller has a history of selling tacos and taking in cash flow, but nobody can underwrite on top of it. The moment the transaction goes into a digital ledger, the seller can take the record to a bank, show the cash flow, and ask for credit to open two taco stands or five. Something like 70% of all the employment in Brazil is still in small businesses, not a big corporate, and the same pattern shows up in India and Southeast Asia. Small businesses there historically dealt with cash and are now digitalizing, which enables trillions of dollars of credit for billions of people around the world.

Digitalization of the economy for a significant percentage of the world population is not very well understood and is a huge accelerant. It could be a significant economic shift for economic mobility across the world.