By Gurjodhpal Singh and Kumar Shekhar
Credit and Finance for MSMEs: India has established a reputation globally for being the breeding ground for startups and small businesses. There are more than 89 lakh micro, small, and medium enterprises (MSMEs) registered on the government of India’s Udyam portal. However, despite accounting for 30 per cent of the country’s GDP, the banking needs of MSMEs have been underserved.
Entrepreneurs lose a significant amount of time in paperwork, manual banking operations, and customer support. A recent survey among SMEs in the UK found that an average enterprise chases five outstanding invoices worth an average of £8,500 (around Rs 8.18 lakh) at any given time. This also equals an average of 1.5 hours per day per SME or 900,000 hours across all SMEs. Manual admin tasks, such as accounting and invoicing, among others amount to a lot of lost time for small businesses. It can be inferred that when it comes to small business banking, ‘what you see’ is not ‘what you get’. This sentiment was also echoed by the Finance Minister of India, after announcing the budget, wherein she had urged banks to be more supportive of entrepreneurs.
Today, SMEs need fintech-powered solutions to cater to their needs like a smart business account, payment services, accounting, lending, and round-the-clock customer support, to name a few. This is where neobanks fill in the void/step in. They provide highly customized banking solutions, among other features, based on the existing and emerging needs in today’s dynamic business environment. As the third-largest fintech ecosystem in the world after the US and China, the Indian fintech market is likely to further mature with the emergence of neobanks.
It is no news that traditional banking is lengthy and time-consuming. Every step – from opening a bank account to availing credit – is tedious. Applicants are expected to bear considerable paperwork, extensive verification, multiple reference checks, and a long turnaround time for accessing credit. As a result, small business owners have to wait for a long time before they open shop, as their banking needs are yet to be met.
To add to their woes, there is little scope for customization. While tailor-made services can be easily availed by large-scale businesses that bring a high volume of transactions, small business owners often get the shorter end of the stick. As a result, SMEs are often easily lured by informal lenders and end up accepting unfavorable deals at high-interest rates. This, in turn, affects their credit score which is often cited as a reason by traditional financial institutions for rejecting loan applications. Eventually, this results in a catch-22 situation for small businesses.
Entrepreneurs need fast, easy, and seamless access to financial services, and this is where neobanks are stepping up. They are becoming increasingly popular amongst small businesses due to many reasons. Neobanks provide digital and mobile-first financial solutions to SMEs helping them save time and money. This essentially translates to a completely paperless and virtual banking experience. SMEs can generally register with neobanks for free, and easily open an account within minutes! This is backed by dedicated 24X7 customer support that helps them throughout the process.
Neobanks leverage data powered by emerging tech like AI, data analytics, and machine learning. As a result, they provide small businesses access to dashboards on their apps or websites that help them get constant insights on their business and help them plan their cash flow better. These dashboards also highlight information about accounting, payments, accounts receivable, etc. This provides entrepreneurs greater transparency about their financial requirements and also helps in eliminating unnecessary business expenses.
Being data-driven, neobanks also can customize their offerings to provide seamless services to entrepreneurs. They can tailor their products to businesses depending upon their size, scale, and expenses. Neobanks also use data to help small businesses create a digitized credit history. This helps to improve their credit score, which further enables them to get seamless access to credit.
The whole nine yards of financial services
The one-stop-shop model used by neobanks through apps and websites provides SMEs access to a spectrum of financial services – from banking to remittances, money transfers to utility payments, and personal finance. Additionally, small business owners can also get access to features like company registration, accounting, invoicing, GST filing, expense management, cash flow management, virtual receipts, etc.
By providing a differentiated experience to India’s small business owners, neobanks have witnessed a surge in user adoption. They are playing a significant role in addressing the unique needs of SMEs that traditional players might have fallen short of. As the regulatory framework in the country evolves, neobanks will have a major role in realizing India’s aspirations of being the small business capital of the world.
Gurjodhpal Singh is the CEO and Kumar Shekhar is the VP – Member Operations of Tide India. Views expressed are the authors’ own.