SMEs are curiously underserved and face many obstacles to growth. Small traders face difficulties in accessing formal credit, poor infrastructure and public services, outdated and informal methods of operation and poor access to marketing platforms, compounded by the lack of digital literacy and technologies.
This is where fintech platforms can play the role of enablers and accelerators, bridging the gap through technological solutions.
Massive internet and smartphone penetration and some of the lowest data speeds in the world have made it extremely easy for Indian SMEs to access sophisticated technology and digitize their businesses very simply, at very low costs. This has even allowed SMEs in small towns or small business owners like Kiranas to easily connect to increasingly digitized consumers, without heavy investments. It can be as simple as printing a QR code!
Last year, mobile payments surpassed cash withdrawals from ATMs for the first time, a clear indication of where the Indian consumer is headed. To take advantage of this digital consumer, small merchants need to offer digital payment options and simplify transactions both upstream and downstream.
Ultimately, this would mean simplifying the processing and issuance of bulk payments, split payments, chargebacks, and instant refunds. For small businesses, digitizing their systems to accept and process digital sales transactions streamlines the entire checkout process, resulting in a host of benefits.
For example, it simplifies accounting and reconciliation, offers convenient sales tracking, an overview of inputs and outputs, and valuable insights from that overview.
Initially, the payment options should be as varied as the diversity of the customer base. Fintech platforms can offer SMBs omnichannel payment options, keeping the customer at the heart of the payment experience.
This is great for customers as it allows them to effortlessly switch from offline to online mode, while streamlining the checkout process and improving integrations with backend systems for the merchant. Omnichannel solutions allow merchants to get a sense of the consumer as a whole and develop more effective selling strategies.
Through the platform approach, fintechs can continue to add value to the merchant experience, which in turn leads to customer benefits.
Large aggregators can create or deepen existing partnerships to help smaller merchants access benefits such as rewards and loyalty programs, BNPL, and accessibility solutions.
The World Bank estimates that Indian SMEs start with a credit gap of $380 billion. Poor access to formal credit, informal operating procedures and tight cash flow after the pandemic are some of the challenges small businesses face.
In addition, there is a need to develop new product constructions for SMEs to meet specific needs. For example, a trader may need cash advances in July to meet Diwali demand and may only repay after the October-November period. Others have seasonal sales that may not be regularized.
Fintech companies offering platform solutions can make access to credit much easier for small traders, given their flexibility and advanced data analysis techniques. They already have a holistic and historical view of merchant activity, cash flow cycles, and their financials, which allows them to provide integrated financing against merchant cash flow and use techniques advances in AI and big data for risk analysis.
Not all SMEs are created equal, and the flexibility of the fintech model allows them to offer tailored, industry-specific or merchant-wide credit products.
More importantly, they can triangulate data and assess important business metrics that aren’t necessarily part of the formal credit system, allowing them to provide easier access to creditworthy businesses and boost financial inclusion.
Fintech companies addressing specific issues such as outdated accounting methods or those offering a platform approach to providing a range of digital solutions effectively address these issues.
Very low-cost software-as-a-service or subscription models play an important role in this digitization process. A large number of custom software solutions for organizations are designed in India, which makes them cost-effective for SMEs. Fintech companies are providing India-specific scanning software and customizing ERPs to help small businesses run more efficiently.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)