How Bengaluru-based startup Hylobiz is changing the way SMEs connect with banks
Many SMEs are not proficient in the use of IT tools. To manage their business, most of them depend on accounting software. Unfortunately, this means that they’re unable to connect with banks and the financial institutions have no way of knowing their cash position. To solve this, Vishal Gupta, Ashish Mahal, and Lakshmi Tampi founded their startupin 2019 to change the way SMEs connect with banks. Hylobiz connects an SME’s business and financial services digitally and seamlessly, without having to undergo any new systems adoption.
"The biggest reason for the lack of SME B2B value chain digitisation are legacy tools, processes and systems that the SMEs use and they cannot be changed/replaced suddenly," Vishal Gupta, Co-founder of HyloBiz, told YourStory.
The startup uses a micro-services architecture based neobanking platform that seamlessly connects with SME legacy tools (accounting, invoicing, ERP) on one end and the multiple banking infrastructure, financial services access, and third-party integrations on the other end.
"Our product seamlessly connects the SME world with the banking world seamlessly, while giving the absolute power and business visibility to the SME owner on a real-time basis," Vishal adds.
The founding team
The founding team includes Vishal Gupta, who has a decade of experience in fintech startups; Ashish Mahal, an ex-banker and passionate fintech enthusiast with two decades of experience; and Lakshmi Thampi, a digital marketer and growth hacker. They were joined by Anurag Rastogi, who is a fintech product expert across multiple use cases. All four of them have worked in financial institutions.
The founding team has been closely associated with Open Banking evolution over the past few years (2012 onwards) in India, the Middle-East, and South-East Asia, and had also enabled many banking institutions in emerging markets on their digital transformation through “Bank in a Box” platform innovation they had built in the earlier startup, Teknospire, till 2018.
"While there has been ample development and options available on digital payments and consumption in B2C space (mobile/internet banking, wallets, POS, virtual cards, QR code etc), there continues to be a huge void in the B2B value chain digitisation. This has been the consistent feedback and ask from various partner banking institutions and eventually led to 'HYLOBIZ' – SME value chain focused neobank in February 2019, addressing the seamless digitisation of their receivables, payables, and credit access," says Vishal.
The startup is built on the Open API banking growth platform and aims to build itself into an 'Amazon' of financial services for the SME value chain segment.
The startup captures data of receivables and payables, and thus, digitisation acts as a primary offering. Riding on this transactional data for the SMEs, the startup says it is able to bring in the secondary offerings around insurance and efficient working capital access through partner banks.
How does the SaaS product works?
Let's begin with understanding how the SME world works. Within the B2B value chain, there are brands, regional distributors, sub-distributors, dealers/traders, and retailers working in a top-down value chain for supplies. The SME is at the top of the value chain – say the “distributor” generates 1,000 invoices every month (25-30 invoices per day). The distributor sends these invoices to more than 100 SMEs manually over email/WhatsApp, and other mediums. The credit period within the B2B value chain spans from 30 to 180 days, based on different verticals. At the end of the credit period, the distributor has to start calling the buyers for payments. All these processes are manual.
"As and when the buyer starts making payments, these payments take a few weeks for the distributor to reconcile, given the multiple payment channels – cash, cheque and partial payment challenges. With all the above inefficiencies and manual/broken processes, the typical delays on receivable is 90 days in India and the working capital cycle average at 300 days according to reports available with the RBI," he explains.
Hylobiz, on the other hand, digitises end-to-end transactions by picking up invoicing information at a transaction through seamless API-based integration from the SME tools. Then, digital communication is triggered by the startup to the buyer over SME, WhatsApp, email, along with sending a payment link. On the due date, Hylobiz triggers automated reminders which are configurable by the SME and payment link directs the buyer to their preferred mode. As the payments travel through Hylobiz engine, they are reconciled on a real-time basis and reported back to the SME’s existing ERP/invoicing/accounting engine over the APIs.
With this seamless process from invoice generation to payment collection and reconciliation, the startup expedites the collection time and hence, increases the working capital efficiency by 40 percent. Also, the digital footprint of this transactional data on receivables and payables for SMEs, allows the partner banks on the startup network to provide SMEs with easy credit access and other services like inventory/logistics insurance, lending, business/working capital loans etc.
Their first set of customers were the regional distributors of CEAT Tyres, who typically does a business of Rs 1.5 crore to Rs 2 crore every month. They have an average of 200 businesses (dealers, retailers, service centres) that they sell the goods to. Typically, this leads to the generation of 1,000 plus invoices every month and a perennial chase for collection of their receivables.
"We started our pilot with two of such distributors in Bangalore and were soon invited by the CEAT headquarters to work with them at a group level. CEAT headquarter gave us the purchase order for a paid POC and then eventually to roll out pan India in a phased manner. This needed to integrate into CEAT’s Dealer Management System seamlessly to make the whole process frictionless that Hylobiz achieved within no time," says Vishal.
Another early customer was a long-stay accommodation for youth business called FF21, in Bengaluru. FF21 has 700 plus tenants in their multiple properties. They do business through their mobile apps and CRM, accounting engines, and they wanted Hylobiz to reconcile the collections on a real-time basis, as well as activate the payables for them. The startup seamlessly integrated with their existing tools and does the real-time collections reconciliation for FF21.
The founders started the business by infusing $250,000 as bootstrap capital.
The startup has also raised an angel round of $500,000 from some marquee angel investors in the US (Google, Juniper) and in India (Ex Myntra, Multiply Ventures, FF21). One of the angel round investor is also an early adopter of the product. So far they have been making good progress, though it has taken them 18 months to get the agreements with five top private banks and three SMEs processes automation platforms.
"The core value lies on building the switching fabric which enables to build us the 'network of ledgers' on the SME side with a seamless multi-bank switching capability with direct integrations with top-10 SME preferred banking partners," says Vishal.
Their go-to market strategy has been top-down in the value chain, focusing on the receivables transaction sets. This offering works on relieving a major pain point for SMEs, and opens avenues for the startup to generate revenues too. For the first 10,000 SMEs on the platform, Hylobiz will acquire – directly and through digital reach – while signing partnerships with banks and ERP/CRM companies to build strong channel partnership to reach next million SMEs through the alliances.
Based on the SME business size, its revenue model is as follows:
SME type 1 – Turnover: more than Rs 100 crore per annum. The monetization is based on the setup cost plus a SaaS Fee / Month + Transactional fee
SME type 2 – Turnover: Rs 10 crore to Rs 100 crore per annum. The monetization is SaaS Fee / Month + Transactional fee.
SME type 3 – If the turnover is below Rs 10 crore per annum, then the monetization has a transactional fee.
"We have gone through the product-market fitment and price discovery journey and basis that above are the revenue streams that we are already realising," says Vishal.
The secondary monetisation streams would start with financial/non-financial services through the partner banks where we would generate revenues by extending the products over the network.
One of the most difficult decisions was to build the startup for a multi-corridor adoption right from the beginning. The reason behind that was based on the startup's assumption that India won’t be paying for payments or SaaS products so easily despite it being one of the big markets for Hylobiz. They also considered that building the product for multiple markets would lead to complexity and cost with little resources at hand.
The team took a call and went for building it with a global rollout capability, which took them a little longer to build, stabilise and engage partners, but today, the startup is present in two corridors — India and the UAE — simultaneously, with a plan to expand into MENA markets through channel partners/alliances.
Plans for the future
The plan for the startup is to build a 20,000 active SME base on startups across India and UAE corridors. At least 10 integrations each on the ERPs and banks for the two corridors is planned, and they aim to reach a revenue of $3 million ARR by next year-end.
"We strongly believe, that if we are adding value to SMEs business and taking his pain away, we deserved to be paid for our efforts," says Vishal.
They have 30-plus distributors on the platform which provides access to 3,000-plus SMEs already, and their next set of transactions that will go live would have an adoption opening up for this bigger base. The startup competes with banking platforms offered by Microsoft, Oracle, and Infosys.