How fintech businesses are helping SMBs digitalise in the post-COVID-19 era

SMBs are oddly underserved and face numerous barriers to growth. Small merchants face difficulty in accessing formal credit, poor infrastructure and utilities, antiquated and informal operating methods and low access to marketing platforms, compounded by the digital and technological knowledge gap.

This is where fintech platforms can act as enablers and accelerators, bridging the gap through technological solutions.

Massive internet and smartphone penetration and some of the lowest data rates in the world have made it extremely easy for Indian SMBs to access sophisticated technology, and digitise their businesses very simply, at very low costs. It has allowed even SMBs from smaller towns or small scale business owners like kiranas to connect with increasingly digitising consumers easily, without cost heavy investments. This can be as simple as printing out a QR code!

Simplifying payments

Last year, mobile payments exceeded ATM cash withdrawals for the first time, a clear indication of the direction the Indian consumer is headed. To tap into this digital consumer, smaller merchants need to offer digital payment options and simplify transactions at both the front end and back end.

At the back end, this would entail simplifying the processing and issuing bulk payments, split settlements, chargebacks, and instant refunds. For small businesses, digitising their systems to accept and process digital sales transactions streamlines the entire payment process, resulting in a slew of advantages.

For example, it simplifies accounting and reconciliation, offers convenient sales monitoring, a topline view of inflows and outflows and valuable insights from this overview.

At the front end, payment options need to be as varied as the diverse 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, allowing them to move effortlessly between offline to online, while also streamlining the payment process and improving integrations with the backend systems for the merchant. Omnichannel solutions allow merchants to get a sense of the consumer as a whole and develop more effective sales strategies.

Through the platform approach, fintechs can keep adding value to the merchant experience, in turn leading to benefits for customers.

Large aggregators can create or compound existing partnerships to help smaller merchants access benefits such as rewards and loyalty programmes, BNPL, and affordability solutions.

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Simplifying credit

The World Bank estimates that Indian SMBs are starting at a $380 billion credit gap. Low access to formal credit, informal operation procedures, and liquidity tightening post-pandemic are some of the challenges that small businesses face.

Moreover, there is a need to develop newer product constructs for SMBs to match specific needs. For example, a merchant might need cash advances in July to meet Diwali demand and can only repay post the October-November period. Others have seasonal sales which may not be regularised.

Fintech companies offering platform solutions can make access to credit much simpler for small merchants, given their flexibility and advanced data analytic techniques. They already have a holistic and historic view of the merchant business, cash flow cycles and their financial data enabling them to provide embedded financing against merchant cashflows and use advanced AI and big data techniques for risk analysis.

All SMBs are not created equal, and the flexibility of the fintech model allows them to offer customised credit products, specific to an industry or to the scale of the merchant.

Most importantly, they can triangulate data and evaluate important parameters of business that may not necessarily be part of the formal credit system, enabling them to offer easier access to credit-worthy businesses and boosting financial inclusion.

Conclusion

Fintech companies catering to either specific pain points like antiquated bookkeeping methods or those which offer a platform approach to provide a range of digital solutions are addressing these issues effectively.

Software-as-a-service or very low-cost subscription models play an important part in this digitising process. A large number of customised software solutions for organisations are built in India, making it cost-effective for SMBs. Fintech firms provide digitalisation software specific to the Indian context and customize ERPs to help small businesses run more efficiently.