Fintech and MSMEs are together changing the face of digitalisation

The fintech space has witnessed enormous success in the Asia-Pacific region in the last five years and evolved further during the pandemic. 

India offers a vibrant setting for fintech startups to become billion-dollar unicorns and quadruple in the next decade. The cash-driven Indian economy has also responded favourably to fintech advances and helped entrepreneurs explore new solutions that could determine fintech's future.

Fintech companies are also expanding into new categories, divisions, and industries. They recognise the immense potential of MSMEs and the influence small merchants have on the financial ecosystem if given the correct digital inclusion tools.  

Small enterprises are important but are disregarded frequently. About 99% of MSMEs are small retailers and contribute a fifth of India’s GDP, employ a big section of global labour, and supplement large industries. 

While MSMEs offer a billion-dollar prospect for fintechs, they often struggle to manage finances and secure enough investment. However, the financial revolution in India has offered MSMEs the optimism for speedy growth and relief from their issues.

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The fast growth of Point of Sale (PoS) platforms from a simple mechanical checkout counter to a digital sales management platform exemplifies how fintech can disrupt the MSME sector. Last-mile retailers can manage inventory, sales, and customer relations from a single platform. The current digital PoS systems are cloud-based, accept several payment options, and offer loyalty programs, catalogue design, etc.

SoftPoS and mPoS have helped small shops. Other solutions that have lately altered MSMEs include transaction delivery, marketplace financing, payment gateway, digital payment wallet, and small ticket loans. Most of these solutions use automation, big data, or machine learning to address pain points and provide a dynamic ecosystem.

Fintech companies are moving beyond single innovations to develop all solutions in one place. The goal is to establish a vibrant digital ecosystem that enables last-mile retailers to develop by utilising digital tools. For example, tap and pay is a contactless payment mechanism used by merchants to accept credit/debit, UPI, QR codes, and e-wallets. Everything is available on cellphones, therefore retailers don't need physical infrastructure.

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Fintechs are also helping small retailers establish online catalogues and accept digital orders. After India’s unlock 1.0 phase, such platforms have grown rapidly due to clients’ desire for digital transformation.

Small merchants see fintech as a way to access lending, insurance, and banking, not just digital payments. Fintechs can speed up slow financing and cash flow procedures, boosting MSMEs’ growth. No-code APIs support a straightforward and transparent lending procedure and may promote small enterprises’ access to funding.

Neobanks are another growth secret among MSMEs. MSMEs have traditionally worried about banking services, including loan payments and credit financing. Long ago, most MSMEs relied on informal channels for borrowing. Those who used banks had to go through laborious processes that didn't meet their needs. Neobanks offer seamless, individualised financial services for small merchants. Neobanks offer digital bookkeeping, tax and invoice filing, and other financial services.

Mobile payments have become just a speck in the vast puzzle of digital infrastructure for fintech. Fintechs want to help with anything that improves the consumer experience and drives digital financial inclusion. As a result, they are betting on the power of AI, machine learning, and big data to drive growth and innovation in the MSME sector.

Initially, the primary goal of fintechs was to use technology to enhance the provision of financial services. However, fintech is beginning to change how individuals and companies interact with finances. There will be a significant difference between what fintech provided when it first emerged and what it will offer in the next ten years. 

Fintechs are recognising the untapped potential of MSMEs and are looking for new ways to develop solutions that can alter the face of India's small industry.