In India, SMEs (small and medium enterprises) are essential contributors to the national GDP. As per NASSCOM, SMEs account for close to 40% of GDP in emerging economies, in addition to about 60% of total employment. Despite its significance in the Indian economy, SMEs are a financially underserved group. The rigid business models of financial institutions have put this seemingly important industry segment at a disadvantage. It has ultimately created a financing gap building roadblocks for growth aspirations of SMEs. However, with the turn of the technological era, things have started to look up for small business owners. FinTech companies have emerged as champions for the financial inclusion of SMEs with innovative solutions. While the companies are benefitting from access to credit and other traditional banking services, FinTech owners are penetrating the unexplored market with SME financial solutions.
In this article, we will discuss the role of FinTech for SMEs, and how a large number of businesses are being integrated with formal payments and lending ecosystems with SME financial solutions.
SME Financial Solutions Bridging the Gap
The financing gap between SMEs and large corporations has been a major challenge for young business owners and entrepreneurs. Banking institutions have been viewing them as young, small, and financially risky alternatives to already established entities. Additionally, the lack of assets for these companies to pledge as collateral has created a glaring valley between them and financial products.
Enter SME financial solutions. FinTech companies in India are changing the game backed by technological advancements in the financial services industry. Let’s discuss what FinTech for SMEs is revolutionizing the market.
Rise of digital payments in India
The launch of UPI (Unified Payments Interface) has been a never-seen-before disruptor in the Indian financial industry. It has democratized payment infrastructure and simplified regulations, accelerating the adoption of digital payments through a variety of payment methods. The payment options like UPI, mobile wallets, and payments banks have paved roads well within the rural markets allowing smaller players to join the digital economy. Individuals and merchants alike have adopted the new convenient way of sending and receiving money.
Innovative access to credit
SMEs have long struggled to procure loans due to the legacy and restricted lending landscape. It affected the capability of these businesses in powering growth ultimately leading to survivability issues. FinTech for SMEs, however, changed this primary issue of financial inclusion. Digital lending is one of the key SME financial solutions that give credit access to small businesses based on their business performance. For example, a payments service provider evaluates the historical transactions of a business to understand their financial health. Using this information, the provider will offer instant credit to companies at affordable (often negligible) rates.
Branchless banks for deeper access
The diversity of this country has been a major challenge for brick-and-mortar banks to establish their presence across the nation’s length and breadth. Neobanks shattered this glass ceiling through digitalization to offer SME financial solutions regardless of the location of the company. Further, these branchless banks primarily targeted tier-2 and tier-3 cities to provide financial and non-financial services to underserved customers either directly or through agents. Neobanks have been instrumental in bridging the financial gap at a large scale building a blanket of financial services to be accessible to all.
The trend of embedded finance
FinTech for SMEs has several financial services to offer to build a sustainable business model. One of the emerging concepts is known as embedded finance, which shows significant promise in providing SME financial solutions. Embedded finance is the process of building a non-financial value proposition either through products or services, and then helping its customers and merchants with a range of financial products. You must have come across brands that you began using for one service like instant messaging but started to offer payment options. The idea stems from the integration of non-financial services with financial offerings to offer greater value.
Zaggle leading the financial inclusion for SMEs
FinTech for SMEs has been nothing short of a savior as they were reeling with a lack of options to raise the necessary funds to keep their business operations alive. The industry landscape has seen a major shift in the last few years with new-age financial companies backed by technological advancements providing a wide array of SME financial solutions. One of those companies is Zaggle, a FinTech unicorn, built to help SMEs access the best of financial and technological solutions. Zaggle offers a variety of digital solutions as listed below:
- Zaggle Zoyer: Zoyer is a spend management software that facilitates data-driven accounts payable and procurement workflow.
- Zaggle Save: Save is an automated platform to help companies digitalize and centralize their employee benefits program.
- Zaggle Propel: Propel is a SaaS solution designed for SMEs to manage rewards and incentive programs for their channel partners and employees.
- Zaggle EMS: EMS is an all-in-one expense management solution that helps companies save time and money through automated employee expenses and reimbursements.