How Digital Financing Services Help in Uplifting SMBs

By Pradeep Shekhawat, Head SMB Business, PayU India

Pradeep Shekhawat, Head SMB Business, PayU India

Headquartered in Gurgaon, PayU India is the leading payment solution provider. This a top class engineering product offers high success rates, detailed analytics coupled with great customer service and aggressive pricing.

The world around us has dramatically changed in the last decade, with digital mediums emerging as one of the leading touch-points between consumers and businesses. Today 3.4 billion people in the world have digital presence and the corresponding number in India has also scaled to 400 mn and is expected to become 730 million by 2020. The financial and payments industry has also been riding this wave and has witnessed tremendous growth that is enabling businesses, especially SMBs, deliver services/products in a better, faster and more cost efficient manner to their consumers.

Here’s counting the major ways in which SMBs can benefit from the advanced digital financial services available today:

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The payment landscape has been expanding rapidly, not only in India but across the globe. In India, factors like rise in Debit card penetration (that crossed 700 million this year), growth in smartphone users (currently 240 million users and expected to reach 520 million by 2020) along with the introduction of newer solutions like UPI are expected to continue fueling this growth.

Businesses stand to gain by adopting digital payment solutions due to three key benefits. Firstly, by adopting digital payment solutions, businesses provide an unparalleled ease to their customers. They no longer have to deal with the inherent challenges of cash transactions, including managing cash availability, soiled notes, dealing with change and so on, consumers, increasingly are expecting more from businesses in this regard.

Secondly, use of digital payment expands the target market for businesses by allowing them to target customers that they otherwise couldn’t have targeted in a cash economy. This includes segments like remote payment and delivery, enabling impulse purchases and more.

Thirdly, digital payments allow businesses to drive efficiency through better reconciliation and accounting systems as well as lower overhead costs like leakage and manpower costs to manage cash. These benefits in total make digital payments very attractive for SMBs.

Today, payment service providers like PayU and others, provide payment solutions that enable SMBs to get activated in literally two minutes to be able to accept payments from their customers. These solutions are available not only for merchants who operate with their own websites and apps, but also for merchants that have not yet gone digital but could leverage solutions like invoicing or QR code to collect payments. The recent demonetization of Rs. 500 and Rs. 1000 notes has provided a big impetus in the adoption of these solutions. Moving forward, both merchants and consumers stand to gain substantially due to this increase in adoption of digital payments.

Lending Made Easy for SMBs

SMB lending has been one of the most neglected sectors in financial services, to which the banks have woken up in last few years. Despite RBI urging banks to focus on the SMB sector, only four banks were able to disburse 60 percent of loans to SMBs, while others kept a safe distance. While the lending from banks has increased to 33 percent in 2011-12, most banks are still too cautious when it comes to lending money to the SMBs. Furthermore, it is not easy for SMBs to raise loans from traditional banking players due to the complex procedures, need for copious amount of documentation and rudimentary risk evaluation frameworks in place.

Given the need, it is not surprising that in last few years we have seen the emergence of an array of digital lending service providers, endeavoring to fill up the gaps between demand and supply. These new age digital lending platforms are equipped to provide working capital & other business loans on priority. They are leveraging technology to bridge the gap in service delivery by lowering the cost of service delivery as well as bringing better credit evaluation techniques to enable lending to segments that find it difficult to raise loans from traditional banking players.

The business models vary across these players, with some of them acting as aggregating platforms, e.g. CoinTribe and BankBazaar that provide access for SMBs and streamline the process of document submission. Yet the loans are disbursed by banks and NBFCs in these cases. In addition, there are also players that carry the risk on their own balance sheets, e.g. LendingKart and Capital Float and act as full-fledged financial service providers.

While the jury is yet to be out on which model is likely to succeed in the long run, either ways the emergence of these players is very good news for the Indian SMB community and holds great potential for their future growth.

In Essence, Digitalization is Aiding SMBs Succeed

One of the greatest advantages of digitalizing financial services is the democratization of funds and opportunities. These services are available to both, individuals and businesses, irrespective of limiting societal constructs pertaining to caste, class, creed or other backgrounds. FinTech services are solving the urgent requirement of payment and funding, thus letting small businesses prosper and achieve their business aspirations. Being quick, convenient and time-efficient, these platforms resonate with the mindsets of today, and hold the potential to uplift the SMB segment in meeting their destiny. 

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