Fintech For MSMEs: The Changing Face Of Financial Inclusion In India
The rapid advancement of Point of Sale (PoS) systems from a simple mechanical cash register to a digital retail management system serves as the best example of the disruption that fintech can cause in the MSME sector.
Fintech – a powerful contraction of finance and technology – has been a massive success in the Asia-Pacific region for the past five years and has significantly evolved during the pandemic. India has developed a dynamic ecosystem for fintech start-ups to thrive into a billion-dollar unicorn and lead a quadruple growth in the next decade. The traditionally cash-driven Indian economy has not only responded well to fintech innovations but has facilitated an ambient environment for companies to discover new products that could eventually shape the future of fintech.
From going deeper into categories, exploring new segments, and empowering other industries, fintech companies are pursuing multiple dreams. Most importantly, they realise the vast potential of MSMEs, and the impact small merchants can have on the economy if empowered with the right tools that foster digital inclusion. Today's fintech companies are set to design tailored solutions that address all the pain points and allow MSMEs to reach their full potential.
Fintech for small businesses
Micro, small and medium-sized enterprises present a billion-dollar opportunity for fintech. Small businesses are a crucial yet often neglected part of the Indian economy. There are about 63 million MSMEs, of which 99% are small merchants. They account for a quarter of India's GDP, employ a large proportion of the global workforce and complement large industries. However, around the countries, MSMEs often encounter the problem of managing finances and ensuring sufficient funding. But, the fintech revolution in India has given millions of MSME hope to address all the pain points and ensure rapid growth on the back of a supportive regulatory environment.
The rapid advancement of Point of Sale (PoS) systems from a simple mechanical cash register to a digital retail management system serves as the best example of the disruption that fintech can cause in the MSME sector. Last-mile retailers can automate and manage a range of functions, including inventory, sales, customer relations etc., from a single platform. The new mobile PoS systems function on the cloud, support multiple payment methods, and offer a range of features such as loyalty programs, catalogue designing etc.
SoftPoS and mPoS are among the many disruptions that have made the lives of small merchants easier. Among other solutions that have recently transformed MSMEs are transaction delivery, Marketplace lending or peer-to-peer lending, payment gateway, digital payment wallet, Small ticket loans etc. Most of these solutions leverage automation, big data or machine learning to resolve individual pain points and offer a dynamic ecosystem.
However, fintech companies have recently been looking beyond single innovation towards developing all solutions under one window. The idea is to offer a dynamic digital ecosystem that allows last-mile merchants to expand and grow their business operations using digital tools. Take, for example, tap and pay service, the most advanced method of contactless payments. Merchants can leverage 'tap and pay' service to accept all kinds of digital payments, including Credit/Debit, UPI, QR code or digital e-wallets. The most exciting part is that merchants don't have to maintain a physical infrastructure; everything is available on smartphones. It's like carrying the world of digital payments in your pocket.
Fintechs are also facilitating platforms that allow small merchants to create an online catalogue for their products and accept orders from customers digitally. Such platforms have seen tremendous growth post the unlock 1.0 phase in India, typically led by customers' demand for digital transformation.
Fintech beyond payments
Small merchants don't see fintech as an enabler for digital payments but rather as an enabler for a complete digital ecosystem that can empower them with lending, insurance, and banking. Fintechs can revolutionise the slow and delayed funding and cash flow processes, unlocking many growth opportunities for MSMEs. Over the past few years, there's been a significant rise in no-code APIs that foster a convenient and transparent lending process and potentially increase small businesses' access to finance.
The increasing use of Neobanks among MSMEs is yet another secret growth ingredient. MSMEs have always had significant concerns regarding banking functions, including loan payments and credit financing. Hence, for a long time, most MSMEs reached out to informal channels to fulfil their credit needs. Even those who did avail banking services were caught in tedious processes that weren't suiting their financial needs. Neobanks offer seamless banking services, often customised, keeping in mind the individual needs of small merchants. Moreover, Neobanks also offer various digital tools to maintain books, file taxes and invoices, and other relevant financial services.
For fintech, digital payments have become just a tiny part of a massive puzzle of the digital infrastructure. Fintechs want to facilitate anything and everything that can improve the customer experience and drive digital financial inclusion. Hence, they are banking on the power of Artificial Intelligence, Machine Learning, Big Data to drive innovation and growth for the MSME sector.
Initially, fintech's primary objective was to leverage technology to improve the delivery of financial services. However, fintech's are now starting to change how businesses and people interact with finances. There will be a radical change in what fintech offered when it began and what it's about to provide in the next ten years. Fintech's are realising the untapped potential of MSMEs and are exploring new opportunities to develop solutions that are likely to change the face of India's small industry.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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