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Importance Of Fintech For SMEs

The Financial services market for SMEs runs in trillions of Rupees and is by no means a segment that will see a cap of its growth in the next decade

The amalgamation of Finance and Technology, i.e. Fintech accelerates financial services and automates its delivery by using algorithm and software to enhance the overall efficiency of the finance functions of an organization. Fintech offers a wide range of benefits for the SMEs in the age of technological advancements and digitization. Moreover, Fintech in lending domain offers deeper analytics based service customization to businesses that allows them to unlock business value while creating easy access to credit and other financial services.

Traditionally, SME’s have faced a lot of challenge to survival and growth in the market; the current pace of economy is making it even harder for them. SMEs are having quite rough years owing to the grim situation amid the pandemic. Whereas some sectors like e-commerce are booming but most of the SMEs are struggling through this as the profits have been slashed out, losing customers and unpaid dues. Altogether, pandemic and economic losses make it harder for SME’s to flourish.

The silver lining of the pandemic has been the rising adoption of Fintech by SME’s. They have spent effort in acclimatizing themselves with the various services’ specifically digital payments and online credit. The methods are such as crowd funding and asset management and here’s when ‘Fintech ’ comes into play as an innovative solution.

Fintech space is increasingly maturing in India with the rise of:

1. Open Banking: With the combined effort of government and private sector, the banking ecosystem is India is gradually evolving from a branch based account management to open banking. Open banking allows to access and control consumer banking and financial accounts through third party Fintech applications. While it still is in nascent stage due to concerns on having rigorous data security measures in place, continuous updating and getting consumer consent. It has the potential to transform the dynamics of Bank-Customer relationship. It will allow banks to manage complex customer needs and leave the mundane, administrative tasks to the open API’s, demonstrate high level of customer centricity and lower overall operating model costs. This bodes well for SME’s that have traditionally struggled with access to financial products that are customized to meet their business needs.

It is ready to make SME financial services more user-friendly. It also gives the option to the institutions for enabling them to share data more easily with Fintech and that would come out as a benefit to small businesses with a rich set of new products. It is considered to be widely adopted by SMEs for its invoicing to expense management solutions to ease their journey to grow as a business as it reduces the friction finance management enhancing their day-to-day operations.

This has been widely adopted as everything from invoicing to expense management has improved as new solutions geared to SMEs go to market. It also helped in improving day to day operations of SMEs.

2. Digitalized Lending Ecosystem: Gone are the days of balance sheet lending as this practice has been outdated as per modern business demands. The requirements around lending have changed with time. A business might require a short-term ad-hoc loan to cover a lull in the accounting months or do need small cash amounts throughout the year to strengthen growth. This seems very difficult with traditional loan providers and this is the area where new lending platforms can help. Keeping up with these lending marketplaces enables SMEs to access products from third-party providers and resolving the struggle for them. This would also expand to more lending solutions like equity solutions or finding VC investors, all of which will become more convenient through new lending platforms.

3. Smarter digital payments: Fintech has introduced a new digital payments method that has enhanced the way SMEs engage in business processes with their customers. “Confirmation of Payee”ensures that the customer making a payment is fillingin the correct payment details by sending prompts to the sender to edit the payment details for new or existing vendors. Another is “Request to Pay.”It enables businesses to request money from a customer by an electronically coded message and offers customers ease to pay in instalments. These tools have made digital payments smarter. It also helps to ensure that the businesses get the payment on time without falling victim to customer’s errors. These tools also act as an anti-fraud factor by helping to reduce digital crime which has grown exponentially since the start of the pandemic.

Additionally, various mobile applications have become one of the great assets for the lending industry. The availability of Fintech application on your portable device has increased in e-commerce and lending space. It expands financial services to the unmapped and minorities while reaching out to a wider target group. Fundraising and money raising accessibility on a smart phone has led to independence of money lending. Investors access to portfolios with regulated settings can help accelerate the process of financial investment.

Road ahead for Fintech service for SMEs

The digital lending process cannot be a quick fix to the problems of financial inclusion. Fintech needs further improvement for a better customer experience while keeping its foremost responsibility. Whereas, the government also needs to adopt new policies and administrations to provide a more favorable condition following Fintech dynamics. Rephrasing and responding should be the key for the government to help Fintech nurture. By practicing so, the government can simplify MSME expansion and effectively create a more inclusive economic development.

Other tech solution that has the potential to enhance the Fintech experience for SMEs is block-chain, which creates a public ledger and uses peer to peer technology to keep all the financial transactions in a transparent and secure manner. Another tech solution that enhances the Fintech experience is – Artificial Intelligence. It makes interacting better by creating an increasingly effective response, especially for working capital lending needs. It also enables a solid and cost-effective credit response to small businesses in a matter of minutes, and without the need for cumbersome documentation.


The Financial services market for SMEs runs in trillions of Ruppees and is by no means a segment that will see a cap of its growth in the next decade

Source: Business World

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