“Neobanks will play a major role in realizing India’s aspirations to become the small business capital of the world”


By Gurjodhpal Singh and Kumar Shekhar

Credit and financing for MSMEs: India has earned a global reputation as a breeding ground for startups and small businesses. There are over 89 lakh Micro, Small and Medium Enterprises (MSMEs) registered on the Indian Government’s Udyam portal. However, despite accounting for 30% of the country’s GDP, the banking needs of MSMEs have been poorly served.

Entrepreneurs waste a lot of time on paperwork, manual banking, and customer support. A recent survey of SMEs in the UK revealed that the average business is pursuing five unpaid invoices worth an average of £8,500 (around Rs 8.18 lakh) at any given time. This also equates to an average of 1.5 hours per day per SME or 900,000 hours for all SMEs. Manual administrative tasks, such as accounting and invoicing, are among other things a lot of wasted time for small businesses. It can be inferred that when it comes to small business banking, “what you see” is not “what you get”. This sentiment was also echoed by India’s finance minister, after the announcement of the budget, in which she urged banks to provide more support to entrepreneurs.

Today, SMBs need fintech-based solutions to meet their needs, such as a smart business account, payment services, accounting, loans, and around-the-clock customer support, to name a few. only a few. This is where neobanks fill the void/step in. They provide highly customized banking solutions, among other features, based on existing and emerging needs in today’s dynamic business environment. As the third largest fintech ecosystem in the world after the United States and China, the Indian fintech market is expected to mature further with the emergence of neobanks.

Why the neobank?

It’s no news that traditional banking is time-consuming and time-consuming. Every step – from opening a bank account to obtaining credit – is tedious. Applicants must endure extensive paperwork, extensive screening, multiple reference checks, and a long turnaround time to access credit. As a result, small business owners have to wait a long time to open their shop because their banking needs are not yet met.

To add to their woes, there’s little room for customization. While bespoke services can easily be used by larger companies with a high volume of transactions, small business owners often get the shorter end of the stick. As a result, SMEs are often easily lured by informal lenders and end up accepting unfavorable offers at high interest rates. This, in turn, affects their credit score which is often cited as a reason by traditional financial institutions for rejecting loan applications. Eventually, this results in a catch-22 situation for small businesses.

Entrepreneurs need quick, easy, and transparent access to financial services, and that’s where neobanks come in. They are becoming increasingly popular among small businesses for many reasons. Neobanks provide SMEs with digital and mobile financial solutions to help them save time and money. This essentially translates to a completely paperless and virtual banking experience. SMEs can usually register for free with neobanks, and open an account easily in minutes! This is backed up by dedicated 24/7 customer support that helps them through the process.

Data-Driven Benefits

Neobanks leverage data powered by emerging technologies such as AI, data analytics and machine learning. As a result, they allow small businesses to access dashboards on their apps or websites that help them get constant information about their business and better plan their cash flow. These dashboards also highlight information on accounting, payments, accounts receivable, and more. This provides entrepreneurs with greater transparency about their financial needs and also helps eliminate unnecessary business expenses.

Being data-driven, neobanks can also customize their offerings to provide seamless services to entrepreneurs. They can tailor their products to businesses based on their size, scale, and spend. Neobanks also use data to help small businesses create a digitized credit history. This helps improve their credit score, which further enables them to gain seamless access to credit.

The whole nine meters of financial services

The one-stop-shop model used by neobanks through apps and websites provides SMEs with access to an array of financial services – from banking to remittances, money transfers to utility payments and personal finance . Additionally, small business owners can also access features such as business registration, accounting, invoicing, GST filing, expense management, cash flow management, receipts virtual, etc.

By providing a differentiated experience for Indian small business owners, neobanks have witnessed an increase in user adoption. They play an important role in meeting the unique needs of SMEs that traditional players might not have met. As the country’s regulatory framework evolves, neobanks will play a major role in realizing India’s aspirations to become the small business capital of the world.

Gurjodhpal Singh is the CEO and Kumar Shekhar is the VP Member Operations of Tide India. The opinions expressed are those of the authors.


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