Can Fintech companies partner with Traditional Banks?

India’s growth as an economic power in Asia has been consistent in the past one decade. In addition to the contribution of larger corporations and the multinational companies that have forayed here, this economic growth is significantly supported by the small and medium enterprises (SMEs) – a highly resilient and innovative sector that employees more than half of the Indian population.

The SME sector of India holds a huge potential for growth. However, the only challenge that could thwart their evolution is the lack of timely and adequate capital. A majority of the organisations in this sector operate as small entities that may lack the detailed documents or collateral required to procure loans from banks. Some of them are simply reluctant to offer their financial assets as security for the fear of losing them.

Given this lack of funds, small businesses face problems in meeting their operating expenses and are constrained from expanding their operations. Other problems include making payments on debt (owed to any other source of finance) and buying supplies to fulfil their contracts.

Financial Challagenes Faced by SMEs

A solution against such inadequacies has emerged in the form of FinTech companies that focus on financing small and medium enterprises.

The FinTech revolution has been facilitated by digital technology wherein funds are instantly provided to eligible SMEs after the evaluation of certain documents submitted online by them. As a pioneer in Fintech lending, Capital Float has a 10-minute online application processing system, followed by a three-day disbursal TAT.

The ease of borrowing from online lenders has also raised a question – are these companies a threat to the conventional lending setup established by banks?

Contrary to what is usually perceived, FinTech companies have proved to be active partners for banks and are helping them disburse more loans. They have assisted banks in identifying good customers faster and in disbursing quick credit.

Thanks to the robust growth of the economy in the last few years and the positive outlook for the manufacturing and services sectors, there is sufficient room for growth for both traditional and new age lending institutions.

Although their functioning may differ, lending decisions for both have to be guided by a good knowledge of the customer’s ability to repay the loan. Banks typically lend to individuals or businesses that have high regular income and/or the willingness to offer collateral as security. The collateral must be a financial asset that can be liquidated in case the borrower is unable to pay back. Banks refer to income tax returns, credit bureau scores and operational history of the concerned applicant.

In comparison, and driven by their intent to know their customers better, peer-to-peer lending companies employ non-conventional data sources for underwriting loans to individuals. As these companies are in the private sector, they are not fraught by a levy of formal regulations in evaluating clients for funds. They use multiple data points, including information extracted from new age technology such as big data analytics, to assess creditworthiness. In addition, they offer unsecured loans that do not require applicants to pledge any of their assets. These companies use a streamlined underwriting process along with risk management. Their work is characterised by extensive use of sophisticated technology and lower operating costs.

As the business of FinTech lending grows, banks also acknowledge that their customers today are technology savvy, and they are looking at ways where collaborations with online lenders can help them serve their own customers better. Because of their success in the credit market, FinTech companies have proved that this can be done without operational or regulatory risk to the lender.

Since 2015, the digital lending industry has undergone significant changes, and chief among these is the shift towards a cashless system. The promotion of cashless technologies – digital wallets, Internet banking and mobile-based point of sale – has reshaped the financial sector. Later, demonetisation became a major factor that popularized the concept of online lending.

As a positive development, banks are now looking at online lenders as partners instead of as competitors in the market. Some banks have made arrangements where they, in return for a small fee, refer customers to p2p lending platforms that provide unsecured loans that not offered by banks. Through such a program, they facilitate loans for businesses that deserve to get funds but cannot procure them from banks due to long-established, inflexible rules.

Some banks are part of programs that let them use a FinTech organisation’s technology to provide small business loans. These loans are retained on the bank’s own books, but the FinTech company’s platform is used to approve and service them. The banks see this as an opportunity to offer a product they generally do not have on their portfolio but (by seeking the support of a peer-to-peer lender), it helps them retain precious client relationships.

Banks have large balance sheets that they can use to provide loans and cater to promising start-ups and SMEs with a consistent growth rate. However, their conventional underwriting practices have deterred them from promoting some SME segments. Conversely, the government has now highlighted SME as a priority sector in the economic development of India. Therefore, the banks have to meet their new business lending targets without incurring huge costs.

The credit gap in the market can be closed with a fruitful relationship between banks and peer-to-peer lending companies. Capital Float has custom-made loan products and fine-tuned technology to help banks achieve their goals. It can help them reach out to businesses in need, and banks can then use their financial strength to service them.

New age financial technology has transformed the way consumers, and businesses, borrow and spend money. The aim of FinTech lending is to enhance the convenience of financial services and bridge the gap between demand and supply of small business loans. To help their customers, banks can effectively work alongside peer-to-peer lenders instead of competing with them.

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Convenient Supply Chain Financing Creates Resiliency In The System

Supply chain finance is an important but often underrated aspect of supply chain management. At its core, supply chain management is the management of the flow of material / services, data and money through a network of assets from the point of origin to the point of final consumption (and back). Natural disasters, geo-political crisis and financial crisis faced by the world over the past decade have forced companies to move away from only optimizing their supply chains to making them more resilient. For a supply chain to be truly resilient, all risks associated with the asset base managing the flow (i.e. the material & services, data and money) must be negotiated intelligently, keeping in mind that each one represents a point of failure or a point of opportunity.

Industries are habituated to ignore the significance of supply chain financing. While there has been a lot of collaboration between different constituents of supply chains, they usually center on inventory. However inventory and finance are intrinsically linked; increased players in the supply chain machinery is directly proportionate to the increased complexity in the financing of the process. This is especially true in a country like India, where the number of intermediaries, in many cases outnumbering the actual value addition points, poses a complex problem from the paradigm of supply chain finance and more importantly supply chain resiliency.

As with anything in a complex supply chain, the bulk of the power resides in a few constituents (maybe the retailer or the manufacturer depending upon the specifics of the value chain). These companies understandably look out for their own interests especially when it comes to supply chain finance. Though concepts like JIT (just in time) inventory and quick turnaround times from order-to-delivery have reduced inventory levels held drastically, most companies still hold onto the traditional 30-45-60 day of credit terms with their suppliers. This puts incredible financial stress on the supplier which in the worst case manifests in poor quality of supply. In the long run, this increases the total cost of ownership for the company, i.e. investment in more stringent QC processes, returns, disruption to the manufacturing process, supplier switching costs etc. Applying the same principles of collaborative thinking to supply chain finance will not only make the overall chain more resilient but also optimize the flows and pass on efficiencies in the long run to the end consumer.

In today’s business environment where “share holder value” is no longer a buzz word but the focus of every corporate board of directors, it might be wishful thinking to expect companies to share their margins or reduce days of credit to suppliers in the interest of collaboration. This is where a third party financial institution plays an important role. By providing liquidity to the supplier on the basis of the credit umbrella provided by the bigger company, the addition of the third party financial institution creates a win-win across all stakeholders involved. This is even more critical in the case of small and medium sized enterprises, which at this point are forced to spend only a fraction of their efforts on innovation and growth.

While some large corporates do have some form of supplier financing initiatives through tie ups with Banks and NBFCs, in most cases the coverage of the initiatives are limited (to some marquee suppliers) and in a larger amount of cases are a generic form of receivable financing based on existing credit policies of the financial institutions, which are out of sync with business realities. It is imperative for large corporates to have a supplier financing initiative for all their suppliers, especially the SMEs to manage their financial risks. In turn it is imperative for the financial institution to have a tailored product which reflects the operating realities of the industry and also the specificity of the supply chain. Collaboration of all three stakeholders, i.e. the large corporate, SME supplier and financial institution will be critical to ensuring a sustainable supply chain finance program.

We live in an interconnected world; therefore large corporates have the responsibility to ensure that their SME suppliers have access to finance, if they truly want to make their supply chains resilient.

Prashant Adhurty

Prashant has 11 years of experience in business strategy and operations, with specific expertise in the areas of project management, supply chain management and business process formulation , across the retail sector, United Nations system & international organizations, telecommunications & high technology, oil & gas and 3rd party logistics. He has successfully managed and delivered projects for clients based out of Europe, the USA, Africa and India.
At Capital Float, Prashant heads Business Development for Supply Chain Financing.

Oct 24, 2018

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Digital Marketing for SMEs: Business without boundaries

Information availability and decision-making is becoming increasingly dynamic in nature. This constant state of change has impacted customer expectations and many organizations are grappling to keep up. Amidst this chaos, a few companies have found opportunities and strategies to leverage this change.

Most companies which are successful in understanding and fulfilling new-age customers’ expectations have exponentially grown and created very strong value propositions and brands in the minds of the customers.
Some proponents of change defining the business ecosystem today are big data, cloud computing, mobile and content. Digital Marketing as a science, art or technique sits right in-between all of these factors. Is digital marketing complex and difficult to understand? Is it a type of marketing that only large companies with large budgets can afford to execute? Read on to find out.

In many ways digital marketing has democratized business reach to consumers. It has presented a level playing field for small and large brands alike. This is one platform where intellect and ingenuity trumps everything else.
Applications of digital marketing are aplenty – from exploring new markets to growing a stronger brand in existing markets, all in a budget that you can decide and control in real-time.

In this day and age, the question isn’t whether you should do digital marketing, but rather, the pertinent questions are “how” and “where to start from”. Following are 5 simple things small businesses can implement to mobilize their digital marketing:

1. Website for E-Commence and Product Catalog
A website is just like a salesperson. It may need attention and hand-holding early on, but over a period of time, it becomes independent, yielding a steady stream of income. Do bear the following aspects in mind while building your website:
• Does your website have all the information that you would like your customers to know?
• Does your website provide your contact details in case the customer wants to place orders or make enquiries?
• Is it easy for the customers to navigate and find information about your brand and products?
• Is your website persuading customers to take specific actions?
• Is it easy to update information on your website?
Once you have all the content ready for your website, you can use one of the many website builders to set-up the framework. Most of these builders offer plenty of templates and customization options. In case you plan to sell your products online, some of the payment gateway companies can offer to set up the infrastructure for free. Sounds complicated? It’s not. You needn’t be a software geek to implement a fully-functional website.

2. Create local awareness about your business
It is quite possible that some of your prospective customers, even though located very close to you, may have never heard about you. Even if they have heard of you, they will resort to searching information about you on the internet.
Facebook and Google provide you with options to create local awareness and an identity on the internet. You can even place your business on Google maps to help customers locate you. All of this at little or no cost.

3. Catalyze word of mouth with referral schemes
Very few marketing campaigns can outshout the voice of a customer operating as a brand ambassador. While social media can intensify word of mouth, it takes experimentation and genius to go viral.
Win-win referral schemes help you achieve similar results with greater certainty.
There are plenty of plug and play tools which can help set-up referral schemes, leverage your customer’s social network and give your brand a fair chance of going viral. You can track and manage these schemes on the go. Much like your website, these tools are very easy to implement.

4. Advertise on Digital Media
It would be wise to advertise online if a good portion of your customers reside on the internet. Digital advertising unlike conventional advertising is highly targeted and permits small spends. You can choose from promoting your brand in existing markets to exploring new opportunities in new locations, all at the click of a button. And the good news is, all major online advertising platforms provide advertisers with account managers to help them set-up and run marketing campaigns. If you are lucky, you may even find free coupons to run your campaigns.

5. Email-Marketing to connect with your customers
Emails are a very convenient and effective way of communicating to your customers. You can use emails to inform your customers about new products, features and offers. Free guides and manuals can help your customers use your product better.

E-mail provides for two-way communication; feedback enables you to know if your email was received with a smile or a frown.

Much like this blog, you will find plenty of guides, free tools and services that can help you execute digital marketing. It may be tempting to do all of the above or possibly more to join the digital business bandwagon, but begin by evaluating your options and strategizing accordingly. If executed well, one or two targeted options are likely to provide better results rather than a scatter-gun approach.

Hope these points demystified digital marketing for you. So go on, roll up your sleeves and get ready to build a business without boundaries.

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Samarth is a marketing professional with expertise in Digital Marketing. Lead generation, customer engagement & retention, brand building and people development are some of his areas of interest. During his leisure he likes hanging out with friends & family, riding his bike to nearby destinations (sometimes even without a destination), watching movies​ ​​and reading.

​Samarth is a Marketing Manager at Capital Float.​

Oct 24, 2018

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Successfull business tips in 2017: way to grow

Rationally encounter consequences ut that are extremely painful nor us again all is were anyone who loves desires this mistaken idea of denouncing pleasure and praising pain was born and I will give you a complete account of the system, and expound teachings great explorer.

Oct 24, 2018