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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7 Reasons Why Merchant Cash Advance Is a Great Alternative to Traditional Finance

Businesses need additional finances either for growth in terms of scale or for expansion into newer product categories, or for geographical expansion. Sometimes, additional finances are also required for day-to-day operations. Going the traditional route via banks and financial institutions may not always work, especially for small business that are still in the process of building up their brand and market presence. The merchant can also withdraw from his/ her working capital loan. But, if the working capital limits are reached, and if the bank is unwilling to extend more working capital, then the merchant has to look for funds from other sources.

Fortunately, a whole new option of loans based on card swipes at POS terminals offers a great alternative to traditional finance. “Merchant cash advance” is a form of finance where sales from card machines can be used to raise loans. Merchants who allow their customers to pay with a credit or debit card can avail of such credit advance. Merchant cash advance loans are repaid by the POS partner on behalf of the borrower as a percentage of every sale registered on the POS machine.

When merchants accept credit/debit cards as a form of payment, the cards are swiped on a point-of-sale (PoS) terminal. Once the card and the sale amount is verified, the transaction is completed by entering a PIN number. Such sales are actually credit sales as banks credit the sale amount on the next day, or as decided with the merchant, after they deduct transaction charges.

There are several reasons why merchant cash advance is a great alternative to banks and other traditional lenders. Apart from the lengthy process and paperwork, the terms of traditional credit are much tougher for small businesses that have just set out on their entrepreneurial journey or are about to move into an expansion phase. Here is a quick look at why merchant cash advance loans are a better option for SMEs:

No collateral required

Merchant Cash Advance is a completely unsecured loan. The borrower isn’t required to pledge their property or assets to avail themselves of the loan.

Quick, easy loan disbursal

Merchant cash advance loans are usually disbursed easily and quickly as the onus to repay the amount is with the bank that provides the PoS terminal. Thus, merchant cash advance companies have to only ensure the regularity of the sales and the commitment of the merchant to be in business for the duration of the loan.

Hassle-free application

The borrower can apply for the loan by using a mobile device or a desktop, as long as the device is connected to the internet. The documents required can be scanned and uploaded at the time of the application. The borrower isn’t required to visit our office. This hassle-free application process provides for a comfortable experience to the borrower.

Assured repayment

As the onus to pay the instalment is with the provider of the PoS terminal, which is usually a bank, the merchant cash advance companies are reasonably assured of receiving repayments regularly, provided the merchant’s business has no issues. When the PoS terminal providers credit the merchant’s account with the proceeds of their credit card sales, they transfer a fixed percentage of these proceeds to merchant cash advance companies that have provided the merchant cash advance.

Flexibility of Repayment

The repayment of merchant cash advance loans can be pegged to the sales volumes. As a result, merchant can direct their PoS providers to pay less during low seasons. In the case of merchant cash advance loans, the merchants may also have the flexibility to structure their repayments to suit their ability to pay. Instead of making monthly repayments of the loan, they can opt to repay in weekly or fortnightly instalments as well.

Advance as a multiple of card sales

Merchant cash advance loans are ideal for merchants who have consistent credit/debit card sales. Merchant cash advance companies will first evaluate the credit worthiness of the merchant by verifying their past sales and business performance. Once merchant cash advance companies are satisfied, they will decide the basis of the loan advance and how much they can lend to the merchant. For example, Capital Float uses the monthly card settlement amount as the basis for deciding the loan amount. We lend up to 200% of the monthly sales made by the borrower from card swipes.

No pre-closure charges

Capital Float doesn’t charge the borrower any pre-closure charges if the borrower chooses to close the loan ahead of the agreed upon tenure. Additionally, we maintain complete transparency in fees and charges. The borrower is required to pay up to 2% of the loan amount as processing fees, while applying for the loan.

The usage of PoS terminals has significantly increased after the recent demonetization drive. The Government of India is pushing Indian banks to install PoS terminals so that the nation can progress towards becoming a cashless economy. With cashless transactions set to rise with card swipes and PoS machines, merchant cash advance loans will soon become a popular way of raising short-term funds to finance working capital requirements.

Capital Float is one of the few financial companies in India to offer merchant cash advance loans. We have already tied up with POS terminal vendors like Pine Labs, ICICI Merchant Services, Mswipe, MRL Posnet, Bijlipay, and more. We provide a merchant cash advance up to Rs. 1 crore for a convenient tenure of six months to one year.

Oct 24, 2018

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Everybody thought we were nuts – TOI

Written by Shilpa Phadnis. 

When Stanford MBA graduates Sashank Rishyasringa and Gaurav Hinduja started online lending startup Capital Float, it was counter-consensus. All around them they had naysayers, including investors who they had approached early on.

“You guys must be nuts -lending is not a business for you.” “It’s an offline business. You guys have to set up branches.” “Why don’t you guys start an e-commerce or a big data company.” These were some of the comments, recalls Sashank. About the only ones who believed in their idea were their parents.

The two worked with Baba Shiv, professor of marketing at the Stanford Graduate School of Business, to shape their idea of democratizing access to capital. “We wanted small and medium businesses to have access to credit on collateral-free terms.People needed loans against their business health and not against personal property,” Sashank says.

Capital Float started in 2013 and is the trade name of Zen Lefin, a non-banking finance company (NBFC) registered with the RBI.

Sashank, who was passionate about policy and development, was an engagement manager with McKinsey & Co in New York and India before he teamed up with Hinduja to start Capital Float. He graduated in economics from Princeton Uni versity and did an MBA from Stanford. Hinduja was the head of operations at Gokaldas Exports, overseeing one of the country’s largest apparel manufacturers.

 Banks, Sashank says, follow a cookie-cutter approach in assessing SMEs.Their lending policies are restrictive, collateral re quirements are inflexible and disbursements take up to 60 days. There are over 3 crore registered SMEs in the country and around Rs 7 lakh crore of loans have been disbursed through banks to them. But estimates show that the unmet demand is over Rs 9 lakh crore. “We wanted to use tech to bring agility to lending, become a lender as fast and flexible as a family member, but do it in a formal way ,” Sashank says.
Capital Float created flexible credit products that have helped SMEs get out of the clutches of informal sector financiers who charge high interest rates. One of the early customers was a mobile phone vendor from Bhilwara in Rajasthan. “He had pledged his house to get seed capital to start his business. He sold mobile phones on Snapdeal and had a great track record. From Rs 5 lakh a year back, he runs a Rs 50 lakh credit line with us today ,” Sashank says.
Capital Float has partnered with e-commerce marketplaces like Snapdeal, Flipkart, Amazon and Paytm to finance small merchants selling online. “We give an in-principle approval in 10-15 minutes after assessing the credit risk. Borrowers can apply online in minutes, select desired repayment terms and receive funds in their bank accounts in seven days with minimal hassle. We want to benchmark lending to the ecommerce experience,” Sashank says.
The company uses proprietary algorithms to check fraud and repayment history , and uses psychometrics to assess entrepreneurs’ payment ability . “We have taken the human bias out of financing and lowered the cost of lending,” Sashank says.

Now, with Rs 200 crore of loans disbursed, and $17 million raised from investors including SAIF Partners and Aspada, the early scepticism around their venture has more or less vanished.

News piece sourced from the Times of India. Read the original article here

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