How Neobanks Are Helping Businesses Keep Costs Under Control

With the role of SMEs established, the emergence of neobanks has been a phenomenal moment for small, medium enterprises in modern- day banking

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India is the fifth fastest growing economy in the world, with an estimated growth rate of 8.5 per cent in 2021, it is one of the top trillion-dollar economies to watch out for. While several factors such as prudent social and economic policies, and the influx of foreign and domestic capital have been responsible for its growth, an integral component of this growth trajectory is the small- and medium-sized enterprise (SME) sector, often touted as the backbone of the Indian economy. SMEs have made significant contributions to expanding business endeavours through innovation. Small businesses are expanding their reach by producing various products and services to meet the needs of national and global markets. However, a key problem plaguing this sector is the lack of credit worthiness due to the absence of proper financial records or lack of business experience, with banks and private lenders often unwilling to extend a line of credit to them, compelled by their own liquidity crunch, such credit risks are difficult to justify. So even if someone has a great idea or a highly innovative product, the cost of starting a small business can be overwhelming.

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With the role of SMEs established, the emergence of neobanks has been a phenomenal moment for small, medium enterprises in modern- day banking. A good number of SMEs are concerned with the pandemic’s impact on their businesses in terms of payroll, loan payments, etc. And neobanks in this regard help such enterprises by offering financial management tools, improved customer service and customised financial products. All of which help meet their current and future needs.

Neobanks provide clients with exquisite features that traditional banks don't, often leading them to question the efficacy of existing banks! Neobanks are enablers of a fluid digital journey, providing efficiency and a hassle-free banking experience. They identify and fill in the gaps in traditional banking; such as long processing time, multiple points of contact, and most importantly, the inability to easily obtain banking services. Not only do they provide clients with customized solutions, but also improve their digital literacy by providing various expense management tools that can be used on their platforms. The goal of neobanks is to solve problems that existing banks cannot provide. They focus on providing a great user and design experience, as well as simplifying banking for everyone.



Problems faced by SMEs while managing finances



Lack of credit: Most SME owners seek to reduce the cost of starting a business via loans or credit facilities from lending institutions. However, not all financial institutions are friendly to new business owners and the inability to obtain adequate credit is one of the critical problems faced by SMEs. Plus, SME loans often come with; complicated documents, require large amounts of collateral, strict repayment terms, and high- interest rates. Thus making it difficult for SME owners to not only opt for business loans but also shattering their dream of financial independence.



Lack of technological adoption: Lack of adequate technology is a significant challenge that Indian SMEs face. Artificial intelligence-based machinery and tools can make companies more organised and increase productivity. However, since most small businesses operate in rural or semi-urban areas, business owners often do not fully understand the software and hardware resources available to them and hence providing an easy-to-understand solution becomes of utmost importance.



Exploring loan financing options: Companies operating in a dynamic and fluctuating business environment may at times require funds immediately and borrowing from banks and NBFCs is often not feasible, leading to missed business opportunities.

Incorrect invoice: Businesses still process their accounts in the old, traditional way, often resulting in incorrect or delayed invoices. That delays the overall collection process from customers.



How can SMEs benefit from neobanks?



1. Neobanks don’t provide new banking services, but provide similar set of services with an enhanced customer experience.  A neobank knows exactly what you need as an SME entrepreneur.



2. In addition to providing general banking services, neobanks also offer business accounting services such as; bank reconciliation, accounting, GST bills, balance sheets, etc. All of which can be managed and automated with the help of neobanks.

3. Most neobanks offer an access to dashboards, which showcase analytics on accounting, payments, accounts receivable, etc. Thereby not only offering transparency to its clients but also assisting in eliminating unnecessary business expenses.

To summarise, neobanks are the forefront of meeting the varied needs and demands of SME’s and listed above are few reasons which highlight its efficacy to such enterprises which require a broad range of financial products and services.