How Are Fintech Companies Helping MSMEs Increase Customer Reach FinTech platforms have ensured that premium quality services are provided to MSMEs, at the most affordable cost
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With the world going digital, the industry that was largely impacted was the Micro, Small and Medium Enterprises (MSMEs). The financial crisis led to multiple businesses shutting down and impacted the credit buying capacity of many MSMEs. The traditional methods had taken a back seat and digital solutions revolutionized the operations of such small businesses. With the rise in digital payment solutions, many FinTech companies came to the rescue to create seamless and easy-to-use products, which not only enhanced the internal operations, but led to better customer acquisition and service. FinTech companies have seen an exponential rise since 2016, which was due to the introduction of the most popular digital payment solution - Unified Payment Interface (UPI). As a result, customer buying behavior transformed, as cashless transactions gained popularity and resulted in the rise of Payment Technology (PayTech) industry.
The Micro, Small and Medium Enterprises (MSMEs) sector has been emerging in recent times and plays a significant role in the Indian economy as they largely contribute towards the growth and development of the nation. The MSME network includes approximately 6.33 crore enterprises, contributing 30% to the Nominal Gross Domestic Product (GDP) and 48% to exports. With such a strong impact on the economy, there was a strong need to digitize the sector to improve the efficiency and effectiveness of these businesses. FinTech companies have played as pioneers to introduce effective financial products for the MSMEs, which include the following - Market lending or peer-to-peer lending, which fills the funding gap for small businesses. Marketplace lending requires no collateral and makes it easier during a financial crisis like COVID-19 pandemic. Another solution is Alternate Credit Scoring, which makes use of various digital platforms to understand consumer behavior for credit risk assessment and terms eligible for credit. It focuses on creating potential strength by combining data from social media usage, bill payments history and other avenues. With the data collected, FinTechs provide effective solutions to MSMEs to enhance their customer engagement and build an ecosystem which caters to the specific needs of each client.
Digital payment solutions have been on the rise, which has increased the demand for various payment gateways like UPI, QR Code and others. Payment gateway is a front-end technology platform, enabling users to make direct payments on the merchant's website through their credit cards and debits cards, digital wallets and other digital mediums. The sensitive card data is secured by using data encryption methodology, which ensures safe transaction and reduction in frauds and errors. Payment gateways include Point-of-Sale (PoS) machine or swipe machine, which is an electronic device given to the merchant to use at his establishment. This enables the customers to pay for their purchases online, through cards, UPI platforms and others. This service has resulted in the economy to turn cashless as the process is seamless, convenient, affordable and easy-to-use. PoS machines involve the customer to enter their card in the machine, enter the bill amount and authenticate the transaction with a PIN number.
FinTech platforms have ensured that premium quality services are provided to MSMEs, at the most affordable cost. With very affordable rates and accessible mobile devices ensure that businesses conduct their operations in a systematic and efficient process. With efficient internal controls, the cost of company reduces, thereby enabling companies to provide premium quality services to their customers with affordable pricing strategy. FinTech companies are useful as Data Analytics provides solutions to easily access the creditworthiness of a business or evaluate collateral available for loan. Moreover, Artificial Intelligence (AI) has emerged as an efficient tool, making application processes faster and smoother. In some scenarios, they assist in creating customized products based on the needs of the customers. Digital wallets or mobile wallets have also made it convenient for people to make cashless transactions. Wallets are useful in sending and receiving money directly in bank accounts, with no involvement of physical presence. Digital wallets have proven beneficial in uncertain times and created a strong network between the businesses and their customers.
In the current times, approximately 47% of MSMEs have incorporated digital tools for business processes, payments and online sales in India. Digitisation has created a massive impact on the MSME sector, which has led to operational improvements ranging from increased profitability, operational efficiency, better customer services and higher customer engagement. FinTech companies are acting as a single-window, supporting the financial needs such as instant short-term loans, low interest rates, simplified processes and low transaction costs. Moreover, the Goods and Services Tax (GST) has been useful in encouraging MSMEs to reach out to FinTech startups, thereby offering tax filing solutions.
India is moving towards a cashless economy, which is largely supported by a strong digital infrastructure and climbing adoption rate of FinTech solutions by MSMEs. With such high digital conversion rates, the economy has strengthened over time and has efficiently combated the financial crisis that rose during the COVID-19 pandemic and nation-wide restrictions. The PayTech industry has created a revolution in the way transactions are conducted. Technology advancement has played a key role in the way businesses operate in the current digital times. With low transaction costs, FinTech is efficiently collaborating with MSMEs to provide the best services to theIr clients and create a seamless customer experience in the coming years.