Hyderabad: The UK-based fintech company Tide, which operates its Global Development Centre (GDC) in Hyderabad, is set to serve 64-million and growing Indian Small and Medium Enterprise (SME) sector, with a mix of services that will help meet their diverse needs. These include neobanking, to address banking and financial services as well as the credit gap small businesses face. A neobank is a kind of digital bank without any branches. Rather than being physically present at a specific location, it is entirely digital. SMEs need access to financial products and services, and the neobanking is at the forefront to meet their needs and demands. There are over millions of small and medium-sized businesses throughout India, but only a small portion of them are able to access tools for payment, disbursals, and other vital processes.
Neobanks, with their custom-built platforms, and artificial intelligence and machine learning algorithms, underwrite the ‘new to credit’ segment, thus bridging the credit gap for SMEs, and helping them with quick disbursal of loans with no or minimal paperwork. By 2025, neobanking is expected to occupy a major chunk of the SME lending market. Gurjodhpal Singh, CEO, Tide (India) told Telangana Today, “Tide is currently in the Alpha phase and we are trying to make a product that will not just offer business accounts and related banking services, but a comprehensive set of highly usable administrative solutions such as invoicing, expense and payroll. Not only supporting the organised SME sector, Tide will also focus on serving the unregistered and unorganised sector, helping small businesses digitise and bring them into the mainstream.”
The needs of SMEs globally are largely universal, with the time spent on banking and admin being a key issue. “Tide’s agile structure and globally unified technology– One Platform Concept– means that the business financial platform can be adapted and integrated with local product service partners to suit the specific needs of companies in each market,” Singh added.
Challenges SMEs face
In terms of digital maturity, India ranks ninth in the small and medium businesses segment in the Asia Pacific region (according to the Cisco India SMB Digital Maturity Study 2020). “The road to the digitisation of SMEs is far too complex for anyone to tread alone; there are several challenges ranging from lack of skills and access to talent, to lack of business-appropriate technologies required for an overhaul,” he added. Absence of reliable credit methodology for any small and medium business enterprise, getting their first business loan is their biggest challenge. Unlocking their first line of credit and credit underwriting are interlinked, and in a traditional banking ecosystem, SMEs keep struggling with this situation as they need to produce collateral in order to avail credit or end up paying high interest rates to unorganised lenders.
He further noted, most traditional financial institutions struggle as unit economics does not favour penetration in the SME segment. Despite having great unit economics for individuals and corporates, traditional banks struggle to serve SMEs due to lower margins, higher operational and risk/underwriting costs. The fact that costs often exceed the revenue generated, results in SMEs being underserved as a segment.
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