Fintech and MSME are together changing the face of digitalisation

The fintech space has witnessed tremendous success in the Asia-Pacific region over the past five years and continued to evolve during the pandemic.

India offers a vibrant setting for fintech startups that can become billion-dollar unicorns and quadruple over the next decade. The cash-driven Indian economy has also responded positively to fintech advancements and helped entrepreneurs explore new solutions that could determine fintech’s future.

Fintech companies are also expanding into new categories, divisions and industries. They recognize the huge potential of MSMEs and the impact small merchants have on the financial ecosystem if given the right digital inclusion tools.

Small businesses are important, but are often ignored. About 99% of MSMEs are small retailers and contribute a fifth of India’s GDP, employ a large portion of the global workforce and supplement large industries.

While MSMEs offer a billion-dollar prospect for fintechs, they often struggle to manage finances and secure enough investment. However, the financial revolution in India has given MSMEs optimism for rapid growth and relief from their problems.

The rapid growth of Point of Sale (PoS) platforms from a simple mechanical till to a digital sales management platform exemplifies how fintech can disrupt the MSME sector. Last-mile retailers can manage inventory, sales and customer relationships from a single platform. The current digital PoS systems are cloud-based, accept multiple payment options and offer loyalty programs, catalog design, etc.

SoftPoS and mPoS have helped small shops. Other solutions that have recently transformed MSMEs include transaction delivery, marketplace financing, payment gateway, digital payment wallet and small-ticket lending. Most of these solutions use automation, big data or machine learning to address pain points and provide a dynamic ecosystem.

Fintech companies are moving beyond single innovations to develop all solutions in one place. The goal is to establish a vibrant digital ecosystem that enables last-mile retailers to evolve using digital tools. For example, tap and pay is a contactless payment mechanism used by merchants to accept credit/debit, UPI, QR codes and e-wallets. Everything is available on mobile phones, therefore retailers do not need physical infrastructure.

Fintechs also help small retailers establish online catalogs and accept digital orders. After India’s Unlocking Phase 1.0, such platforms have grown rapidly due to customers’ desire for digital transformation.

Small merchants see fintech as a way to access lending, insurance and banking, not just digital payments. Fintechs can speed up slow financing and cash flow procedures, boosting MSMEs’ growth. No-code APIs support a simple and transparent lending procedure and can promote small businesses’ access to finance.

Neobanks are another growth secret among MSMEs. MSMEs have traditionally been concerned with banking services, including loan payments and credit financing. Long ago, most MSMEs relied on informal channels for loans. Those who used banks had to go through laborious processes that did not meet their needs. Neobanks offers seamless, individualized financial services for small merchants. Neobanks offers digital bookkeeping, tax and invoice archiving and other financial services.

Mobile payments have become just one piece in the huge digital infrastructure puzzle for fintech. Fintechs want to help with anything that improves the consumer experience and drives digital financial inclusion. As a result, they are banking on the power of AI, machine learning and big data to drive growth and innovation in the MSME sector.

Originally, fintech’s primary goal was to use technology to improve the provision of financial services. However, fintech is beginning to change how individuals and companies interact with finance. There will be a significant difference between what fintech provided when it first appeared and what it will offer in the next ten years.

Fintechs recognize the untapped potential of MSMEs and are looking for new ways to develop solutions that can change the face of India’s small scale industries.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)