Are Credit Cards For Startups The Answer To The New-Age Founder’s Cash Problem?

Global market leaders and conglomerates are today taking note of India’s burgeoning startup ecosystem — and we don’t just mean in terms of funding. Recognising the unique challenges around launching a startup, these days financial products such as bank accounts, credit cards and more have been tailored to meet a new target audience — startup founders.

Cheques, cash and credit cards are the payment systems available to any startup. While cheques may consume a lot of time for clearance and have high transaction costs, cash belongs to a bygone era, at least in today’s digital India.

Credit cards can be quite handy. However, the problem is to keep them separate from personal finance, especially when there are many people involved in running a startup.

Temporary Credit Shortage: Problem Peculiar To Startups

Startup founders often commit the mistake of mixing personal and professional expenses by using personal credit card for company expenses. Well, business credit cards are the best option then, but obtaining them can also be tricky as small businesses will not have a long history of transactions. Just like obtaining a loan without security can be extremely difficult, getting a credit card when one is just starting out is difficult.

As even bigger companies face issues in getting business credit card, it is not easy for startups to get one. Even if they get it after months of struggle and paperwork, the way these credit cards are designed may not be suitable for small businesses. For instance, when you are a small team working 24/7 and do not have a separate finance team, there may not be enough resources to oversee spending by employees. Blindly trusting everyone is never a good idea. Traditional business credit cards don’t allow presetting spending limits.

This is where credit cards exclusively for startups come to the rescue. Startup credit cards can help businesses solve problems unique to startups. Not only do these cards help in keeping personal and business expenses separate, they also give easy access to capital whenever needed. Temporary cash shortage, which is one of the biggest problems for any startup, can be resolved with such credit card products.

Until recently, such products were unheard of in the Indian market.

Bengaluru-headquartered fintech company Razorpay recently introduced corporate credit cards for startups and is one of the many fintech companies looking at this category seriously. The company said that the new additions to the product suite will make it easier for new-age companies to manage finance on the go.

Similarly, neobanking startup Open which offers a business banking platform for small businesses recently announced a partnership with Visa to launch ‘Founders Card’, a business credit card that will enable startups and SMEs to seamlessly manage expenses and vendor payouts.

“It’s important to think about financial inclusion not just in terms of consumers but also in terms of businesses. Today, many of the existing solutions businesses used to manage their finances aren’t well-suited for modern internet companies,” Harshil Mathur, CEO and cofounder of Razorpay, said in a statement.

Open’s Founders Card gives SMEs and startups the power to manage their finances effectively. So what sets Open’s credit card offerings or similar cards for founders apart from a regular business credit card? Some of its offering are:

• Open’s credit card comes integrated with an expense management tool
• It also has a subscription management tool to help founders and finance teams manage tech costs
• The card has an exclusive rewards programme designed specifically for startups and small businesses.

“SMEs and startups are growing at a tremendous pace in the Southeast Asia. This is the need of the hour for businesses who depend a lot on online tools that accept only credit cards,” said Anish Achuthan, cofounder and CEO, Open, told us.

Fintech startup MoneyTap, which uses Razorpay’s payment gateway for EMI payments, believes that the needs of customers are evolving and it is important to have niche products to cater to the startup industry. “It is fantastic to see fintech startups working with established banks and financial companies to cater to the evolving needs of the customers. Young and agile startups infuse advanced technology and re energised innovation in traditional institutions giving an overall boost to the financial ecosystem,” Anuj Kacker, COO and cofounder, MoneyTap told Inc42.

In a similar vein, Razorpay’s Mathur added,

“We want to make banking trivially simple and accessible for our partner businesses so that while they focus on building new ideas, products and experiences, we take care of their concerns around financial processes.”

The Evolving Needs Of The Market

According to Datalabs By Inc42, India is home to nearly 49K startups and this has led to a huge demand for easy access to funds.

Mumbai-based startup EnKash offers businesses credit card-like product for making various business payments, initiate financial discounts, and bring cost efficiencies. Founded in 2017, the company says more than INR 30K Cr per month of total credit card volume in India is happening on corporate credit cards as opposed to individual cards.
According to the company, the majority of these expenses on corporate credit cards are for expenses such as travel, which is typically airline booking, hotel booking as well as food or entertainment expenses while travelling.

“EnKash has expanded corporate credit card use cases to also include non-travel expenses. This side of the market include paying business expenses, utility bills, supplier payments, and daily business payments such as fuel costs or digital marketing,” cofounder Hemant Vishnoi told Inc42 in an earlier interview.

According to the company, all businesses cannot come in the bracket of the standard 30+15 day’s credit cycle. The company’s card, called Freedom Credit Card, caters to the varied billing cycles as per the working capital cycles of different businesses.

“It is a useful product especially for transaction convenience in areas such as online purchases (AWS, Google cloud/apps, etc) as well as travel. Sometimes these cards are available against deposits so there is no credit risk, but the convenience is still useful,” Alok Mittal, CEO and Founder, Indifi Technologies told us.

Trend Catching Up In Other Countries

While India may be one of the leading startup ecosystems in the world, financial services companies in other countries have also targetted entrepreneurs and startup founders. They are trying to solving the problem of working capital and increasing efficiencies by making payments mechanism accessible to everyone.

For instance, USA’s Bento For Business offers Bento MasterCard designed specifically to help small business owners manage employee spending. “Small businesses have unique requirements and need more than ‘hand-me-down’ financial service solutions that weren’t built for small business,” the company says.

Bento offers a spend and expense management solution designed for small and medium sized businesses. “Our mission is to enable small and mid-size business owners to focus more on their business while saving time and money,” it said.

BREX, an American financial service company based in San Francisco offers virtual credit cards. It allows business owners to use virtual card right away and also receive physical cards in 3-5 business days, without personal guarantees, credit scores, or security deposits from founders. It also promises to save time with receipt matching, issue and set limits on cards, and analyze spend.

These features and more will slowly trickle into India as the trend is still catching up in this market. Most of these cards are offered by startups themselves, so their success will decide whether big banks also focus on the emerging category of startup founders and whether capital woes of small entrepreneurs will be a thing of the past in the future.

Note: The article has been updated to add inputs from few experts.