While India’s consumers and citizens embraced digital payments en masse soon after the demonetisation move in 2016, the impact on the merchant and MSME community was immense. Some economic experts reckon that the aftermath of demonetisation is still being felt by this sector in India, and the way forward for these businesses seems to be adopting digital payments and fintech as swiftly as possible
While in P2P digital transfers, the transaction value is expected to show an annual growth rate (CAGR 2019-2023) of 19.0% resulting in the total amount of $2.24 Bn by 2023, the much larger market opportunity lies in the B2B payments space, which is estimated to be over $100 Tn globally.
B2B non-cash payments are estimated to grow at 6.5% CAGR through 2020, to touch 122.4 Bn transactions volume, according to a Mastercard report. However, innovation in business payments is yet to catch up with the consumer side of payments. A recent study by the Association for Financial Professionals found that 51% of all business-to-business payments in the US are still done through paper checks, which are neither secure nor easy to use. The next big component is cash, which is even harder to track.
In addition to this, talking about the gaps in B2B payments, EnKash cofounder Hemant Vishnoi told Inc42, “Businesses usually face two major challenges in their payments lifecycle. One is the connectivity between business suppliers and buyers. Second, the short duration credits around it.”
According to Vishnoi the way forward is to remove the human layer from this chain.
“Businesses still use manual or telephonic mode to coordinate this connectivity challenge, which affects the efficiency of the company and also restricts their cash flow.”
Mayfield-backed EnKash has built a B2B cards payments platform. EnKash’s platform can be used by businesses to utilise cards for making various business payments, initiate financial discounts, and bring cost efficiencies.
The Mumbai-based company was cofounded by Vishnoi, Yadvendra Tyagi, and Naveen Bindal in 2017. It recently raised $3 Mn Series A funding from Mayfield India and Axilor Ventures in April this year.
EnKash claims to be growing at a 25% month-on-month rate and is targeting to achieve a monthly run rate of INR 2K Cr by end of FY 2019. The company has partnered with multiple banks including ICICI and Kotak among 64 other banks to facilitate its corporate credit card.
The EnKash platform is said to be used by over 50K businesses ranging across industries such as manufacturing, IT services, and textile industry. Further, the turnover size for these businesses vary from INR 100 Cr to INR 1.5K Cr.
Further, businesses can also leverage EnKash to manage their purchase orders and invoices, enable and track payments to suppliers or from buyers. The integrated platform connects corporations, vendors and credit providers for seamless connections in the transaction chain.
The platform claims to help buyers and suppliers to improve their cash flow management by getting advance payments or quick financing options on their invoices when they offer terms to their customers. The platform also provides analysis and reconciliations to partner businesses.
Other fintech startups focussed on filling the gaps in B2B payments space include Brex, Capitalontap, PayMate, Adyen, PayPal, and Plastiq among others.
Innovating In Corporate Credit Cards
What sets EnKash apart from these other players in the India’s B2B payments space is its innovation in terms of corporate credit cards, with an extra focus on startups and MSMEs.
According to Vishnoi, 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. A 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,” Vishnoi said.
Further, EnKash has also launched a separate credit card for MSMEs and startups, called Freedom Card. This offering is said to support customised billing cycles based on the business’s repayment ability and needs.
Not every business can fit into the standard 30+15 days credit cycle that banks typically offer, whereas EnKash’s credit card caters to varied billing cycles, which is specific to new businesses who are yet to settle into processes.
Other B2B payments startup in India such as PayMate have also got the impetus to grow in the form of funding. It recently raised a Series D funding round from Recruit Strategic Partners, Brand Capital, Mayfair 101, along with participation from strategic partner Visa.
In March, PayMate had partnered with Visa to expand its operations to 92 countries in Central Europe, Middle East and Africa (CEMEA). Its other investors include Kleiner Perkins Caufield & Byers (KPCB), Sherpalo Ventures, Mayfield Fund and Lightbox Ventures.
MSME Credit Rides On Lending Tech
A major hurdle for MSMEs is credit, which EnKash is solving. It is estimated that there are around 42 Mn MSME enterprises in India contributing 6.11% of the GDP in manufacturing and 24.63% of the GDP to the service sector. But almost 40% of credit allotment to MSMEs in India is through informal channels. Digital lending in India is estimated to be $1Tn opportunity, and a credit card may be the next best thing for a startup in lieu of working capital.
Recent reports showed that the growth in credit among MSMEs has declined in the June quarter and non-performing assets or bad loans increased. This fall in credit growth had been partly attributed to the cash crunch faced by non-bank lenders. NBFC credit to MSMEs is said to have hiked by 13.7% between June 2018 and June 2019, which is comparatively slower than the 39.4% growth witnessed in NBFC credit between June 2017 and June 2018.
A 2011 feasibility study done by EY and SIDBI on the possibility of launching a MSME credit card (similar to EnKash’s Freedom Card) had concluded that the credit needs of MSME sector varies across industry types/clusters and thus a common standard credit card cannot be designed to cater to the entire MSME segment.
It had proposed, one card catering to businesses with gross output less than INR 25 Lakh and second one targeting the businesses above INR 25 Lakh gross output. Such a credit card would theoretically have averted some of the impact from the liquidity crisis for MSMEs.
As per analysis by DataLabs by Inc42, India is home to close to 50K startups right now. As the number of startup grows further the need for easy access to credit will also grow. Among the factors hampering growth is the drying up of seed and pre-seed capital for tech startups as well as the liquidity crunch which has impacted non-banking financial institutions, that typically lend to MSMEs. That’s where fintech players are filling the gap.
While payments tech startups still accounted for the majority of the total fintech investments between 2014 and 2018, as reported by DataLabs by Inc42, funding in lending tech startups has also skyrocketed in the same period. For cash-strapped startups and MSMEs, lending tech startups have come as a boon.