Small and medium-sized enterprises (SMEs), also known as the backbone of the Indian economy, contribute over 30% to the GDP. With the Indian economy expected to reach USD 5 trillion by 2025, SMEs are bound to be the largest contributors to that growth. 

Being a highly profitable sector, SMEs expect to be well-serviced by traditional banking. But, traditional banks and financial institutions are not as technologically equipped, thereby giving way to new-age customer-centric, digital banking players called Neobanks. 

Neobanks, especially since the beginning of the pandemic, have risen to address the needs of SMEs where traditional banks may not have come through. Neobanks truly understand the unique needs of SMEs and deliver the right solutions based on the knowledge that a one-size-fits-all solution does not work. They are developing tailor-made, cutting-edge solutions for SMEs by understanding the real, current, and emerging needs in the rapidly changing business environment. 

To understand the needs & requirements of SME business owners during the COVID-19 pandemic, Razorpay conducted a survey, along with IDC (International Data Corporation). The report showcased the various challenges faced by them while relying on legacy systems and the underlying need for a feature-rich and benefit-oriented banking solution to meet their banking needs. 

An in-depth analysis revealed that SME business owners face several operational challenges while relying on the age-old banking system that hinders their businesses growth. Some of them are- 

  • Manually carrying out banking operations, which results in overhead
  • Difficulty in collaborating with the team due to lack of multiple access to bank portals
  • Performing repetitive tasks due to manual errors that cause delays
  • Delays in financial and banking operations that affect customer trust
  • No actionable insights are offered which in turn affects business planning and forecasting
  • Limited access to credit

Even so, SME owners hesitate to adopt digital banking solutions because –

  1. 41% are unsure whether to spend more on IT and digital solutions
  2. 36% are uncertain of their business outcomes from digital solutions
  3. 35% perceive that they have inadequate knowledge and training to adopt digital solutions
  4. 30% did not find immediate returns from previously investing in digital solutions

But it is only when they overcome their inhibitions that they will begin to understand the benefits of a Neobank. Here are a few more rich insights from the Neobanking report- 

Key Highlights

  • The annual average loss suffered by SMEs depending on legacy systems is INR 67 lakh per SME
  • Over 45% of SMEs fear there is a high chance of manual errors, due to dependence on traditional processes
  • About 56% of SMEs suffered from wastage of time from repetitive tasks
  • 1 in 2 businesses agreed that limited resources and lack of knowledge dragged down their digital transformation aspirations
  • 53% of SMEs faced issues with tracking, calculating, and making compliance payments, resulting in penalties
  • 55% of SMEs complained about the late disbursal of invoice payments to their vendors, which hindered the service delivery
  • 53% of businesses stated that the risk of manual errors is high in business reports created for various purposes, including taxes, regulations, and internal performance reporting
  • 63% of SMEs want to automate the collection and formatting of inputs into expense systems
  • 66% of businesses want easier access and faster means for loan approvals and verification. 

There is no surprise that the pandemic has had a detrimental impact on SMEs in all stages of the value-creation cycle — from revenue generation to collection. The lack of real-time, intelligent digital banking capabilities proved to be a huge setback for companies that wanted to scale but could not. As a result, the majority of them faced obstructions in the business cycle: delayed receivables, payments, and restricted access to capital. 

To overcome these challenges, SMEs require a next-gen business finance platform, designed to supercharge the end-to-end banking experience. 

Source: IDC Infobrief commissioned by Razorpay, SME Banking is Broken: Will India’s Promising Neobanks Fix it?, Doc. # #AP241268IB, October 2021

Nikita is a Content person at RazorpayX. When she is not writing or reading, you'll find her binge-watching the same show for the 100th time and not-so-subtly promoting her Instagram handle.

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