Fintech products are in great demand and we have been witnessing the kind of disruptions they can cause. Here was an opportunity to speak to a leader who is driving such a product and creating waves in his particular segment. A certain gap that he has been able to address, rather appreciably.
1. The idea behind starting M1 Exchange – the problem being addressed?
Commercially, it has been operational for 6 months now but the idea was conceptualized much earlier. It happened around the time of demonetization with GST also in the horizon.
MSMEs aren’t able to scale up, as their realization of receivables from large corporates is within a period of 90-180 days and working capital availability is restricted, due to lack of hard collaterals which can be hypothecated against loans. It has been a perennial challenge and there is a need for a structured platform which is able to provide much-needed working capital at competitive rates and in a very short time and further reduces the risk of realization of receivables.
How about discounting trade receivables on an electronic platform?
The thought was around creating a tech-enabled extendable outreach which reduces dependency on long receivable realization cycles and further dependence on suppliers of finance to assess creditworthiness of MSMEs. Face-to-face meetings can be constrictive and here was an idea which could reduce extended lead times through technology. Once the MSMEs have supplied to large corporates, bills are immediately uploaded on the system to seek out matching finance providers for discounting of receivables. When it started, the lead time was T+2 days and today (in less than 6 months) it’s at a remarkable T+1. The response from the market has been most favourable. Today, for invoices uploaded till 4 PM, amounts can be disbursed the very next day. The rate of interest charged for receivables discounting on platform is substantially lower then the rate of interest borne by supplier outside the platform for his working capital funding. The restriction on quantum of funding is negligible as the supplier gets post shipment funding without any recourse, from the banks.
2. Challenges encountered?
For fintechs to do well, there’s a huge balancing act which is required, what with multiple stakeholders including buyers, suppliers and banks, managing responses and expectations can often be cumbersome. Banks too had their reservations about going digital in Trade Finance and to work with suppliers of large companies in absence of hard collaterals. As we know, banks operate through large teams and navigating the maze isn’t easy. Of course, with time, banks adopted very smoothly. Today, they work with 17 banks, including those in the public sector. He was candid enough to say that rising NPAs in the banking sector hasn’t been easy to deal with, and it wasn’t foreseen 2 years back.
3. Thoughts on the software product ecosystem in India?
- Biggest challenge has to be about getting the right talent with most relevant skills. For smaller companies, not being able to source the right talent can often be a show-stopper. In large companies, the challenges are similar but due to size, it is addressed in a different manner.
- Products can get lost in the crowd. He welcomed NASSCOM’s efforts to drive Sales & Marketing initiatives but there’s a very strong need to put in place a formal ecosystem, especially towards creating an extended outreach.
- Factoring in India is negligible till even recently. Because of low tech usage, errors and defaults it has proved to be restrictive. This particular product is attempting to remove the traditional challenges.
4. On funding.
It’s still a huge challenge – especially for early stage companies.
5. The raging debate on data privacy.
In B2B, data privacy and security is primary. Sensitive data about companies, vendors reside with them and they have to adhere to international standards. And, there are multiple ones – much required in a dynamic environment. For everything, the processes are well-defined. However, nothing really can be fool-proof so even security is an emerging field.
6. Specifically in software products, which are the tasks / jobs that are most likely to be replaced by machines?
Technology will continue to create new jobs as old ones get phased out. As software becomes more intelligent, many systems which require human intervention today will go into auto-pilot mode. But ultimately, it’ll be the developers who will be tasked with creating such intelligent systems as legacy gets phased out.
7. Thoughts on Govt. support for software products.
- Incubation centres.
- Incentive to undertake research.
- Greater access to working capital.
- Reaching out to govt. as prospective customer - should be made easier for small companies / startups particularly.
8. Domestic Indian market in fintech?
Opportunities are huge and so far we have only scratched the surface. Rise in Payment Wallets is an indication of the size of the digital payments market.
9. Levers for the future.
- Working more extensively with the govt. particularly Dept of Finance, RBI.
- Working with PSUs and getting them to use this platform. A 20k Crore business opportunity is estimated.
- Since lead time is greatly reduced, it can be very competitive to other fintech products, particularly the ones floated by banks themselves.
10. Business mantra. Continued service and value addition for every