Synopsis: This guide talks about the proven tips on finding an ideal fintech partner for MSMEs to minimize risks and easily leverage the advantages of fintech lending.

The latest TransUnion CIBIL-SIDBI MSME Pulse Report indicates commercial credit momentum continues gaining strength, with portfolio balances rising 15% year-over-year in Q4 FY2023. The report further shows the credit demand by MSMEs is about 1.6 times that of the pre-COVID phase. Commercial credit inquiries have also risen since the past year because of a steady recovery in economic and business activities. Fintechs are bridging the credit gap by offering lucrative lending opportunities to MSMEs.

Fintech companies are growing tremendously in India, with an estimated projected growth of 9.23% between 2023 and 2027—all thanks to technological developments that streamline the lending process for borrowers. However, selecting an ideal fintech company is challenging for MSMEs, especially when financial fraud accounts for 75% of cyber crimes in India. This article will cover six importanttips that MSMEs can use to find an ideal fintech partner to meet their needs. Let’s get started.

Easy Paperless Onboarding

Extensive paperwork in financial operations diverts MSME owners from their core business activities, consuming precious time. Sometimes, it may take a few weeks. However, with optimised digital processes, it can be completed within 72 hours. So, it is always better to go for a company that offers a hassle-free, paperless, contactless onboarding experience. Top fintech lenders use digital identification systems like GSTN, Aadhaar, and other tools to complete the KYC. It speeds up the process of availing loans for MSMEs.

Strong Company Credibility

What factors do you look for while checking the credibility of a fintech company? The most common ones are reviews, ratings, and customer testimonials. However, most importantly, the company’s registration with RBI and SEBI holds primary importance. These affiliations guarantee that the lender will operate within the legal framework as per the industry standards.

Robust Security Measures

The average data breach cost in India increased almost 28% in 2023 since 2020, valuing at Rs 17.9 crore. It shows how important it is to guard users’ data and transactions for any company, including MSMEs. A fintech lender will have access to all sensitive and personal information of the MSMEs before sanctioning loans. It could be bank accounts, credit cards, biometric data, and identity documents. Unless the Fintech company has a robust security system to protect this sensitive data, there is a significant chance of data breach by malicious actors. All lender processes must comply with relevant regulations and standards, such as GDPR, PCI DSS, PSD2, and KYC. Look for advanced protection models such as data encryption, user authentication, verification, and anti-fraud tools.

Transparent Communication

The terms and policies must clearly state all potential risks or limitations related to the product or service offered by the fintech company. It should comprehensively outline any associated risks or restrictions tied to their offerings, spanning eligibility factors, fee structures, interest calculations, payment processing contingencies, and recourse options. Furthermore, terms and policies should account for evolving regulatory standards around areas like data privacy, establishing guards against violations. That shows how much the company cares about the needs and expectations of its customers.

As fintech companies majorly deal with digital platforms, MSMEs may feel a sense of detachment for resolving issues as and when needed. Thus, the ideal fintech company must offer human touchpoints and interactions at minimum effort. Look whether the company has a live chat option or phone support other than email and chatbots to address common questions, complaints, and feedback.

Innovative Lending Models

Only researching different products and interest rates is not the aim here. Evaluating the range of services and degree of customization offered matters the most. For instance, small MSMEs with no credit history may prefer P2P lending, while those with significant physical assets prefer asset-based lending models. FYI, an ideal fintech partner may offer many of the following lending models:

  • Invoice financing
  • Crowdfunding
  • Merchant cash advance
  • Supply chain financing
  • Microfinance

Each of these models serves different needs. The loan preference may change for MSMEs as they grow. The more lending options the fintech company has, the longer the partnership could go with MSMEs.

Use of Technology

MSMEs should go with fintech companies leveraging advanced technologies like AI, machine learning, and blockchain to streamline loan processing at a lower interest rate than traditional banks. These advanced technologies help fintech companies access alternate data for credit scoring, such as social media activity, utility payments, and other non-traditional data points of MSMEs. Additionally, the use of AI enables rapid data processing. This is extremely helpful for MSMEs looking for quick funding to seize lucrative business opportunities.

Before Looking for a Fintech Partner

MSMEs can be able to shortlist a lot of fintech providers based on the criteria mentioned above. However, even an ideal fintech farm may only be able to serve better if the borrower is sure about its needs. For instance, the borrower must clarify whether it needs the fintech partnership for a payment processor, as a lending platform, or for financial management.

End Thoughts

Before going forward with a fintech company, MSMEs must consider crucial USPs like credibility, security, customer support, lending models, and regulatory compliance. But before that, MSMEs must have clarity regarding their expectations from the fintech lenders. It is perfectly fine to spend more time on research than regretting the decision, especially when it comes to the finances of a company. Read this guide to learn about Fintech’s impact on small supplier sustainability.