Neo Banks & B2B Payments: A Match Made in Heaven
If you look at the payments industry as a whole across the globe, it has evolved in the most fascinating way when compared to other industries.
Back in the days, we relied on cash, cheques, and DDs to pay and get paid. Nowadays, we barely visit a bank; yeah, I mean the physical ones where you end up standing in a queue for long! 😤
Today, we prefer to make & receive payments online. If you look at the B2C/C2B payments market in India, we’re pretty well established.
Businesses have evolved as well. We are living in an era where cash payments are slowly fading between businesses and advanced payment methods are coming into play. Pure-play digital banks, UPI, Neo banks (my personal favorite!) are disrupting the payments segment rapidly.
Well, B2B is not far behind. 😎
But, what about India? Believe it or not, we actually ace it! 😉
In fact, according to FPII, it was only India’s IMPS service that got a rating of 5 (the highest) leaving behind countries like the UK, Singapore, Denmark, Switzerland, China, Japan, and others.
A BCG-Google report projects that B2B Payments through digital instruments will account for $150 billion in India by 2020.
Even with this rapid pace of development, Indian SMBs still rely on legacy systems to get done with their payments and other financial work.
There’s a Need for a Better Solution
In India, most traditional businesses and SMBs predominantly pay & get paid via cash, cheques or DDs. The ones that are a little more advanced, will probably do an online bank transfer via RTGS, NEFT or IMPS. In fact, there is a slew of challenges surrounding the finances of an SMB.
Curious? 🤔Me too! Let’s look at some of the prevailing challenges here:
- Inefficient Payouts: If you are an SMB business owner, ideally, at some point in time you would be making payouts to vendors, or paying salaries, commissions. And again, you would be doing this via a bank. I think we can agree that the experience is less than ‘decent’. And things only go further south once you start doing bulk payouts. The cumbersome looking excel sheet that you fill for 2 hours and redo after making a few mistakes and then finally send it over to the bank. Not a very “all’s well that ends well” experience, is it?
- Difficulty in Collections: Similarly, collecting payments is another hassle you might face all the time. Either you have to send them your bank details or ask them to cut a cheque for you or deposit the amount in a bank branch itself. None of the above seem that convenient to me, what about you?
- The problem in Tracking Payments: Did you ever receive a cash payment and forget to enter it into your accounting books? Happens with the best of us. This is a common problem for almost 90% of the SMBs. Tracking UTR numbers, calling up your customers/vendors for the same, reconciling it, etc. is an everyday problem. Some SMBs go as far as to keep a dedicated team to handle this.
- Poor Invoicing: Any SMB would definitely be creating a ton of invoices every month. Is the process easy? I think not. 8 out of 10 SMBs in India don’t have a proper invoicing tool. Mostly because the existing systems are not as seamless and efficient as they are supposed to be.
- Bad User Experience: Last but not least, the overall experience of the existing banking infrastructure. Let’s be honest. It’s cluttered. Important features don’t work half the time and then there’s the difficulty of finding stuff. I’d say it’s a pretty daunting experience, won’t you agree?
Although these things dominate the SMB banking industry, there are a few solutions that strive to solve the same. 😌
Enter Neo banks, the ‘Ideal’ Solution
One of the best and most popular one being Neo banks. Now, what is that? A Neo bank is essentially a business banking platform that offers innovative banking services & offerings that are very different from what traditional banks have to offer.
Most of them (neo banks) are subsidiaries of the banks that they are making fun of and competing against.” said Dan Bass, MD, Performance Trust Capital Partners, Houston.
So, how does a Neo bank work? They partner with a licensed bank and offer enhanced banking solutions on top of them. Services such as bank account opening, P2P lending, basic accounting on-the-go, expense management, prepaid and credit cards, etc. are a few things that you’d see on a classic Neo bank feature menu.
But you might be asking, ‘Why is this a big deal?’. Fair enough. 👍
A recent Allied Market Research study forecasted that the global neo and challenger bank market is expected to reach $356 Million by 2025 from $17 million in 2017, growing at a CAGR of 45.8% from 2017 to 2025.
Convinced yet? Neo banking is revolutionizing the Banking & Financial Services industry as a whole and the payments ecosystem in particular.
How? 🤔Well, here are a few ways in which it is doing so:
- Easy Payouts & Collections: When it comes to doing payouts (especially bulk payouts) and collecting payments, few solutions offer an experience as seamless as Neo banks. Most of them offer an integrated payment gateway to collect payments. While a few other Neo banks like Open offer an easy solution for doing bulk payouts, which otherwise can be quite a bothersome task.
- Easy Payment Tracking: No more tracking UTR numbers and managing cash/cheque payments. With neo banks, you can automatically track your payments. Best of all, it’s DIY. You don’t need a team or an external agency for that.
- Expense Management: As an SMB owner, you would incur a bunch of expenses on a daily basis. Can you keep track of all? The most popular answer would be ‘No’. A lot of Neo banks also offer customizable expense management solution for startup and SMB owners.
- Seamless Invoicing: Neo banks know that invoicing is a major feature for SMBs. That’s why neo banks like Open have built seamless invoice creation system which is integrated with other banking and financial services the platform has to offer.
- User Experience: Last and the biggest advantage of all is the enhanced user experience that they offer. Most neo banks tend to have a smooth design that makes it easy for you to get the flow. You can find the features pretty easily. Plus, they also offer all of the services of a traditional bank in an innovative and convenient manner.
- On-the-go Banking: With neo banks, your banking and pretty much all of your business finances can be managed on-the-go via your mobile (enabled through apps).
The kind of services Neo banks provide coupled with the best user experience, it is bound to shake the payments and the banking industry in India.
In a market which is dominated by traditional banks with age-old systems, Neo banks come in as a ray of hope for the SMB segment. Neo banks tend to operate on a “customer first” model wherein they actually cater to the woes of the SMB segment and create product or services around the same.
