In an interview with TheSMEIndia.com, Avinash Godkhindi, MD & CEO of ZikZuk, a neo-banking platform for SMEs is confident that best businesses start during the troubled times as customer pain point is crystal clear and so are they with their neo-banking services to small and medium enterprises.
The neo-bank for SMEs is an incubated company in Zaggle and is looking to raise money over the next 6-12 months Edited Excerpts:
Q. How did you start ZikZuk, how has the journey been so far? Considering a lot of entrants have emerged in the SME lending space and particularly are also entering the card space?
Handful of Fintechs understand the pain points in the SME segment and the majority of the start-ups or neo-banks come from either a technology UX/UI thought process or an NBFC banking lending viewpoint. We understand a lot more about their needs than a lot of other players who are just skimming the surface and not getting to the bottom of the issue.
We have been working with the SME industry for the past ten years as ZikZuk is incubated by ‘Zaggle,’ a company that has been working with 4,000 brands. Zaggle runs rewards and channel incentivisation schemes for these brands profiting the dealers, distributors, and retailers. To quote an example of Goodyear Tyre; our data base contains information of all the top performers in their entire supply chain whether it is their dealer distributors or retailers. Zaggle works as the beneficiary of those reward points. As an organisation, we have access to a large data set and curate those to have real value. As a result, ZikZuk is aimed at the SME market rather than the lender or tech-network markets.
We have a database of over 1 lakh SME’s who already are engaging in our platform and this provides a significant advantage over other SME lending players.
What kind of SMEs do you pass on loan to? In terms of business segment, demography, geography? Are these loans on your book or just a platform play?
We are providing revolving unsecured credit through and are eager to develop the credit score of SME promoters. The paradox is that in India although you get a revolving credit card for retail or consumer segment, there is not a single institution that provides a revolving credit card for business or SME use where the requirement is real, regular, and slightly higher. During exigencies if the access to credit is cut it provides lot of challenge to the SME.
The majority of business credit cards issued in India are classified as corporate credit cards rather than business / SME credit cards. Historically, the whole understanding of corporate credit cards has been for meeting the needs of senior personnel who work in larger organisations to meet the travel, or stay requirements related to official engagements, while we are developing a solution for the SME sector rather than the enterprise client.
In collaboration with Visa and IndusInd, we have introduced the Founder’s card. You would benefit from having access to capital when it is needed. The books are underwritten in a combination of ZikZuk, partner banks, and our partner NBFCS.
Q. Are these secured/unsecured loans, how do you underwrite these loans? Average Ticket size, rate of interest?
These are mostly unsecured loans. We underwrite along with our partners and the liability would be assumed by whoever underwrites the loan. Traditional banks will not offer credit cards to start-ups who do not have a strong credit history or are unable to have a balance sheet, but we do so in exchange for a security deposit. This segment typically needs funds to meet smaller expenditures such as Zoom account renewals, Facebook or Google ad terms, and so on, but this is a very limited segment for us.
During the pandemic period though SMEs were able to obtain the necessary inventory and were able to sell it, but their historical pay-outs, such as salary and fixed costs, were large, preventing them from rotating the working capital requirements. Brands contact us saying that we want to provide liquidity to our distributors, suppliers, and retailers without being a bank ourselves. Brands are able to share past and current revenue data with us, which lets us understand how much money can be extended. We, along with the brand, limit the use of credit cards so that money can only be charged upward, such as the retailer to the manufacturer, the dealer to the distributor, and the distributor back to the brand freeing up the supply chain.
We are currently in the beta phase; approximately 70% of the book is unsecured, while 30% is secured.
Q. Do you see the effect of the ongoing scattered lockdowns on your clientele?
Lockdowns are extremely detrimental to the SME industry, as many workers come from tier 3 and 4 cities. We are already seeing the consequences of lockdown this year in Maharashtra, where workers are scrambling to return. Returning labourers necessitates a significant amount of effort and capital. The ramifications are enormous. In contrast to a large business with surplus savings or a strong balance sheet, a SME promoter is constantly fearful and stressed because they have no buffer or fall back. As a SME promoter, you are on your own to look after yourself, your staff, your clients, suppliers, and so on.
Q. Since you’ve been a payments veteran as well in the ecosystem and have observed closely how the ecosystem has evolved. How can MSMEs also take advantage from this growing ecosystem and be a part of it in a full-fledged manner?
One of the things that MSME are doing and will continue doing a lot more is that they have a lot of tech tools that were not available a few years ago, and by engaging with partners, they can become a lot smarter about how they can take advantage of schemes, their liquidity needs, and digital as a way to increase their revenue. Technology is an excellent equaliser. Ten years ago, the use of digital money instead of cash in digital transactions was unheard of. Even SMEs are considering adopting a digital framework to help with cash flow.
RBI to give a regulatory definition to Neobank? – Till date Neobank as a concept is known outside the country but regulatory framework does not define Neobank, it does not state what is possible and what is not possible?. Can the Reserve Bank of India (RBI) guide us with proper regulatory definition?
