This article was written by B Capital investors Aakash Tulsani and Kevin Hong.

Tech-enabled businesses that are reimaging delivery of financial services have been an exciting area of interest for us at B Capital Group. A number of customer segments, including SMBs, have been underserved by traditional financial players for years and we see a huge addressable market for entrepreneurs to tackle.

To better understand the state of digitized finance, our 2020 Annual General Meeting featured a conversation with three of our portfolio founders from around the world, including Ravish Naresh of Khatabook, Hendra Kwik of Payfazz and Eliot Buchanan of Plastiq, in a conversation moderated by General Partner and co-Head of Asia, Kabir Narang.

B Capital Investors Kevin Hong and Aakash Tulsani noted several key themes from the conversation that are likely to play out as the financial services industry becomes increasingly digitized, and entrepreneurs uncover new demands for technology adoption.

SMBs continue to lack access to consistent cashflow

Whether you run a kirana store in India, a warung in Indonesia or a SMB in the U.S., there is a common thread underlying the challenges that you face during an economic downturn: cash flow management. During a panel for B Captial’s 2020 AGM on the future of decentralized and digitized finance, our start-up CEO panelists — Ravish Naresh of Khatabook, Hendra Kwik of Payfazz and Eliot Buchanan of Plastiq — shared how they have adapted given the opportunities and risks that have emerged for their business and the merchants that they serve.

In the backdrop of COVID, where several industries are undergoing major transformation, necessity and survival are driving the financial services industry towards increased digitization. In India, where kirana stores are already cash crunched and rely on a time-consuming and error-prone process of managing credit transactions on pen and paper, Ravish notes that COVID further compounded the need for digital ledger solutions.

“Merchants are looking for solutions that make their businesses better, and Khatabook essentially addresses the core problem of cash flows, which got hit the most during COVID,” said Ravish. “And we are seeing that merchants that readily adopt these solutions have better probability of surviving.”

Consequently, Khatabook has adapted its solutions to better meet their customer needs. For instance, they started allowing merchants to build online catalogues and take orders via mobile phones.

COVID will continue to impact sales and adoption

In the U.S., Eliot notes that the adoption curve and willingness to adopt new payment mechanisms has also seen a dramatic increase. Yet he cautions against pitfalls that abound.

“The sales cycle and willingness to try new things has dramatically changed. That has positive effects, but the challenge is around, for one, the level of retention we see for merchants that are willing to try a lot of different services,” Eliot said. “From a product perspective, the competitive differentiation you need to bring has changed. Before, when you won over a customer, they were sticky because it took so long to get them. There is both a willingness to adopt new technology but there is also a willingness to rapidly remove or change to a new competitor. So, you have to up your game.”

And to up your game, you need to carefully listen to your customers and their needs. When meeting people in person becomes a major obstacle, you need to find other ways to effectively engage.

For Plastiq, they have taken a different strategic approach than their competitors to best serve their customers in the coming 12–18 months. “when we look around at our competitors, a lot of them are adding new products or creating complementary products. And that’s fine and there is nothing wrong with that. But we have taken a different approach. We have said well, we would rather get extra focused during this time and become world class in our primary core competency that our customers have relied on. And our customers have appreciated the fact that we have become more reliable from a service, SLA perspective.”

For Khatabook, this mean taking a localized digital approach. “We have merchants in more than 95% of India districts, more than 10K cities effectively the largest in India. We are available in more than 11 languages. So the user who has come online in just the last year or two and started using internet apps. Khatabook for them is one of the first pieces of software they are using in their life. We brought down the threshold to learn by making the app extremely simple. We also leveraged not just existing digital platforms like Facebook and Google, we leveraged new age platforms like Tik Tok.”

Post-COVID, novel partnerships could be a solution for the underbanked

Payfazz has taken a unique approach that helps SMBs benefit as partners in delivering financial services to the 200 million unbanked/underbanked population in Indonesia. Payfazz allows merchant partners, for whom more than 70% of sales come from fast-moving consumer goods (FMCG), to earn extra money by offering financial services to the underbanked/unbanked populations in Indonesia.

“A lot of the effort for us is to get feedback from the 200 million people. What financial services do you need to improve your life?” said Hendra. “Then, we internally gather this feedback and speak with the banks and partners to create customized products, which are 100% digital and rolled out via agents in rural areas.

“In the last four years, merchants have said that it is hard to sell financial services and would rather stick with FMCG goods,” Hendra continued. “But what happened during COVID is that they got hit in their core sales, so they need a way to make extra money for their business and their family. As this happened, it became easier for us to convince these stores to become a financial service distributor.”

What the experiences of these start-ups highlight is that the financial services firm that demonstrate they are a reliable, trusted partner earn customer loyalty through ups and downs. The world is in the middle of a digital transformation, and organizations like Khatabook, Payfazz and Plastiq are building technology tools that can be transformational to their economies, touching new models and solutions that significantly benefit SMBs.