As part of the FinTales Interview Series, we speak to a fintech entrepreneur or executive every month. For the April 2022 edition of FinTales, we spoke to Vipul Sharma, the founder and CEO of Chqbook, a neo-bank catering to small businesses.
We recently spoke to Vipul Sharma, the founder and CEO of Chqbook, about a new target segment that some fintechs are starting to bet on – small businesses. As these B2B fintechs don't always follow the same playbook as their B2C counter-parts. You can watch the full interview here. And read on for highlights from our conversation.
The Kirana Economy
The small business segment is difficult to define, Vipul admits. It covers every local business we encounter in our daily life. Like our local grocer and chemist. It's a fast-growing segment with 8 crore customers and 17% year-on-year growth. But despite its size and potential, it's an underserved segment. He calls it the 'missing middle' with salaried employees and corporates on one side. And the working-class poor on the other. According to him, white collar employees and big companies are already well served by traditional banks. On the other hand, farmers and blue-collar workers receive support from the government through schemes like Jan Dhan and direct benefit transfers. But self-employed small business owners have nowhere to go for their financial needs. That's the gap in the fintech market Vipul wants to go after.
As someone who has worked in the banking industry, Vipul believes that banks can lend to small businesses. But they lack the incentive to do so. He explains that banks can earn profits and grow by just focusing on salaried employees and corporates. And giving loans to small businesses is cumbersome for banks. Because quite often, these businesses don't have formal financial records. If small business owners can't get loans from banks, they've little incentive to even keep their money with banks. This is where Vipul believes fintechs can create a win-win situation. Fintechs can reduce financing costs for small businesses and earn revenue by bringing them into the formal credit system. "Small business owners can repay loans. They also have a high drive to make their business successful. It's not like they're in a job that they can quit if they don't like the job or aren't performing well. They don't have that luxury. So, they work very hard. When we offer them loans at 24% interest per annum, they're happy because it allows them to be more profitable and grow faster," he adds – rooting for his entrepreneurial customers.
The Secret Sauce
But how do you build a fintech product for a segment this large and diverse? Vipul thinks it must start with understanding your customers and their needs. "Our app is available in 7 languages. It makes a difference in how people perceive your product and whether they see you as someone who is listening to them. We're catering to a community which is largely not on social media like LinkedIn or Twitter. But they're helping and feeding the people on LinkedIn and Twitter". But it's not just about rolling out a product feature. The devil lies in how the feature is implemented. Take the example of language translation for fintech apps. Vipul goes on to explain that Chqbook doesn't use artificial intelligence (AI) for translations. "We don't use AI for translations. We use hard coded language packs that we make ourselves. Because AI hasn't cracked language changes in financial services. If you ask for an account statement, what is it called in Hindi, Telugu, Marathi, or Gujarati? AI may not give you the right results. So, we do the heavy-duty exercise of translating content and getting it vetted. We spend more time on product than just UI/UX", he elaborates.
The Big Picture
Vipul is optimistic about the future of Indian fintech. With rise in per capita income, he hopes that Indian fintechs will witness a golden era. "This is the fintech ecosystem when per capita income is so less. The minute it goes to $4000 (in 2 years) and then $6000, you'll have an inflection point. Then people will not mind paying Rs.10 for convenience. The ecosystem will be bigger than any other country on the planet", he predicts. For now, Vipul advises that fintechs should be more revenue-focused. He cites the example of rolling out lending and insurance at Chqbook first because these are revenue generating products. "Indians love free stuff. People will use your free product, but if you start charging for it, they'll delete the app. So, if customers are willing to pay you, it's a validation that you've built something useful", he concludes.
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