SMEs are the backbone of the Indian economy, and key contributors to the $5 trillion Indian economy target. Unprecedented action-oriented focus on the issues faced by the sector in the recent past stands testimony to the seriousness with which we view this segment to drive growth. That being said, the key problem that has always plagued the segment has been the money flow; both on receipt and payout as well as the access to formal credit. In this regard, it is relevant to discuss the payment challenges faced by the sector today, which is a critical factor for their thriving or even survival in some regions.

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MAJOR PAYMENT HICUPS FACED BY SMES, THE GROWTH
DRIVERS OF INDIAN ECONOMY
VARUN KESAVAN, RESEARCH SCHOLAR, E – MAIL – ID – varunkesavan@yahoo.com
SMEs are the backbone of the Indian economy, and key contributors to the $5
trillion Indian economy target. Unprecedented action-oriented focus on the
issues faced by the sector in the recent past stands testimony to the
seriousness with which we view this segment to drive growth.
That being said, the key problem that has always plagued the segment has
been the money flow; both on receipt and payout as well as the access to formal
credit. In this regard, it is relevant to discuss the payment challenges faced by
the sector today, which is a critical factor for their thriving or even survival in
some regions.
Multi-channel payment facilities: In the era of high internet penetration and
the millennial consumers' preference towards online payments, it is imperative
to have omni-channel payment tools available for every SME. Gone are the
days when cash, cheque and bank transfers were the only mode of payments.

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Today, UPI and QR channels have become a preferred way of day to day
transactions at most retail businesses and the online modes, be it cards, net-
banking or wallets are equally popular in digital India amongst the users.
Nevertheless, the small businesses find it a challenge dealing with multiple
service providers, interfaces and expensive solutions, beyond their ability to
understand and afford, adding to the complexity of them doing business, both
for collections and for payouts in the business.
Reconciliation challenges: All payments, through whichever mode the
collection is made, or payment is done, hits the business account like rivers
joining an ocean. Once it comes in, there is very little trace of the source or
purpose. This leads to key reconciliation problems, thereby limiting
organisational visibility. Since the business account is in no way connected to
the billing/business/accounting systems, it often limits the business's ability to
say with certainty about various stakeholder balances, even after a lot of
manual effort for reconciling payments to various systems.

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Cost of transactions: Cost of transaction for both offline as well as online still
remains high for small businesses which does not generate high volumes for
the service providers including the banks. The businesses end up paying a per-
transaction cost, except for limited digital channels, which has a major impact
on their profitability. This forces them to fall back upon cash as a preferred
mode, which in the current environment limits the possibilities including access
to credit.
Working capital crunch and inadequate access to formal credit: With an
overall long cycle of recovery and limited credit availed from suppliers, SMEs
often face working capital challenges? However, access to formal credit is also
limited, given that the systematically recorded transactions, mainly due to over-
reliance on cash, is extremely limited for these businesses.
This pushes them into a vicious circle of lack of capital due to lack of credit
history. With a humongous gap of ~$240 billion in the SME segment, access to
formal channels of credit in India poses both payments and business challenges
for SMEs.

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Lack of tailormade and integrated solutions by the service providers: SMEs are
not always equipped with the resources to put together ideal solutions for their
varied payments needs. Hence, the reliance on ready-made solutions or ease
of integration is extremely critical for their functioning and success.
Despite that fact, this segment is the most underserved today with respect to
the existence of integrated service providers catering to their consolidated
payment needs. SMEs have to approach and use on an average 3 service
providers to cover minimum required payment solutions.
To conclude, the remedy to overcoming payment challenges faced by SMEs is
to bring under a single cost-effective intuitive interface, all kind of payment
solutions aiding them to achieve ease of money flow, both domestic and cross
border. This is the fundamental need to conduct business profitably and
effectively.