Enabling merchants’ potential through embedded financing
Habiba Nasrin and Anamika Rahaman
Everyday life nowadays could be stagnant without technology which is necessary at every step of living. During the ongoing pandemic, the demand for financial technology is increasing as it is bringing a variety of products and benefits to people. Embedded finance is the future of the financial services industry. It’s the merging of a non-financial service provider, such as a retailer or ride-sharing company, with a financial service, such as payment processing, lending, or insurance. To match this ever growing sector ShopUp has instigated another successful endeavour called ‘Baki’ which caters to the small and medium retailers in both urban and rural areas. This initiative has started at the end of 2019, currently shopUp is working with 2,258 active merchants. The beauty of embedded finance is that it streamlines financial processes. Before the development of embedded finance or banking, there was usually a gap between a consumer and the company they did business with. The consumer often needed a traditional financial services provider, such as a lender or bank, to bridge the gap. The bank would provide the credit or debit card a consumer used to pay for a purchase, or a lender would give a person a loan to buy a house, car, or other large purchase. With embedded finance, that third-party bank or lender disappears. Embedded finance companies have found a way to act as the bridge or close the gap between themselves and the consumer.
Baki features- This service caters to small and medium sized businesses with credit facilities so that they can run their business without much investment or running cash flow. This is not a new business model for distributors but operating all of this in a small and technological manner is new to Bangladeshi SMB’s. Bangladesh is a lower middle income country where most of the businesses are small. Many of these businesses lack proper documentation in terms of getting financial benefits. There is a huge gap between the business and financial institute and there are few institutions who are working to help or mitigate these gaps. ShopUp ‘Baki’ is one of these facilities who are continuously trying to lessen the gap between small business and their financial need. We have encountered several merchants who were very much in need of financial help but as they have insufficient or no proper documentation, they most likely fall out of the boundary of financial aid. Most financial institutions follow several strict measures to ensure a safe credit system. Many times the process is so complicated and lengthy, also there is no one to guide them in a proper direction. We believe that startups like ShopUp can very much help to eradicate the problem by providing easy solutions to financial needs with products like ‘Baki’. It is not just about being better/tech-driven/more risk-taking. It is about finding opportunities to combine data, process and capital in ways that accomplish the same ‘jobs to be done’. We approach small businesses and help them with their need for credit. This product is customized based on special needs and all the steps are recorded to avoid fraudulent activities. ShopUp has also introduced an app called Mokam where small retailers can order products on credit. There is no minimum credit limit, anyone can be eligible for baki if they have a running business. This system is mainly based on good will and well developed relationships. There is no strict screening process for baki. Retailers just have to maintain a certain level of order to be eligible for Baki. The smaller the amount the easier the process. This has helped many small retailers to expand their businesses and build a good relationship with ShopUp. Currently shopUp is serving all the major district in Bangladesh and rapidly trying to cover all the rural areas to spread the financial facilities. Enabling access to digital marketplaces for the rural SMBs will be also crucial in upcoming years, to ensure their sustained growth in the changing business landscape of this digital transformation era. MFIs are perfectly positioned to drive digital transformation of rural SMBs through promoting multifaceted support e.g., providing credit, bridging access to digital marketplaces, digital literacy and capacity building etc. Thus, we have a significant role to play, not only in supporting existing digital commerce SMBs through microcredit products, but also facilitating digital transformation of their client rural SMBs.