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Fintech's Festive Frontier Hinges On Navigating E-commerce Surges, Empowering MSMEs

As the festive season approaches, e-commerce and BNPL fintechs have great potential and fintech companies are supporting MSMEs during this critical period

Fintech's Festive Frontier Hinges On Navigating E-commerce Surges, Empowering MSMEs
The BNPL scheme has emerged as popular payment method among the younger generation
Senivpetro on Freepik
POSTED ON November 20, 2023 1:43 PM

The ongoing festive season, which usually starts with Ganesh Chaturthi for several weeks until the end of the year, is set to be a crucial period for e-commerce platforms, payment providers and Buy Now Pay Later (BNPL) fintech players. As consumer preferences shift towards online shopping, the BNPL scheme emerges as a key player, especially among the younger generation.

2023’s festive season witnessed a significant surge in e-commerce order volumes, marking an impressive growth of around 37% as per data derived from Unicommerce, an online retail enablement technology platform. This reflects a substantial increase compared to the festive sale period of 2022.

Amidst this, the BNPL scheme has emerged as popular payment method among the younger generation, particularly during festive seasons. It allows users to buy items without immediate payment, with the amount paid later during an interest-free period. The BNPL service provider settles the bill with the merchant on the user's behalf. 

This method is particularly popular among cash-strapped younger generations who may not have access to a credit card. They can borrow credit for small-ticket purchases using various BNPL apps. Online shops and retailers now offer BNPL rewards programs and EMI options; making it a lucrative financial tool during the festivities.

BNPL Frenzy In Festive Fervor

BNPL payments in India are expected to grow by 20.5% on an annual basis to reach $14.7 billion in 2023, according to Research and Markets. Its adoption is expected to grow steadily over the forecast period, recording a CAGR of 12.2 per cent during 2023-2028.  

Mahesh Shuka, founder and CEO of PayMe
Mahesh Shuka, founder and CEO of PayMe

Emphasising the popularity of BNPL, Mahesh Shukla, founder and CEO of PayMe stated, "It allows users to buy items without immediate payment, with the amount paid later during an interest-free period." The appeal lies in the flexibility it offers, particularly for cash-strapped younger generations without access to credit cards.

Shikhar Aggarwal, chairman of BLS E-Services views the festive season as a unique opportunity for BNPL services to establish a strong presence. "With the increasing preference for online shopping in tier 1 and 2 cities, the demand for convenient and flexible payment options is on the rise," he notes.

BNPL platforms can leverage this trend by offering attractive incentives, seamless user experiences, and competitive pricing. By addressing the specific needs of Indian consumers during the festive season and beyond, they have a significant chance to become an integral part of the country's evolving retail landscape.

Avanish Agarwal, Consulting CMO at Smasash, echoes this sentiment, stressing that this is an opportune timing for BNPL to gain traction. "The festive season is undoubtedly an opportune time for BNPL solutions to gain a stronger foothold in the Indian market," he said. Consumers are more inclined to make larger purchases when they have the option to spread out payments, making BNPL an attractive alternative to traditional credit cards.

E-commerce Surge: Financial Forecast

As projections estimate a significant surge in e-commerce sales during the festive month, reaching approximately Rs 90,000 crore, these fintech leaders offer insights into the potential impact and challenges. Over the past few quarters, there has been a rise in GMV contributions from non-electronic categories such as fashion, beauty and personal care, home, and general merchandise, which is expected to continue this festive period.

Shukla predicted that the festive sale season could contribute 17 per cent of India's annual gross merchandise value (GMV) for CY23, with the e-tailing sector's full-year GMV expected to reach Rs 5,25,000 crores in 2023, a 19.3 per cent increase from 2022. 

Avanish supports this projection, stating, "The projected 18-20% surge in ecommerce sales during the festive season seems plausible given the growing trend of online shopping and increased consumer spending during this period." The expanding internet penetration, coupled with the convenience and wider product selection offered by ecommerce platforms, is driving this growth.

Shikhar Aggarwal, chairman of BLS E-Services
Shikhar Aggarwal, chairman of BLS E-Services

Festive discounts, cashback offers, and targeted marketing campaigns further contribute to the heightened sales expectations. While the exact figures may vary, a significant increase in ecommerce sales during the festive season is highly probable.

Aggarwal concurs, emphasising the evolving consumer behaviour and the ongoing digital transformation contributing to this optimistic outlook. As the e-commerce landscape continues to evolve, businesses need to adapt and capitalize on this growing trend to stay competitive and cater to the evolving needs of Indian consumers.

The surge in e-commerce activities during the festive season is indeed a lucrative opportunity for prominent players, but it also poses challenges for smaller MSMEs in terms of managing increased operational costs and liquidity. Fintech companies play a vital role in supporting mid-scale e-commerce and D2C companies during this period. 

They provide solutions like quick access to working capital, flexible credit lines, and streamlined payment processing, essential for these businesses to manage their finances across various sales channels efficiently. By offering tailored financial products, fintech companies help these companies seize the festive sales boom and navigate the liquidity challenges effectively, ensuring a more level playing field in the competitive e-commerce landscape.

Aggarwal highlighted, "Fintech companies are playing a crucial role in assisting mid-scale ecommerce and D2C companies in managing their liquidity challenges during the festive season." He suggested that they opt for various services, including digital marketing tools, data analytics, and inventory management solutions, crucial for sustained growth.

For instance, these fintech tools can help start-ups analyse consumer behaviour and tailor marketing strategies, ensuring consistent customer engagement beyond the festive season. Additionally, inventory management systems provided by fintech firms allow MSMEs to optimise stock levels, reducing overhead costs and enhancing efficiency in their day-to-day operations. This ongoing support is instrumental in translating the success of festive sales into sustained growth for these start-ups.

Many retail companies optimistically overstock during the festive season, which leads to increased holding costs. At the same time, understocking can result in lost sales and dissatisfied customers.

"This is where fintech companies come into play, providing technology-driven solutions to help businesses forecast their inventory needs accurately. By leveraging data analytics and AI, these platforms can analyse past sales data, market trends, and consumer behaviour to make precise predictions about inventory requirements," Ujjwal Agarwal, co-Founder and CFO of Unesync, noted.

Fintech's Role In Sustainable Growth

Fintech companies can collaborate with MSMEs to alleviate working capital strain during the festive season by offering tailored solutions like invoice financing. These solutions encompass invoice discounting, supply chain financing, and dynamic credit lines to ensure flexibility during fluctuating sales patterns.

Fintech platforms can facilitate faster settlements, enabling MSMEs to receive payments from ecommerce marketplaces or customers more quickly. They can also provide short-term loans tailored to the specific needs of MSMEs, helping them manage their cash flow during peak sales periods. Moreover, they can provide MSMEs with valuable insights into sales trends, customer behaviour, and inventory management, enabling them to make informed decisions and optimize their operations.

While most brands experience a 20x increase in revenue during the festive season, Shukla wondered how many can sustain this growth. Smart brands that plan ahead can maintain demand and increase revenue month-on-month. 

Leveraging data analytics and ML, fintech solutions empower MSMEs to make informed decisions and enhance operational efficiency

Startups are adopting revenue-based financing, which uses data-driven approaches to provide capital to early startups and small and medium enterprises. This financing offers a percentage of gross revenue to companies. 

As D2C brands prepare for the festive season, fintech platforms have become the preferred partners for hundreds of brands, offering founder-friendly, equity-free working capital alternatives to supercharge growth.

Shukla added, "Startups are adopting revenue-based financing, which uses data-driven approaches to provide capital to early startups and small and medium enterprises." This financing method offers a percentage of gross revenue to companies, allowing for equity-free working capital alternatives.

Fintech And Working Capital Management

As MSMEs grapple with managing their working capital effectively during the festive boom, fintech companies offer technology-enabled invoice financing solutions. Avanish explained, "Fintech platforms can provide invoice financing services, enabling MSMEs to convert unpaid invoices into immediate cash flow." This solution includes supply chain financing, dynamic credit lines, and quick access to sales proceeds, ensuring smoother operations during peak sales periods.

Fintech platforms can offer invoice financing solutions where MSMEs can sell their unpaid invoices at a discount to receive immediate cash. This practice helps MSMEs maintain a steady cash flow by accessing funds tied up in outstanding invoices.

In the realm of inventory management, fintech companies play a crucial role in forecasting and optimizing stock levels for MSMEs. Avanish explained, "Fintech solutions can analyze historical sales data, market trends, and seasonal patterns to predict future demand accurately." These solutions provide real-time visibility into inventory levels, facilitating timely replenishment decisions and preventing stockouts or overstocking.

Shukla underscored that collaborating with fintech companies for inventory forecasting can help MSME online brands reduce the risks associated with understocking and overstocking. By leveraging data analytics and machine learning, fintech solutions empower MSMEs to make informed decisions and enhance operational efficiency.

As the festive season unfolds, fintech companies emerge as invaluable partners for e-commerce players and MSMEs, driving financial innovation and empowering businesses to navigate the complexities of a booming. At the same time, post the festive season, these businesses should reassess their strategies to understand the market changes and adapt accordingly. After all, the trick in business is to keep learning, unlearning and relearning. 

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