Mint released very sobering news indeed. As per a study conducted by IIT Madras, almost a third of the micro, small and medium enterprises in Tamil Nadu are approaching money lenders during cash crunch amidst the pandemic.
Why are MSMEs, even today, approaching the age-old and notoriously high-interest option of the money lenders?
The answer is – less hassle and quick results.
Today MSMEs are ridden with problems that they never thought were possible, and the last thing they need is any form of friction, or as popularly called as, digital friction to come in the way of them and their money.
What is Digital Friction?
Any hindrance caused during an activity by digital modes that dissuades a customer from exploring your products or services is known as digital friction.
For customers, digital friction may be the long time expended on the page loading or merely a bad experience with the digital interface. For businesses, this friction pushes back the opportunity to gain more customers.
What are the Impacts of Digital Friction on MSMEs?
While digital avenues were created to simplify processes, they often end up doing more harm than good. Here are some drawbacks posed by extreme digital reliance.
Impact on Speed and Agility
MSMEs who need a clear interface are stuck in the limbo of digital paths. Something as simple as getting an invoice has different regulations. Each solution provider has a different manner of producing invoices that mandates the stakeholders, especially the MSME owners and their vendors to possess knowledge of the same solution.
This not only narrows down the scope of work but also reduces the speed and agility. Invoice automation is an invention made to simplify the process, but similar halts are a classic example of digital friction.
Reputation Based Assistance
Not all MSMEs have the infrastructure and support to implement digital platforms for their businesses. Similarly, not all conventional fintech platforms cater to all small scale businesses. This lack of digital connection in the times of heavy digital reliance can limit the audience that is being catered to and not help those in need to scale their business.
Complicated and Opaque Procedures
Digital friction can also make an indirect impact in the form of cumbersome and opaque procedures. With multiple layers and steps in applications and solutions, small scale business leaders are often unable to trace their steps back, which leads to confusion and murkiness concerning the process.
From verification to set up a PIN (which requires OTP), the entire process stands on a weak foundation. Not to mention, this digital interface fails to function in remote areas with low connectivity.
Diffusing Digital Friction for the MSMEs
How can lenders open up their services to small enterprises without automation intervention?
Reduce Digital Reliance
The first step to eliminating digital friction for these MSMEs is to step away from the notion of going all-digital. Finances, trading and lending have been around 300-400 years, solely functioning on relationships and clear communications.
Companies like Vayana network democratize finance to small enterprises by working at the backend with minimal intervention. Since the MSMEs do not need more intermediaries, new-age financers need to be invisible yet proactive while helping them manage their working capital and grow their business.
Cut Through the Clutter
Reduce the number of procedures loanees have to undergo to receive financial aid. By reducing the number of processes, small scale enterprises gain clarity and have a better idea about tenure, interest rates and other relative aspects.
To conclude, while the world is going digital, experience and human relationships is excellent reinforcement for small scale enterprises, especially during these times of crisis. Reducing digital friction weeds out uncertainties as well as hassles while improving overall transparency for the MSMEs.
Contact Vayana Network today to handle your trade finance requirements efficiently and effectively.