We are Empowering Financial Inclusion across Multiple Tiers of Suppliers with Deep-Tier Financing: M1xchange

Step into India’s evolving B2B fintech with Sundeep Mohindru, CEO of M1xchange, and Saurabh Tiwari, AVP-Marketing at M1xchange. In an enlightening conversation with Amit Singh, they shed light on disruptive trends, cutting-edge solutions, and the promise of data-driven financial innovation that is reshaping the landscape of business finance. The conversation takes us through a journey of change and innovation in the financial world, touching upon topics such as supply chain finance, deep-tier financing, customer-centric approaches, and the role of emerging technologies like AI and blockchain.

Amit Singh: Could you describe the current landscape and how B2B fintech solutions have transformed traditional enterprise financial practices?

Sundeep Mohindru: The fintech landscape has completely evolved, especially post-2020. Today, it’s a normal part of corporate operations. Corporate entities and MSMEs now consider fintech as a routine way to access finance, as opposed to traditional methods. This increased adoption means enterprise promoters are aware of multiple liquidity options through fintech. It’s all about accelerating access to finance, reducing constraints like collateral and balance sheets, and overall cost reduction. It’s a massive shift, successful in every aspect.

Amit: What recent trends have you observed in B2B fintech adoption by businesses, and where are these solutions making the most impact?

Sundeep: In the context of M1xchange, which facilitates supply chain finance, we’ve seen incredible adoption. In 2017-2019, we averaged about Rs 1,000 crore per annum in financing for MSMEs supplying to corporate customers. In 2023-24, we’ve scaled up to approximately Rs 4,000 crore a month, or over Rs 40,000 crore per annum. It’s a testament to the adoption of supply chain finance.

It’s adding substantial value as well. SMEs now have access to over 60 banks and NBFCs through M1xchange with a single registration, which means their financing capacity has increased significantly. Moreover, in comparison to interest rates of 15-22 percent in traditional bill discounting, marketplace model like M1xchange offers amazing interest rates of 7-11 percent per annum. This improved competitiveness results in substantial savings, reducing financing costs by 5-8 percentage points.

It also simplifies the process. SMEs don’t have to approach each lender individually. In a traditional model, SMEs have to approach the banks or NBFCs individually based on their relations as well as financials, balance sheets, credit scores, collaterals, and so on. On the other hand, we are not looking at the financial strength of the SME. We are financing on the basis of the strength and credit analysis of the customer of the SME organization.

Our network model streamlines everything. All SMEs have access to over 60 banks/NBFCs through our platform and can get financing based on any of their customers.

Amit: Can you specify the sectors or industries where B2B fintech solutions have a significant impact?

Saurabh Tiwari: Sectors like logistics and finance are seeing a notable impact. The fintech solution streamlines payments and creates a network effect, allowing large corporates and MSMEs to collaborate more effectively. The platform’s integration with ERP solutions is a game-changer for convenience and speed. And this is just the beginning; there’s a lot more to come in the B2B fintech space.

Amit: What’s the current investment landscape and trends in the B2B fintech space?

Sundeep: The B2B fintech sector has witnessed a surge in investment over the past three years. This trend has made it a focal point for investors. The investments primarily span various segments, whether it’s in open banking, supply chain finance, trade finance, or B2B term loans. Fintech companies operating in these domains have attracted substantial investments.

It’s noteworthy that a significant portion of these fintech firms have transformed into Non-Banking Financial Companies (NBFCs). This transition is linked to the regulatory framework established by the Reserve Bank of India (RBI). RBI introduced regulations that incentivize fintech firms to become regulated entities, a shift many have made. Unlike this approach, M1xchange remains distinct by serving as a platform. We maintain agnosticism regarding specific banks or NBFCs, operating as a marketplace facilitating the price discovery mechanism between clients seeking financing and financial institutions willing to provide it. Therefore, the investments predominantly flow into either fintech platforms or digital NBFCs, reflecting the evolving landscape of today’s financial technology industry.

Amit: How does your platform facilitate better relationships between businesses and their suppliers with customized solutions?

Sundeep: We serve both corporate buyers and suppliers, ensuring that supply chain finance adds value to their businesses. By reducing the cost of doing business and derisking operations, we enhance the overall robustness of business relationships between buyers and suppliers.

As the cost of doing business decreases for the supplier, thanks to the goodwill of their buyer, there is a direct ripple effect on the cost of doing business for the buyer. It’s a symbiotic relationship.

Another critical aspect is risk mitigation. From the buyer’s perspective, arranging proper financing for a supplier inherently de-risks their own supply chain. On the supplier’s end, receiving payment within one to two days of delivering their goods substantially de-risks their operations. No more concerns about chasing collections or navigating a complex payment process. With swift payments, suppliers gain the confidence to invest more, allowing them to handle larger orders from the same customer.

Moreover, the capital constraint is entirely eliminated. There’s no longer a need for collateral, past data points like repayment history, or the reliance on balance sheet strength and credit scores. These antiquated constraints have dissipated, paving the way for unrestricted growth.

The liquidity flow exemplifies this transformation. It’s not like dealing with a single bank; it’s like having access to 60 banks simultaneously. The result is a 60-fold increase in the volume of liquidity flowing through the supply chain.

These parameters contribute to the robustness of the buyer-seller supply chain. The previous approach involved selling the concept to large corporations. Now, the tables have turned. Corporations are keenly interested, in realizing the value and efficacy of this approach. This reversal in dynamics is evident in the enthusiasm of corporations eager to expand their participation and increase liquidity on our platform. The adoption rate reflects this reversal, as we’ve transitioned from facilitating Rs 1000 crore in financing annually to a staggering Rs 4,000 crore per month now.

Amit: Could you provide more insight into the innovative financing models that your platform has introduced to ensure a healthy supply chain?

Saurabh: One of the innovative models we’ve implemented on M1xchange is centered around invoice discounting and supply chain financing. This approach gained prominence following the introduction of regulations by the RBI.

But our innovation doesn’t stop there. We’ve created a holistic ecosystem by integrating various components, such as Enterprise Resource Planning (ERP) systems. Our platform unifies large corporations and MSMEs, bringing them together seamlessly.

The integration of these ERP solutions within our platform streamlines operations and offers an array of benefits. It’s not just about making processes faster; it’s also about providing a multitude of options to all stakeholders. This integrated approach opens the door to more financing opportunities, creating numerous cycles for people to access the financing they need.

This integration represents a significant leap forward and is truly a game-changer in our field. It enhances convenience for all stakeholders involved.

Amit: What role do emerging technologies like AI, blockchain, and data analytics play in your B2B fintech solution?

Sundeep: The most recent initiative we’ve introduced, within the framework of the regulated sandbox, is what we call ‘deep-tier financing.’ This approach leverages data analytics.

In practical terms, deep-tier financing represents a shift from tier-1 to tier-2 suppliers within the supply chain. It’s essentially extending the financial reach one step further down the chain. In the past, on M1xchange, we primarily focused on discounting invoices from tier-1 sellers and anchor corporations. Now, we’ve expanded our scope by integrating data analytics into the tier-1 seller’s activities, particularly their purchases from tier-2 sellers.

This expansion has significantly broadened financial inclusion across multiple tiers within the ecosystem, marking a novel development in our country. To execute this, we meticulously analyze financial data, including bank statements and GST records of tier-1 sellers. Based on their financial strength, we determine and allocate a credit limit to them. This, in turn, empowers them to procure raw materials from tier-2 suppliers, who can now access financing through our supply chain finance offerings.

Data analytics lies at the core of this transformation. We’ve seamlessly integrated data from various reliable sources across the country, combining bank statement analysis and GST integration, to bring this innovative product to market.

Amit: What do you see as the most promising growth opportunities and outlook for B2B fintech in the supply chain financing and invoice discounting space?

Sundeep: Looking ahead, data analytics will play a pivotal role in shaping the landscape of financial services in our country. The business environment is vast and geographically dispersed across our nation. Digital financial solutions present a unique opportunity to consolidate this extensive data efficiently on platforms. Harnessing this data intelligently is the key to enabling financial innovations like deep-tier financing, as I previously explained. Over the next three to five years, we anticipate a significant shift in this direction, marking the next stage of our industry’s evolution.

Another aspect that holds great potential is the utilization of AI to enhance customer experiences. While our processes are already fully digital today, there’s room for these processes to become even more intelligent. This means reducing the number of clicks and streamlining the time taken for various financial transactions. Presently, we can finance invoices within minutes of their arrival on our platform. However, we envision a future where invoices can be financed without users needing to manually enter our platform. This signifies the integration of systems and the application of AI for more seamless, automated financing processes.

Additionally, blockchain technology offers promising prospects. We’ve integrated blockchain to prevent duplicate financing of invoices. If an invoice has been financed, it cannot be refinanced in the broader financial ecosystem. This technology can be further leveraged for different use cases, such as enabling smart contracts that authenticate buyers and sellers, effectively reducing the risk of fraudulent or counterfeit invoices.

Saurabh: The emergence of technologies like blockchain and artificial intelligence is fundamentally altering how data is brought together and utilized. In terms of a customer-centric approach, these technologies enable a deeper understanding of customer pain points. M1xchange, for instance, has introduced solutions to enhance access to financing for the broader population, including the underserved segments at the base of the socioeconomic pyramid.

These technologies unlock a wealth of data points. This data can be employed to develop new products or refine existing ones. The impact on society and business at large is substantial, promising significant advancements in financial inclusion and accessibility.