Fintech startup Converj's credit cards for b2b payments looks at addressing the MSME credit gap

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The size of the small and medium businesses credit gap is often touted to be worth $350 billion by various studies. This has spawned multiple fintechs targeting treasury operations and transaction banking payments to digitise the business to business (b2b) corporate settlements, which could help the lenders address this gap better through transparency, transaction and payment data and invoice information.

Among such startups is Bengaluru-based fintech Converj, looking at converting such payments to card networks through virtual credit cards, which is currently happening through bank payment settlement systems managed by the Reserve Bank of India -- NEFT and RTGS. Both these payments do not earn any commissions for the banks and hence card payments present a compelling case for this shift.

While this is the first such effort, the promise of incentives along with the credit opportunity could help in the adoption of this method. The b2b payment transaction value itself is worth $8 trillion every year in India. Out of the $350 billion credit opportunity, the immediate real addressable market could be around $80-90 billion, say fintech executives.

Founded in July 2020, Converj has raised US$ 2.8 million so far from Beenxt and other angel investors. While Parry Ravindranathan and Varghese K Abraham started the company, Manish Daswani joined the firm as chief business officer early this month. The company has signed up both issuer and acquirer banks and will see the first set of customers coming onboard this month through the issuer banks.

Abraham has spent more than two decades at Visa and Daswani has been in transaction banking for close to two decades across Visa, Bank of America and HSBC Bank. Ravindranathan previously served as the managing director of Bloomberg Media's international business.

How it works 

While credit card does not necessarily mean the conventional consumer credit period of 45 days nor the merchant discount rate of around 2 percent for b2b payments. This could depend on the terms agreed between the issuing bank and their primary client. However, the card is issued by the current account holding bank of the corporation and could be used only for the specific purposes and business payments unlike a regular customer retail card. A single transaction on the card could be worth several crores.

For instance, a vendor supplies an FMCG company with the plastic packaging material and the bill for this runs into Rs 1 crore every month. Similarly it will have multiple other vendors. What usually used to happen is instead of paying the full amount upfront, what most companies will do is pay within 30 to 60 days through NEFT/RTGS channels. But when companies pay instantly, they often get a discount of somewhere between 0.5 percent to 2 percent.

What Converj does is it gives the opportunity for the corporates to pay the vendor immediately though credit card, called Treasury Card, issued by the bank in partnership with the company. The corporates are keen on a solution that gives credit to their suppliers and distributors rather than making instant payments through the NEFT and RTGS and locking up their working capital. The banks could earn the interchange and interest for facilitating this credit whereas, vendors, companies and distributors can focus on expanding their business with the freed-up capital.

“There is a tectonic shift imminent in the business-to-business (b2b) payments landscape globally, with platforms such as Converj offering specialised services to address buyer as well as supplier pain points. We are partnering with traditional financial institutions to co-create a disruptive model for supply chain finance programmes," says Parry Ravindranathan, ​says CEO ​and co-founder​ of Converj.

He adds that while consumer payments dominated the last era of advancements in fintech,​ the next wave of advancements will come in the b2b payments space​. Moneycontrol had written about the trend back in June.

What works for Converj

"NEFT and RTGS do not have credit options as of now because it is difficult to automate RTGS through multiple bank systems. Meanwhile, card payment rails are highly centralised and standardised, and can create tracking and management information systems (MIS) capability," says a former senior executive with a card network, who is not authorised to speak with the media.

Card network technology companies such as Visa, Mastercard and American Express are more focussed on consumer products and hence transaction banking or corporate payments is a blind spot. Amex has a successful corporate expenses card for marketing and sales divisions, but that is for retail spending and not for settling b2b payments worth crores of rupees. While they tried to encourage such a solution and provide an interchange system, the development of a product was never a priority.

"The most important thing going for Converj is timing as there are few players and fewer experts who understand this. No point in doing this with a smaller bank as the scale and impact could be much smaller. Converj has tie-ups with the largest private banks and this could take off. You need banks to work as your distributors and the Visa experience of Converj team brings the rare combination that will work in their favour," says the executive quoted earlier.

The GST impact

Since the implementation of the goods and services tax (GST), most corporations have insisted that their vendors make GST payments so that the large corporations can claim input tax credit. This has helped in the formalisation and digitalisation of payments at all levels.

The transaction and treasury banking pie has attracted startups such as Encash, Paymate, Tazapay, TransBnk, Setu and Escrowpay among others. Transaction banking services include escrow account management, trade finance, remittances, cash management and disbursal, apart from tax payment.

These startups could also unlock credit opportunity beyond the working capital and supply chain financing, helping the MSME sector to attract more funding for business expansion and growth.

According to a fintech consultant, National Payments Corporation of India, which runs the ubiquitous mobile payment platform UPI, is also considering b2b payments through IMPS rails, but with interchange similar to card networks. NPCI subsidiary, BBPS also has plans to make corporate utility bill payments through its platform rather than NEFT and RTGS.

"The entry of NPCI could turbocharge the b2b corporate payments. The multiple tailwinds such as the fintech innovation and banks' willingness to participate in such efforts could help address the MSME credit gap," says a fintech consultant who works with some of these startups mentioned above.