Last-mile financing made easy by Bridge2Capital’s channel finance

June 4, 2021

By Mohammed Riaz, Co-Founder

Every economic activity is directed towards delivering a greater consumption experience. Highways & rail roads – for a faster movement among markets, streamlined banking & financial institutions for easy access to liquidity and planned cities to ensure consumer’s access to markets – Chandigarh is a phenomenal example.

Hence, we can see that consumption is paramount to every economy as it's a necessity for all human beings to exist and thrive. 

There is a complex eco-system behind the delivery of every great consumption experience in an economy. We seldomly pay attention to what it takes for a McDonalds to deliver its crisp and uniform tasting fries or a Prestige to deliver its highly reliable pressure cookers, or even Mahindra to deliver their highly successful off-roader-Thar, etc. The supply chain for each of these companies & many other products involve multiple players and complex layers. However, one layer which plays a very important role in this supply chain is the one which communicates directly with the end-customer – the retail end. Online, brick & mortar, cloud based, DIYs, drive-ins etc., retail stores come in many shapes and forms in this everyday changing economy, lead by technological advances. Apple Stores are an example of how the world’s most valuable brand has built a massive retail store front with just a handful of products, Asian Paints is an example of how a company can use its customer’s behavioral data of the past 40 years to forecast the end-customer’s demands and deliver just-in-time inventory to its dealers. HUL developed an in-depth distribution channel with efficient shelf space management solutions to help a retailer enhance its customers experience by delivering the products, as and when required.

The retail sector plays a critical last-mile customer connectivity for the brands. The longer the retail chain, the more unorganized it becomes. The retail sector in emerging markets has various other socio-economic characteristics too. In a country like India, it is the second largest employment pool after agricultural industry. Even when the retail sector has started to get more organized, it still can unleash a huge employment opportunity, even in the case of online retail or B2C e-commerce. However, the entrepreneurial nature of this segment ensures that the retailer chases the demand, wherever it gets generated. Also, the retail tends to emerge as per the demand of a developing city, for example in the outskirts of the city we will observe more and more hardware stores whereas in a more populated area, FMCG & consumer durable stores are in abundance. You may find this article to be more biased towards the manufacturing-based retail sector viz the service-based retail sector, however, both play a critical role in delivering products & services to the end-consumers.

The retail consumption can be explained as purchases done by the end-consumer for his/her own consumption and not for reselling. Hence, supporting the retailers to sell more ultimately results in incremental consumption volume. Indian retail sector is one of the fastest growing in the world. As per Forrester Research, in 2020, India's retail sector was estimated at US$ 883 billion. The market is projected to reach ~US$ 1.3 trillion by 2024. India is the fifth-largest and a highly preferred retail destination globally. The country is among the highest in the world in terms of per capita retail store availability as 93% of the demand is satisfied by unorganised stores. India’s retail sector is experiencing exponential growth with retail development taking place not just in major cities and metros, but also in Tier II and Tier III cities.

While, the unorganised retail sector provides the largest access to the customers, they themselves lack access to technology, finance, and modern business practices. 90% of the stores are proprietary by nature and are heavily cash driven. These stores have poor accounting practices and lack the concept of separate business entity. As a result, they are unable to provide proper financial information to access formal financial services from the banks and other financial institutions. Majority of the stores are dependent on the supplier driven credit facilities which reduce their profitability or/and depend on informal money lenders for funds at exorbitant interest rates. Last but not the least, the stores who do get access to banks, tend to get term loans, while their need is working capital for purchase of inventory. 

The main objective of channel financing (or dealer financing) is to enable manufacturing and trading companies to sell to their dealers, distributors and stockists on cash basis and eliminate debts from their books. Xtracap Fintech has a technology driven product for short term channel financing back by 100% digital engagement with the store owners. The cost of trade & cash discount offered by the distributors to the retailers is treated as a benchmark for the cost of credit.

Also, the margins made by the retailer plays an important role, lower the margin higher will be the sales turnover and vice-versa. We need to understand the needs of the manufacturer (brand), distributors and the dealers. The first need is CONVENIENCE – the dealer would like to adopt a least intrusive engagement, the cost to engage is not just defined by the interest rate, the funds should be available on demand. The second need is TRANSPARENCY – the channel financing should come with clearer terms and no hidden costs. Our product design and technology offer FLEXIBILITY to the channel in bear the cost of interest, generally brands or the distributor bear a certain part which is called interest subvention, it offers the flexibility of repayment days – weekly, fortnightly & monthly, repayment period 30,60,90,180 day etc.

Bridge2Capital is a mobile app which enables seamless digital engagement between the different stakeholders, dealers, distributors, brands, banks, etc.  The digital approach helps all the parties engage with each other without meeting or exchanging physical papers and is designed keeping in view the COVID restrictions. The underwriting process is completed within 15 minutes in a paperless manner, post which the store owner must provide GSTN APIs and Banks statement, and lastly a suitable working capital limit between INR 50K- 5 Lakhs is assigned to the store owner.

Once the customer is approved, all he/she has to do is to scan its supplier’s bill via Bridge2Capital app and payment is released directly in the supplier’s account within 24 hours. All the transactions are reconciled on daily basis and information is shared with every concerned stakeholder. While we have sorted out the micro level issue with ‘access via technology’.

How does the Marco Level usher for an approach like ours? Let us tell you…..

India has got perhaps one of the finest digital infrastructure in the world when it comes to end-customer connectivity and engagement. Digital adoption via mobile internet is one of the fastest. CoWin will propel millions of new consumers towards technology. These will find going online easy and real. On the business side E-Invoicing and Account Aggregation (AA) will unleash a new era of financing, we see e-invoice an asset class bigger than Gold in next 4 years.

Bridge2Capital, as a fintech, is present in an exciting time, in a market place where huge change is anticipated. “Being in the right time at the right place” is an age-old adage for being lucky. This is an exciting time for being in the FINTECH industry, watch out this space for more updates!