WHY WE INVESTED

The banking super-app changing the game for SMEs across India

mewt is helping address India’s $400 billion SME lending market gap by simplifying business banking

Rishabh Jain grew up in the small town of Ajmer in Rajasthan, India, where he saw firsthand the struggles of running a small business by his mother and father on a daily basis. What stands out most in Rishabh’s mind about his dad’s small paver block factory business was the many hours his father had to spend at the bank, sorting out financials — an activity that took up a significant amount of time.

It’s a challenge all too common for India’s 63 million SMEs. For business owners like Rishabh’s parents, the line of separation between corporate and personal banking accounts is blurry. Often, while all business activity happens on a business account, money comes into a personal account, where funds are held for safekeeping, requiring constant bank transfers or having to pay overdraft penalties that negatively impact credit scores. This environment of fragmented, inconsistent cash flows and payment tracking and reconciliation challenges often corners many small business owners into borrowing short-term credit from friends and family to keep their businesses afloat.

The dysfunction of this system had long been apparent to Rishabh, but it was only after getting a finance degree at the Birla Institute of Technology and Science and working at American Express and Sprinklr, that he felt he was equipped to do something about this massive unmet need. By that point, it had become abundantly clear to him that the archaic ways of small business banking in India, which often requires bribery and gift giving, needn’t be so dysfunctional. “We all have this inertia that this is how things work. But it doesn’t have to be that way,” says Rishabh. “This system of having money in multiple places just doesn’t work for SMEs.”

Not only does it simply not work, but it also leaves a huge amount of money on the table. Rishabh and his friend from university, Kushal Prakash, decided to join forces in 2020 to come up with a solution to this challenge — what they estimate is a $400 billion gap in the market that needed to be filled.

Across India, all financial technology works on a unified payment interface (UPI), which uses phone numbers. But across India, 40 to 60 percent of transactions still require some amount of cash to be deposited — a need that neobanks, which operate exclusively online, are not equipped to handle. What’s more, the current structure of UPIs limits the amount of total daily transactions, restricting SMEs from going above that designated amount. Rishabh and Kushal knew a neobank would not be the right solution.

To make sure they were addressing the exact pain points SMEs were experiencing, the co-founders interviewed 50 SME owners, trying to examine the problem closely from their perspective. What they found was a common challenge that came up again and again: banks did not give loans to SMEs. To meet this need, in October 2020, Rishabh and Kushal decided to explore launching a lending company that could help address this market deficiency.

But they quickly realized the solution had to address the root problem faced by SMEs, addressing their challenges more holistically from the start, rather than at the tail-end of their financial journey. What if they could create a platform that unified the many accounts offered by state-run banks, private banks, and neobanks under one super account?

What they landed on was the idea of a super banking account that enables an SME to connect all their banking accounts in one place, where they can complete all their transactions, rather than having to individually move money across accounts. The features they wanted to offer were simple and to-the-point: make it possible for SMEs to accept and send money and view transactions all in one place. “We didn’t invent something new. We created a new process,” says Rishabh. “The technology already existed. We just combined it into one.”

It took them 15 days to build the initial prototype, which they tried out on a pilot of 50 SME customers. Right out of the gate, they knew partnering with all the major banks across India would be logistically impossible. “Banks aren’t interested in partnering with fintechs because they are dirtying the water for them,” says Rishabh.

Instead, they created an open banking stack that enabled them to aggregate data across banks and accounts into one space, using application programming interfaces (APIs) to act as bridges enabling different software to interact and exchange data. This meant that when mewt launched in January 2022, it was able to support 96 banks for payment including private banks, which make up 30 percent of the market, and state-run banks, which own 70 percent of the market.

Today, the platform is in 80 percent of the market across the board. A surge in the COVID-19 pandemic brought an uptick in UPI transactions across India, which enable inter-bank peer-to-peer and person-to-merchant transactions online. mewt was able to capitalize on this rise in UPIs. “That gave us an extra boost,” says Rishabh.

Using mewt, SMEs can make super-fast transfers and accept payments with no delays using a proprietary QR code, much like the way Square has changed the game for SMEs in the U.S. by offering easy-access point-of-sale terminals. To make this process smoother, the founders eliminated the industry standard wait time of 30 minutes to two hours to access funds, making money instantly available after transfer.

Aggregating financial information across accounts and making it transparent at-a-glance for users helps eliminate the myriad challenges posed by cashflow inconsistencies. It also offers consolidated operations across all SME bank accounts, streamlining the process so that a small business owner no longer has to spend hours at the bank sorting through logistics the way Rishabh’s father had to for so many years.

mewt is also working on making the app available in multiple regional languages so that it’s more accessible to a broader range of SMEs.

“With mewt, SMEs don’t have to think about where their money is,” says Rishabh. “They can do the transactions and mewt automatically figures out how to process it across bank accounts. That is the real super banking.”

Quona led mewt’s seed round in June 2022. More here.

Disclaimer: Quona portfolio companies were selected for profiles based on objective, non-performance-based criteria for the purpose of illustrating the types of investment made by Quona funds and their impacts. These profiles are being provided for illustrative purposes only, in order to provide examples of the idea generation, research, and thought process of Quona investment teams. No representation is made as to whether or if the investment ideas represented in these profiles have been or will be profitable. It should not be assumed that Quona will be able to identify similar investment opportunities in the future, or that any such opportunities will be profitable. The above statements include the opinions of the Firm and are for illustrative purposes only. There is no assurance that any trends depicted or objectives described in Quona profiles will continue or become successful.

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Quona Capital

Quona Capital

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Quona Capital is a venture firm specializing in financial technology for inclusion in emerging markets. Learn more at quona.com.