Reinventing financial services for SMEs: Validus

SME Banking
02/05/2023 Interview
profile picture of Vikas Nahata

Vikas Nahata

Validus Capital

Co-Founder & Executive Chairman

Based in Singapore, Validus offers a ‘business account that does it all’ in Southeast Asia. We interviewed Vikas Nahata, their Co-Founder and Executive Chairman.

In which countries do you operate and how do you perceive the banking offer to SMEs there? In your opinion, does the offer from existing financial institutions meet the needs of SMEs?

Validus operates in Singapore, Indonesia, Vietnam and Thailand, and each market is vastly different from the others and presents a unique set of challenges.

While traditional financial institutions in Singapore are at the top of the game when it comes to digital banking capabilities, their application processes, collateral requirements and turnaround times have not improved significantly. There is still a large segment of underserved SMEs who are unable to access financing from existing financial institutions, due to a lack of audited financials, business plan projections and collateral.

In Indonesia, Thailand and Vietnam, processes for SMEs to access credit continues to be time consuming, tedious and inefficient. Where available, the digital finance offering from existing financial institutions is still impeded by credit underwriting requirements that have not evolved, and existing players have struggled to balance the needs and credit characteristics of SMEs with the stringent criteria set out by local regulators.

It is not enough to rely on the SME to provide enough data for underwriting; in order to truly scale support for SMEs and drive financial inclusion, alternative methods of assessing creditworthiness are required, and credit scoring, underwriting and loan monitoring processes need to become more efficient.

The major established financial institutions maintain a strong foothold on the already banked segment of SMEs and thus have lesser incentive to crack the holy grail of using non-traditional data sources coupled with AI-driven automation to expand credit access and supplement underwriting of underserved segments.

As a fintech, Validus has the advantage of being agile and flexible without being hampered by outdated processes and clunky core legacy banking systems. This has enabled us to launch innovative alternative financing solutions for SMEs – including partnership-led supply chain finance solutions.

What is your business model and your core value proposition for SMEs?

Our core value proposition for SMEs is based on three key principles: Accessibility, Convenience, and Affordability. Our business model is centered around leveraging technology, data, AI and strategic partnerships to provide accessible, faster and more affordable financial services to SMEs. We have developed a suite of digital financial products and services that are designed to meet the unique needs of small business owners – from loans, to business accounts, corporate cards, cross-border international payments and expense management.

One key approach we take to making financing more accessible is to partner with some of the largest corporate conglomerates in each of our markets on supply chain vendor financing solutions, thereby accelerating financial inclusion for their vendors who otherwise may not be able to get access to credit. Using the supply chain data from our partnerships, alongside alternative data and data from the SME, we then use data analytics and AI to price the SME risk.

Besides making it easier for SMEs to access growth financing quickly, our finance products and services are built around making our SME customers’ ‘jobs to be done’ easier, faster and more affordable, so that SMEs can focus on growing their business. From the business owner to the head of finance, we have mapped out the pain points and challenges faced by each SME user, as everyone has a pain point to resolve when undertaking a particular part of their job. For example, we offer free payroll processing via our Validus business account, tools to enable finance teams to easily export expenses from the Validus business account to their preferred accounting software, and we do not charge any FX fees on international money transfers and foreign currency card spend.

In a fragmented market for SME financial services, Validus is a one-stop solution for the financing and financial management solutions that help businesses grow, and save more time and money. With Validus, a small business does not need to juggle multiple providers for their different business finance needs. All of these add up into upsized time and cost savings for businesses. 

How’s the experience at your institution different compared to other players? What are the unique features you offer to your customers?  

One of the key differentiators is our single-minded focus on serving SMEs. Like the small businesses we serve, we are a small business too, and our raison d'etre is to help small businesses grow. Unlike traditional financial institutions, which often have a one-size-fits-all approach to lending and financial services, our products and services are specifically tailored to the needs of small business owners. This includes a streamlined application process, and affordable access to a range of digital financial tools.

Lengthy and tedious loan application processes, coupled with the lack of audited business financial documents required by other financing institutions, are significant barriers to growth and expansion for small businesses.

Recognizing this pain point faced by SMEs, we set out to innovate our working capital financing product and credit underwriting – with a focus on making it simpler and faster for SMEs to access the funds they need for growth, within one day. We are the first in the industry to innovate and develop a proprietary AI-powered credit underwriting algorithm that leverages alternative data and predictive models to automate the underwriting and credit risk decisioning for small-ticket working capital loans (of up to $150,000) in just one minute. SMEs need only submit two documents for credit assessment, which is 67% fewer documents compared to banks and other financial institutions. 

For this innovation, we won the first runner-up award (Singapore FinTech category) at the prestigious SFF Global FinTech Awards 2022, supported by the Monetary Authority of Singapore, in November last year (read more here).

Besides closing the SME credit gap, we also enable underbanked SMEs to get full, one-stop access to business finance products and services, such as a free business account, corporate charge cards, international money transfers, payroll processing, accounting integrations, and more.

These neo-banking products and services are offered for free or at much lower costs compared to a traditional bank, so that small businesses can scale and grow without paying high fees. For example, there is no fee and no minimum deposit required for our business account, payroll processing is free, businesses can issue unlimited corporate cards to employees for free, and, as previously mentioned, we do not charge any FX fees on international money transfers and foreign currency card spend.

The early feedback from our customers and word-of-mouth is strong evidence that we have managed to build a neobank product that addresses the needs of small businesses.

Being a banking provider without physical branches, customers only interact with you remotely. How do you ensure an excellent sales and service model leading to a great customer experience with interactions being 100% digital?

We have made significant investments in developing and implementing a tech stack to ensure an excellent sales and service model. Our digital business account platform is designed to be user-friendly and easy to navigate, and we utilise CRM and servicing tools to communicate with and provide our customers with the assistance they need in a timely way.

Our focus is on creating a seamless experience for our customers, and we leverage data analytics and AI to gain insights into customer behavior, preferences and needs, which helps us to tailor our products and services to meet their specific needs. With a robust digital outreach and engagement strategy in place, we are able to effectively reach and engage with our target audience – prospects and existing customers.

Even though we don’t have a physical branch, we frequently hold in-person outreach and engagement events for prospects and customers. Our relationship managers also keep in close touch with customers, so we are always in the know and understand our SMEs’ needs, and can respond in an agile manner to meet their needs.

Where do you see Validus in five years? What impact or difference are you trying to achieve for small business owners in your portfolio?

At the heart of our mission is a commitment to empowering small business owners and uplifting the lives of everyone in communities that are linked to the small businesses we serve, through better digital finance. We believe that access to affordable and uncomplicated financing is critical to achieving true SME financial inclusion.

The landscape for SME financial services is extremely fragmented, and there is a huge opportunity for all-in-one neobanks like Validus to provide an accessible, seamless and hassle-free experience. Thanks to the pandemic, small businesses are open to and seeking digital solutions for their business finance needs, such as loans and B2B payments.

We will continue to deliver deeper value for SMEs across all the stages of their lifecycle for all things business finance, from loans, to B2B payments and business expenses. In doing so, we aspire to become the most loved credit-led SME neobank in Southeast Asia.  

Can you specify some major milestones accomplished on your institution’s journey?

Here’s a quick overview of our major milestones in 2022:

One of our major highlights last year was becoming the first fintech in Southeast Asia to acquire an established global player’s small business loan book – Citibank Singapore’s CitiBusiness portfolio.

We also evolved from an SME fintech lender into a one-stop, all-in-one SME finance neobank, and we continued to make strides in making working capital financing more accessible through data and AI. For our innovation in automating credit underwriting and decisioning for small-ticket working capital loans, we won the first runner-up award (Singapore FinTech category) at the prestigious SFF Global FinTech Awards 2022 in November last year.

Finally, we rounded up 2022 with the completion of a successful Series C1 fundraise, with participation from new and existing investors, signaling continued confidence in the company’s growth. 

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