As a startup founder, your to-do list is a whirlwind of crucial decisions. From crafting the perfect GTM strategy to scaling your product, each choice impacts your business's trajectory. But amidst this juggling act, one critical decision that can affect the trajectory of your company’s financial management often gets overlooked, i.e., choosing the right current account .
This seemingly simple choice has a domino effect on your startup's financial management, impacting everything from cash flow management to operational efficiency, thus affecting your scalability and operations.
However, with a plethora of options available, selecting the best current account can be a strategic misstep many founders regret later.
Here's why:
Lack of Unique Banking Requirements: Startups have distinct financial needs; they prioritise flexibility, cost-effectiveness, and value-added services like payroll management and integrations. Choosing a current account that doesn't align with these priorities can hinder your growth.Lack of Features: Often, founders overlook the importance of ensuring their current account features work seamlessly with their specific business model. This can lead to inefficiencies, unnecessary fees, and a lack of financial clarity. Lack of Transaction Flexibility: Frequent, high-volume transactions are the lifeblood of many startups. A current account with limitations on transactions or high per-transaction fees can quickly stifle progress. Most current accounts are not cost-effective. Initially, startups operate on tight margins, making minimal fees and charges paramount. Unforeseen expenses associated with a poorly chosen current account can quickly drain resources.So how do you choose the perfect current account for your startup? That’s exactly what we will be exploring in today’s article, and we will be doing this in view of one of the most popular startup current accounts: HDFC’s startup current account.
The S.T.A.R.T.U.P. Framework Considering this dilemma of founders, Mya has developed a framework to evaluate current accounts specifically for startups, known as the S.T.A.R.T.U.P. framework. In this framework, you evaluate a current account and use a simple scoring method to evaluate the account on the basis of the following:
S - Service Charges: Assess the fees associated with the account, including maintenance fees, transaction charges, and penalties for non-compliance.
T - Transaction Limits & Flexibility: Ensure the account offers flexibility in terms of transaction limits and types, and QAB maintenance caters to the dynamic needs of a startup.
A - Account Integration: Look for seamless integration with your business operations, accounting software, and other financial tools to streamline processes.
R - Rate of Return: Evaluate the interest rates offered on the account balance, seeking opportunities for maximising returns on idle funds, especially if your cash flow pattern allows for a higher balance.
T - Technology: Seek a bank that provides robust online banking platforms, mobile apps, and digital services to support your startup's tech-savvy needs.
U - Unforeseen Expenses: Consider the availability of overdraft facilities or credit lines to address unexpected financial challenges and maintain liquidity.
P - Partnership Benefits: Explore any partnerships or collaborations the bank offers, such as discounts on services, access to networking events, or startup-specific resources.
Using this framework, we will be evaluating HDFC current account and exploring whether it's the right fit for startups. Then again, be sure to evaluate your startup and industry in particular.
S - Service Charges Looking at service charges is of utmost importance for startups. You do not want to choose a current account with intensive charges, especially if you have a business model that doesn’t allow you to maintain high liquidity initially or even in the long run.
AQB/AMB charges
HDFC current account does not have a zero balance current account unlike some of its competitors such as ICICI. The average quarterly balance (AQB) that needs to be maintained by the startup is Rs 50,000/-, which is higher than many of its competitors.
AQB Fee Waiving Criteria:
There is a charge for non-maintenance charges (per quarter) of Rs 3,000 per quarter, which can be waived if the credit transaction value through digital products( ME/MPOS/MEAPP/PG) is greater than or equal to 5 lakhs in any quarter. Zero NMC charges provided quarterly credit transactions through Digital Products are Rs. 5 lakhs or more. T - Transaction Limit and Flexibility Free limits for cash deposits for startup current accounts
The free limit is 12 times the current month's AMB for cash withdrawals and deposits; this suggests that the startup can make cash deposits and withdrawals up to 12 times the average monthly balance (AMB) of the current month without incurring any fees.
Free cheque leaves offered per month for Startups
Cheque leaves monthly free limit: 25 cheque leaves for every slab of Rs 1 lakh of the current month AMB balance maintained. This means that for each Rs 1 lakh maintained in the AMB, the account holder is entitled to 25 free cheque leaves for that month. These provisions are designed to support business transactions while encouraging startups to maintain a healthy account balance. It's crucial for startup founders to be aware of these limits to effectively manage their cheque usage and minimise additional expenses.
RTGS & NEFT fee
The HDFC current account offers free RTGS and NEFT payments through branches and netbanking, like all of their competitors do.
MPS transaction charges for Startup Current Account
Standard charges: Upto Rs 1000 - Rs 3.5; Above Rs 1000 upto Rs. 1 lac – Rs. 5; Above Rs. 1 lac upto Rs. 5 lac - Rs. 15; Free above Rs. 5 lacs (per transaction charges excluding GST)
Free limits for issuing DD's (Demand Drafts) or PO's (Pay Order) for Startup Current Account
Monthly free limit of 50 DD/POs for every slab of Rs 1 lakh of current month AMB balance maintained (subject to a maximum of 1000 DD/PO) The above free limit charges are Rs. 50 per instrument.
Free limits for bulk/total transactions for Startup Current Account
Free 150 transactions for every slab of Rs. 1 lakh of current month AMB balance maintained (subject to a maximum of 3000 transactions). Charges over and above the monthly free limit are Rs. 25 per transaction.
HDFC Bank's service charges The HDFC HDFC current account seems to have higher charges on different line items, but on an aggregate, it seems to be more expensive than its competitors like ICICI, IDBI, etc. Look into which charges matter to your business model and choose accordingly.
A - Account Integrations As a founder, selecting a current account that integrates well with your finance stack becomes an utmost priority. The way you should select both as a founder is such that they both feed into each other and allow for scalability and flexibility. Considering that, here are some of the most important integrations to look for in your startup current account and whether HDFC bank’s startup current account integrates with them.
Accounting Software Integrations
HDFC startup current account seamless connectivity with popular accounting software like Zoho Books and Tally. This allows for automatic transaction import, reconciliation, and connected financial reporting, saving you significant time and effort.
Payment Gateway Integrations
HDFC startup current account has Integrations with a number of payment gateways like Razorpay, Stripe, and Paytm, though it provides additional benefits for opting for its own gateway services, such as NIL AMC and integration charges on HDFC Bank Payment Gateway. This facilitates easy online payment acceptance from customers, simplifies invoice management, and provides real-time transaction tracking.
HDFC Bank's Account Integration HDFC Bank provides a number of integrations, but less than Neo-Bank alternatives would provide greater integrations and thus higher flexibility in operating your finance stack and efficiency.
R - Rate of Return Like most current accounts, the HDFC startup account doesn’t provide interest on the money left in the account. Then the question arises: what even are we looking for while trying to figure out the returns one can get through a current account? Here, return refers more to the return to be gained on various investment avenues available for startup founders. But they do offer multiple avenues of investment, such as:
Fixed-income investments Fixed Deposits (FDs):
Interest Rates: HDFC offers FDs with rates ranging from 3.00% to 7.75% p.a., depending on tenure and status.Risk: Low. FDs are considered the safest investment with guaranteed returns.Suitability: FDs can be suitable for parking short-term excess funds or funds earmarked for specific goals within a few years. However, the returns may not keep pace with inflation.Liquidity: High. Funds are readily available upon maturity or with minimal penalties for early withdrawal.Recurring Deposits (RDs):
Interest Rates: Similar to FDs, interest rates vary based on tenure.Risk: Low. RDs are essentially a disciplined savings method with the same low risk as FDs.Liquidity: High. Funds are readily available upon maturity or with minimal penalties for early withdrawal.Suitability: RDs can be a good option for accumulating funds for specific goals over a longer period of time.Market-Based Investments Mutual Funds:
Interest Rates: Returns vary significantly based on the chosen fund type (equity, debt, or hybrid) and market performance. Equity funds can potentially offer high returns but also carry higher risk.Risk: varies from moderate to high. Equity-based funds can be volatile, while debt funds are generally less risky. Liquidity: Low. These investments are subject to market fluctuations and often have lock-in periods or redemption charges, making immediate access to funds difficult.Suitability: Mutual funds can be suitable for long-term wealth creation goals (5+ years) but may not be ideal for short-term needs due to market fluctuations. Choose funds based on your risk tolerance and investment horizon.Equity-Linked Saving Schemes (ELSS):
Interest Rates: Returns depend on the underlying stock market performance.Risk: Moderate to high. ELSS offers tax benefits but comes with market volatility risks.Suitability: ELSS can be considered for long-term wealth creation with a tax advantage, but be prepared for potential ups and downs. Other Investment Avenues Public Provident Fund (PPF):
Interest Rate: Currently, it offers a 7.0% p.a. interest rate.Risk: Low. PPF is a government-backed scheme with guaranteed returns and tax benefits.Suitability: PPF is an excellent option for long-term wealth creation and retirement planning, with attractive returns and tax advantages. However, it has a lock-in period of 15 years.National Pension Scheme (NPS):
Interest Rate: Market-linked returns, with an average annual return of around 10-12% in the long run.Risk: Moderate. NPS invests in market instruments, so returns can fluctuate.Suitability: NPS is primarily for retirement planning, with tax benefits and a lock-in period until retirement age.Though HDFC Bank offers various investment options for startups, what must be considered are the restrictions posed on your available funds, depending on what your VC or investor agrees with.
HDFC Bank's Return HDFC Bank doesn’t provide any interest like all the other current accounts but provides a great diversity of investment options and thus does well in this regard as well. Though it doesn’t provide an auto-seep feature like the "BRAVO" feature by IDFC Bank that allows you to set up an auto-sweep into FD with no penalty on premature FD breakage
T - Technology As a startup founder, innovation is your bread and butter, and innovation and tech go hand in hand. Without advanced tech there is no way you will be able to execute your vision seamlessly. Imagine wanting to do an RTGS transaction and your bank servers crash; not being able to make bulk payments; a lack of integrations leading to a loss of your ideal finance stack. Or even imagine something as simple as a loss of productivity due to the lack of an intuitive UI or restrictions. HDFC Bank has in many ways pioneered Indian banking in terms of tech, pioneering features like 10-second loans and missed call banking. But that was the past. Do they hold up to their name in comparison to Neo-banks offering startup current accounts? Let’s look into some
Mobile Banking HDFC SmartHub Vyapar App:
A dedicated mobile app that provides all the features and functionalities of Net-Banking on the go, including:
Real-time account management. Instant payments and fund transfers. Bill payments and recharges. Expense tracking and budgeting tools. Onboarding new employees and managing salaries. Transaction Capabilities Unlimited Transactions
No restrictions on the number of transactions, ideal for startups with high daily volumes of payments to vendors, employees, or other parties.
Bulk Payment Processing:
Upload files containing payment details for multiple beneficiaries through Net-Banking. Initiate bulk payments of up to 500 transactions in a single request, saving significant time and effort. Track and manage the entire bulk payment process efficiently. Transactions Visibility:
Get instant updates on your account balance, transaction history, and cash flow through Net-Banking or the mobile app. Gain better financial control and make informed decisions based on real-time data. Integration Capabilities HDFC Bank offers a range of APIs for seamless integration with your accounting software or business systems.
Popular APIs include:
Corporate Payment APIs: initiate bulk payments (up to 100 beneficiaries and 500 transactions per request), inquire about batch statuses, and manage the entire process electronically.Account Information APIs: Retrieve account balances, transaction history, and other relevant data directly within your software.Other APIs: Explore APIs for various functionalities like loan applications, credit card management, and more.Underlying Infrastructure Platform-based Approach: HDFC leverages platforms like Backbase, known for providing a user-friendly and consistent banking experience across various channels.
Investment in Future Technologies: HDFC's Digital 2.0 initiative aims to revolutionise their digital banking experience. It focuses on creating a seamless financial journey, modernising their technology stack, and launching new products like a revamped payments platform and a wealth management platform. With RBI approval secured, this initiative positions HDFC at the forefront of digital banking, offering a superior customer experience and future-proofing their business.
Existing Banking Solutions: Expense Management: HDFC Bank's online platform and mobile app allow for features like categorising transactions for easy expense tracking, setting budgets and receiving alerts for potential overspending.
Payroll Solutions: HDFC offers salary account solutions for efficient payroll processing. They may also have integrations with accounting software for seamless data transfer.
Where Neo-Banks win
Considering all these, it does seem that HDFC has an edge over other startup current accounts in terms of its offerings and technology, yet at the same time, there are concerns raised about HDFC’s tech. One of the main concerns is that, though they claim to have advanced UI/UX, startup founders have complained about clunky UI and long loading times. Aside from this, though they offer expense management solutions and payroll solutions, their in-house technology seems to be less developed in comparison to stand-alone expense management solutions such as Expensify, etc., and even dedicated payroll software such as Greythr.
HDFC's Tech In case of an unforeseen requirement of funds arising for your startup you need to have a current account that provides you with financial support with flexibility, here are some crucial features startups need in their current account to address unexpected expenses and whether HDFC startup account has them.
U - Unforeseen Expenses Overdraft Facilities Overdraft Protection: This allows you to withdraw more than your account balance up to a pre-approved limit, providing a buffer for unforeseen expenses.Flexible Limits: Look for accounts with adjustable overdraft limits based on your business needs and creditworthiness.Competitive Interest Rates: Ensure the interest charged on overdrafts is reasonable and doesn't significantly impact your finances.The HDFC startup current account offers an overdraft facility that allows account holders to access additional funds up to an agreed limit. This facility is beneficial for startups as it provides flexibility in managing cash flow and meeting financial needs. With the HDFC Bank SmartUp current account designed for startups, businesses can avail of an overdraft facility, enabling them to withdraw beyond their account balance, with the overdrawn amount deducted from the next transaction made into the account. The interest rate for HDFC startup current accounts' overdraft facility typically ranges from 15% to 18% per annum (p.a.). This rate may vary based on the specific type of overdraft facility offered by HDFC Bank and the customer's eligibility criteria. Credit Lines Business Line of Credit: This provides access to a revolving credit line that can be used for unexpected expenses and repaid over time with interest.Secured vs. Unsecured Lines: Consider both secured (backed by collateral) and unsecured lines based on your financial situation and risk tolerance.Quick Access: Choose a bank that offers quick approvals and disbursement processes for credit lines in case of urgent needs.HDFC Bank offers credit line facilities through its current accounts, including the Emergency Credit Line Facility. This facility provides relief to businesses by offering a pre-approved additional loan of up to 20% of their existing fund-based outstanding as of a specified date. The interest rate for this emergency credit line is based on an external benchmark plus 1%, capped at a maximum of 9.25% per year. Additionally, HDFC Bank provides this facility with a maximum tenure of 4 years from the date of disbursement, with a maximum one-year moratorium period. P - Partnership Benefits Though secondary in consideration, what benefits are derived from partnerships with banks and whether you can access that network matters a lot. HDFC Bank has partnerships with various institutions, incubators, and even state government programmes and thus can help you get subsidised credit, easier access to funds through government schemes, mentorship, factors of production such as infrastructure, etc. It does this mainly through:
Government Nodal Agencies: These agencies can provide startups with funding, mentorship, and other resources. Some of the government nodal agencies listed as partners include MEITY Startup, Startup Mission of Kerala, Startup Karnataka, etc.
Industry Bodies: These organisations can provide startups with networking opportunities, industry insights, and advocacy. IIMs and IITs are some of the educational institutes listed as partners, which can be categorised under industry bodies.
VCs: Venture capitalists can provide startups with funding and mentorship. The image does not list specific VC firms as partners.
Incubators : These organisations provide startups with office space, mentorship, and other resources. Some of the incubators listed as partners include SInK, IIT Kanpur, Catalyst, TIDES, etc.
By working with these partners, HDFC Bank can provide startups with a comprehensive range of support services. For example, a startup could go to a government nodal agency for funding, to an industry body for mentorship, and to a VC for investment. This can help startups grow and succeed.
To Sum it Up When you look at all the factors according to the STARTUP framework the HDFC startup account does seem to be beneficial for most startups again before committing to a banking solution, it's essential for startups to evaluate their specific business requirements. This includes assessing factors such as transaction volume, international payments, and scalability needs. Moreover, understanding the risk tolerance of the business is paramount. Some startups may prefer stability and security over the potential for higher returns, while others may be more inclined to take calculated risks to maximize growth opportunities.
.webp)
.svg)
.svg)
.svg)
.png)
.png)
.svg)
.jpg)
