SMEs main battleground for fintech firms in the region

Banks face higher risks and costs when they lend to SMEs that traditionally have lacked credit information and history.
Banks face higher risks and costs when they lend to SMEs that traditionally have lacked credit information and history.PHOTO: ST FILE

SINGAPORE - Financial technology firms hoping to carve out an edge in South-east Asia will have to target the small-and-medium sized enterprises (SMEs) in the region.

These SMEs remain a largely underbanked segment in most Asean markets, according to a report by consultancy firm Bain & Company, Temasek Holdings and Google on Wednesday (Oct 30).

Four in five of the 250 SMEs in Indonesia surveyed needed to borrow money but they lacked access to affordable credit, it added.

The focus on SME lending comes as researchers find that revenue from digital financial services is set to jump to at least US$38 billion (S$51.8 billion) by 2025 from US$11 billion in 2018.

High interest rates were cited as the main reason for them not borrowing, followed by troublesome processes, unsure of where to go to borrow, and rejected applications.

Banks face higher risks and costs when they lend to SMEs that traditionally have lacked credit information and history.

Researchers said: "Digital advances are rapidly opening up new business models to serve this fragmented, underserved and potentially huge market... SME merchants have been inadequately supported by established financial services players."

They added that existing financial institutions risk losing underserved SMEs to new players that can use non-traditional forms of data sources such as users' consumption habits to determine customers' creditworthiness.

"SME merchants will likely become the main digital financial services battleground in South-east Asia in the years ahead."

Fintech firms will need to come up with integrated solutions to do well in the region, the report noted.

Merchants in the Philippines, Thailand and Malaysia are most enthusiastic about having a single payment provider for online and offline banking transactions, said researchers.