Opportunities for banks in the MSME sector through open finance and partnerships but challenges remain

Senior executives and industry experts from some of the leading financial institutions, fintech players and technology providers in Asia shared their insights on the next phase of digitising MSMEs in the evolving internet economy and discussed their financial and non-financial needs across the entire business lifecycle.

Haryanto Suryonoto, SME business head of Bank Danamon highlighted the potential for banks to tap into the MSMEs segment by collaborating with e-commerce platforms and other P2P players to balance between cost-efficiency and market share gain.

Moreover, he believes that the main challenge for banks is to embed traditional products with value-added services that are relevant to SME customers.

Lito Villanueva, EVP and chief innovation and inclusion officer of RCBC said that the Philippines has witnessed an expansion in the digital economy and e-commerce amid pandemic with rapid take-up of digital payments. However, the MSME market still lacks access to credit.

Kevin Shum, head of digital SME of Alliance Bank Malaysia mentioned that building the asset book for these segments can be solved by building new in-house credit models and target early start ups or younger vintages. He added that banks have to fill the void in credit data for these by starting to onboard them in a controlled way and to test their risk levels.

Debarun Roy Choudhury, head of business solutions at Visa emphasised that the notion of payments as transparent and one seamless process to the MSMEs is becoming increasingly central.

Anish Achuthan, co-Founder and CEO of Open said that banks are advancing their legacy systems and building their API infrastructure to enhance their digital MSME banking services. Also, he emphasised the importance of adopting an integrated digital platform to provide alternative digital lending solutions to boost revenue. Salil Ravindran, vice president for strategy and growth of Open stated that there has been an increasing propensity to move towards digital from the merchants’ point of view to automate their operations and adopt digital lending.

During the session, the online survey poll showed that 60% of participants are still in the early stages of building a unified and integrated platform to cater to financial and non-financial needs of MSMEs, while 20% have not started yet, 13% are half-way through and only 7% are almost done.

Overall, the session concluded that financial institutions need to rapidly digitise their capabilities to serve MSMEs from an economic and operational point of view and understand sub-segments in the MSME sector.

Key discussion points:

  • The need for a unified integrated platform to cater to the financial and operating needs of MSMEs, which want to see everything in one place
  • Thin credit files in the micro and small business segment and low visibility on their needs, coupled with banks’ traditional business model in SME banking pose challenges
  • Banks aim to leverage alternative data and credit-scoring algorithms to build credit profiles for MSMEs.
  • Leveraging embedded finance and open data to provide MSMES with tailored value propositions and alternative financial solutions at lower cost
  • Ecosystems offer seamless integrated payment solutions within the operating environment of the business to support MSMEs in their digital journey

Download the report here : https://lnkd.in/dBHDF9d6


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