Open finance brings opportunities for banks in the MSME sector | RadioFinance

Open finance brings opportunities for banks in the MSME sector

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Senior executives and industry experts from some of the leading financial institutions, fintechs and technology providers in Asia shared their insights on the next phase of digitising MSMEs in the evolving internet economy

Haryanto Suryonoto, SME business head at Bank Danamon highlighted the potential for banks to tap into the micro, small and medium enterprise (MSME) segment by collaborating with e-commerce platforms and other peer-to-peer players to balance cost efficiency and market-share gain.

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

Lito Villanueva, external vice president and chief innovation and inclusion officer at Rizal Commercial Banking Corporation (RCBC) said that the Philippines has witnessed an expansion in the digital economy and e-commerce amid the COVID-19 pandemic with a rapid take-up of digital payments. However, he observed that the MSME market still lacks access to credit.

Kevin Shum, head of digital SME at Alliance Bank Malaysia noted 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 for MSMEs, the notion of payments as transparent and one seamless process is becoming increasingly central.

Anish Achuthan, co-Founder and CEO of fintech company Open said that banks are advancing their legacy systems and building their application programming interface infrastructure to enhance their digital MSME banking services. He also highlighted the importance of adopting an integrated digital platform to provide alternative digital lending solutions to boost revenue.

Salil Ravindran, Open’s vice president for strategy and growth observed 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.

The session concluded that financial institutions need to rapidly digitise their capabilities to serve MSMEs from an economic and operational standpoint and further 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, that want to see everything in one place
  • Thin credit files on the MSME segment and low visibility of their needs, coupled with banks’ traditional business models 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

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