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Modern fintech services trump traditional banking solutions for small businesses

Modern fintech services reportedly better serve micro, small to medium enterprises (MSMEs) across the Association of Southeast Asian Nations (ASEAN) when compared to traditional banking solutions, according to new insights from GlobalData.

According to surveys conducted across the ASEAN region by the World Bank, a vast majority of MSMEs lack access to services such as credit, savings and insurance.

Markets such as Vietnam, Philippines and Indonesia are particularly impacted by failures of the traditional banking system, and will see the most innovation from new players, the data shows.

GlobalData senior technology analyst for Asia-Pacific Malcolm Rogers says, “The traditional banking industry struggles to support the businesses due to legacy processes, such as expensive inter-bank transfers, and inability to create new products, at scale, such as micro-lending for the unbanked population.”

GlobalData projects e-commerce to reach US$164bn by 2024 across ASEANs six largest economies. This wave will need to support MSMEs, including the unbanked.

Even so, according to GlobalData, currently the market for digital financial services such as micro-loans, payments and insurance is still fragmented and not fully mature.

In fact, market fragmentation is a key issue for MSMEs in this area of the world and will continue to adversely impact companies in this category.

As a result, GlobalData states that market participants should collaborate across industries to help bridge this gap and deliver a new generation of financial and technology services.

Cross-industry collaborations among traditional financial institutions, telecoms carriers and financial technology companies will be the most effective way to support MSMEs in ASEAN.

Rogers says, “Traditional banks have the financial experience and platforms, telcos have customer relationships, often established trust, and distribution to the last mile, fintechs, from within or externally based, offer ideas, innovation, and new business models, but all three are needed for successful services.”

While currently there are some examples of cross-industry partnerships in the ASEAN region, the focus has been largely on consumers, rather than businesses, GlobalData states.

Rogers concludes, “A concerted focus targeting ASEAN micro-businesses with bundles across connectivity, basic business applications (PoS, office tools and marketing) and digital financial services (payments and microlending) is still rare in the market, but offers great potential for growth for the players which do it right. Inaction today will mean fintech is no longer a threat, but a lost opportunity.”

GlobalData is a data analytics and consulting company focused on helping companies, government organisations and industry professionals achieve more informed decisions.

The company provides unique data, analysis and solutions to customers and clients.