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The APAC Perspective on a Diverse SME Market

Future banking
By Simon Laskaj, Vice President of Commercial Business - APAC

Small and Medium Enterprises (SMEs) are the lifeblood of the economy in most markets. But they have it tough, particularly when it comes to banking. With the introduction of technology, that is changing…slowly.

Our research report exploring the vast opportunity SMEs present to banks globally highlights that, unsurprisingly, they make up a large proportion of businesses in the Asia-Pacific (APAC) region. Among economies in Asia, SMEs contribute upwards of 50% of GDP and employment across the markets, while there are over half a million SMEs in New Zealand contributing 26% of the GDP and Australia has 2.7 million SMEs contributing a larger 57% of the GDP.

Clearly, the SME contribution is significant. So, how do they thrive and become more productive to positively impact the economy? And how effectively are banks within the region serving these businesses?

Challenges facing APAC SMEs

As a region, APAC is incredibly diverse, comprised of many different countries and cultures, each of which faces their own individual economic challenges. 

That said, when you peel back the layers of complexity, the challenges that SMEs face in any market boil down to a few key themes:

  • Gaining access to finance to help them grow;
  • Finding time to manage the day-to-day business operations;
  • Ensuring they have enough cash flow; and
  • Being able to attract and retain customers.

Our research suggests gaining access to digital banking platforms offering real-time visibility of their spend is a priority for SMEs. Let’s take accounting software as an example.

Research from Oliver Wyman found that 52% of SMEs keep their books either offline or manually. But, more than 80% of SMEs indicated that they were interested in receiving an online accounting, invoicing and cash flow management solution from their banks; and 36% said they would be willing to pay for it.

Among the challenges currently facing SMEs in the region, the Asian Development Bank (ADB) found that poor access to finance and a difficult business environment are seen as forces holding back SMEs in Asia and the Pacific. This finding is mirrored in our research among SMEs in the UK and US. Additionally, 76% of APAC SMEs that trade internationally revealed cashflow management to be a major challenge.

If banks are to perform well and achieve long-term sustainability, it is vital they understand the challenges facing SMEs and their varying needs across different countries and regions. Certainly, the diverse nature of SMEs presents a challenge for banks, and it’s only through an in-depth understanding of these customers that they will be able to provide the right products to help them thrive.

Serving APAC SMEs

There are many examples today whereby incumbent banks in APAC really don’t pay enough attention to SMEs. Even more so to those micro-businesses with 1 – 10 employees. SMEs are mostly underserved by their banks and as a result, business owners end up using several consumer products to manage their business – and these are not fit for purpose.

This could be for many reasons, including never having been offered a business product by their bank, being unaware of what solutions exist or of the differences between a consumer and business product. Or perhaps worse, the banks themselves don’t realise they that have these SMEs on their existing books.

While some SMEs are embracing digitisation more than others, banks within the APAC region should be prepared for more businesses moving in this direction. They should also help make SMEs aware of the benefits of digital payments. Cost savings are compelling evidence alone, with research commissioned by Visa estimating that an SMEs’ average cost of processing digital payments, inclusive of both direct expenses and labour costs, is 57% less than that of non-digital payments.

Clearly SMEs differ in many ways; in terms of their geography, culture, political landscape and access to digital experiences. But from a bank’s perspective, some of their fundamental needs are the same – banks need to make it easier to access funds and to supply digital solutions that allow them to save time, resources and costs. In some ways, digital transformation may not have reached many SMEs in APAC. Digital payments in APAC are expected to increase by 11% (CAGR) between 2017 – 2022 compared to 6% and 7% in EMEA and North America respectively, so it’s most definitely in the banks’ interest to recognise the potential of this underserved segment and act fast.