South-East Asian SMEs are missing out on the digital revolution. Here's how to get them on board
来源:World Economic Forum;发表于:2022-03-14;人气指数:395
South-East
Asian SMEs are missing out on the digital revolution.
Here's how to get them on
board
https://www.weforum.org/agenda/2022/01/south-east-asia-sme-digitization-financial-services/
SMEs comprise 99.5% of all businesses in
the Philippines – but only 36% of the economy.
Image: Reuters/Romeo Ranoco
18 Jan 2022
Benedict Carandang
Vice-President, First Circle Growth Finance
Tricia Canaveral
Former Head of Marketing, First Circle
Growth Finance
*The digitization of South-East Asia's
economy during the pandemic is being experienced unevenly.
*The growth in digital services has
favoured individual consumers, not SMEs.
*More fintech innovation for SMEs and
public-private support is needed.
Major economies in South-East Asia have
been hit hard by the pandemic and are still navigating the path to recovery
amid renewed outbreaks, new virus variants and an uneven vaccine roll-out. Yet
as devastating as lockdown restrictions have been, they are also proving a
positive driving force for millions of consumers to adapt to new ways of
spending and embracing digital commerce, permanently changing consumer behaviour.
According to research conducted by Bain
& Company and Facebook, eight in 10 consumers in South-East Asia are now
digital. To put that number into perspective, the number of new digital
consumers added in just one year in the Philippines, Singapore, Malaysia,
Indonesia, Thailand and Vietnam is equivalent to the population of the entire
UK.
Digital financial services, in particular,
have kept the South-East Asian economy afloat. The rise of digital payments and
greater access to the internet have fuelled the rapid rise in digital consumers
amid the pandemic. Online payments in the region are poised to exceed $1
trillion by 2025, driven by the ongoing trend away from cash payments and
increased usage of e-commerce, as well as further development of new payment
methods, particularly for e-wallets and prepaid cards.
South-East Asia's underperforming SMEs
However, in a shift that can be regarded as
much a challenge as an opportunity, the benefits of going digital are not being
experienced equally by all sectors of the economy. In particular, millions of
South-East Asia’s small and medium enterprises (SMEs) face significant barriers
related to access and use of digital technologies that prevent them from
reaping the full rewards of participating in the new economy and reaching their
full potential.
In the Philippines, SMEs play a vital role
in the economy as they comprise 99.5% of all businesses and employ 63% of the
workforce. But they underperform – only accounting for 36% of value added to
the economy. This gap is expected to worsen if SMEs are not able to shift to
digital, lagging as economies and societies across the globe shift to new ways
of doing business.
Many barriers prevent Philippine SMEs from
reaching their full potential in the digital economy – the most obvious ones
being poor internet infrastructure, as well as digital skills, funding and
policy gaps, among others. This problem becomes even more acute for the 80% of
SMEs located in rural areas outside Metro Manila where business owners,
typically in their 40s, have limited digital and financial literacy and have
little to no access to reliable mobile or broadband internet.
But perhaps the most interesting barrier,
and arguably the lowest hanging fruit, is the one related to a lack of
innovation in digital financial products addressing the specific needs of SMEs.
After all, financial inclusion for the backbone of the economy employing the
majority of the population is the first step toward broader inclusive growth
and economic development.
Fintech for SMEs
Most fintech players introducing innovation
in financial services have been primarily focused on individual consumers;
understandably so, as it is the most obvious opportunity to tackle considering
more than 70% of adults remains either “underbanked” or “unbanked” (see below).
Leading the charge is South-East Asia’s
leading fintech platform, Grab Financial Group, which offers payments and
financial services across lending, insurance and retail wealth management in
the region. This rise of consumer fintech is expected to accelerate even
further as it takes the biggest slice of the pie in venture capital
transactions in South-East Asia; it already hit a record $10 billion in the
first half of last year, surpassing 2020’s level of $8.2 billion.
Fintech is slowly waking up to the
underserved consumer population in South-East Asia
Image: Bain
However, we have yet to see the same level
of activity in innovation in the SME fintech space, an untapped trillion-dollar
market opportunity that will unlock potential for a largely underbanked segment
in the region.
Why is there a lack of innovation in
financial services for SMEs? Historically, traditional banks did not invest
enough in digital innovation and business capabilities to serve SMEs simply
because it was unprofitable. For example, while it’s clear that SMEs in
South-East Asia face large funding gaps (see below), extending credit to this
customer segment is often not “worth it” for banks once risk profiles, or lack
thereof, are taken into consideration.
SMEs are struggling to get the same
recognition from fintech providers
Image: Bain
Despite this challenge, it is possible to
address this critical barrier through innovation in the collection and use of
new data sources on SMEs. Fintech lender First Circle has been successful in
profitably lending millions of dollars to underbanked SMEs in the Philippines
every year. This is enabled by its robust risk engine built on top of
proprietary data collected from mapping thousands of business-to-business (B2B)
supply chain transactions across various industries since 2016. This level of
granularity in data also allows for further segmenting of the SME market into
smaller homogeneous groups with similar working capital needs and risk
profiles. Subsequently, it is easier to provide tailor-made financial products,
from credit lines to B2B supplier payments, deposit and payroll accounts, and
more.
While banks and fintech companies play a
critical role in innovation and inclusive economic growth, the private sector
cannot and should not do it alone. It takes longstanding public-private
partnerships to make a significant impact, especially in the area of SME
development. In the Philippines, its central bank, the Bangko Sentral ng
Pilipinas (BSP), is at the forefront. The BSP’s Deputy Governor of the
Financial Supervision Sector, Chuchi Fonacier, said: “The BSP is working
closely with both the government and the private sector in pushing for various
programmes recognizing that a whole-of-nation approach is needed to further the
financial inclusion of SMEs.”
This work spans multisectoral projects,
like the credit risk database of anonymized financial, non-financial and
default-related data of SMEs, which addresses two critical barriers: the issue
of cumbersome requirements faced by SMEs when applying for credit; and
financial institutions’ lack of access to high-quality SME data.
Finally, the BSP is spearheading
progressive legislation such as the Philippine Identification System Act, the
Philippine Innovation Act and the Personal Property Security Act, which that
will be game-changing in bringing millions of SMEs into the formal financial
system so they can actively participate in the digital economy.
The digital economy in South-East Asia is
at an inflection point. The pandemic has brought unprecedented challenges, but
also spurred innovation and rapid change. Individual consumers have flocked
online, with consumer fintech and e-commerce innovation on the rise, while the
SME sector remains stuck with traditional ways of banking and doing business.
The private and public sectors must work
together to address the digital and financial skills gap for SMEs; they should
also facilitate new fintech innovation, especially in the area of credit and
payments, to unlock the sector’s potential and speed the pandemic recovery.
Ultimately, bringing SME development to the forefront will be the bridge to
achieving broader inclusive growth and economic development in the region.