In Asia, SMEs have been typically ‘underserved’ by larger banks. Over the years, this has created a vacuum that has seen fintech companies and non-banks rise to offer specific SaaS-like financial services. These include cashflow opportunities for SMEs with better user experience and faster approval processes. Examples include Grab and ANEXT Bank in Singapore. Interestingly, the demand for faster and better SME banking has also contributed to the rise of specific Neobanks like Judo or Avenue Bank in Australia.

Aymeric Cabuil, COO of Avenue Bank, Australia, explains: “SMEs [are] not an easy approach for banks. It’s hard for banks to reach out to them and put in an offer that is valuable for [them]. Fortunately, fintech companies were able to pick up this challenge.”

Avenue Bank Australia is a digital bank focused on next-generation cash flow solutions for Australian SMEs. For Cabuil, the main challenge for fintech companies looking to offer financial services is meeting regulatory requirements. Avenue Bank chose to partner with SAP Fioneer in their journey because the tech company has a product that is proven, tested, and known by regulators.

The growth of non-bank players

Non-bank players are fintech companies that collaborate to offer alternative financial services and innovative solutions tailored, often, to the needs of SMEs. Digital lending platforms, mobile payment solutions, and embedded financing offerings like invoice financing can be convenient and easily accessible.

“The non-bank players leverage technology to provide a user-friendly interface and mobile apps, making financial services more accessible and convenient for SMEs, especially when their service offerings are integrated into a broad ecosystem of partners,” said Gökhan Dindar, SAP Fioneer, Managing Director Asia.

Non-bank players are edging banks in SME banking by adopting alternative credit assessment methods. For example, some non-bank players partner with telco companies or retailers to get a history of the SME. Non-bank players also cater to specific industries and cultivate innovation and technology such as introducing new solutions and services specifically designed for SME collaboration and partnership.

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“In the future, banks may partner with fintech companies to offer digital learning platforms or payment solutions for their SME customers. This allows SMEs to benefit from the technology and agility of a non-bank player while still leveraging the stability and security of a traditional bank,” added Dindar.

In Singapore, Malaysia, and Thailand, the banking sectors are the most developed and generally offer a wider range of services tailored to SMEs compared to some other Southeast Asian countries.

“It is important to note that the banking landscape is dynamic and will evolve rapidly in Southeast Asia. The integration of technology in banks needs to streamline processes and enhance services. This includes the use of mobile banking apps, crowd-based funding platforms and digital payment systems. Such technological advancements can benefit SMEs as it provides convenience and efficiency in financial transactions,” he added.

SME banking for banks

Governments across Asia have implemented initiatives to support SMEs, including establishing dedicated SME banks, guaranteed schemes for SMEs, and credit programs to improve access to finance for SMEs. For example, in Singapore, the government has set up an enterprise funding scheme, which enables SMEs to access financing more readily.

So how can traditional and incumbent banks cater to the needs of the SMEs? What changes do they need to make to seem approachable to SMEs?

There are three key drivers in this respect:

• Increasing customer expectations – SMEs expect fully digital and seamless banking services. Meeting the growing demands for digital services, wallets, and other digital payment methods is crucial.
• Regulatory pressure – Regulatory changes, like open banking and PSD2, and increasing competition are putting pressure on banks to innovate and diversify.
• Technology – AI and ML are transforming SME banking, enabling banks to automate processes, personalize services, and gain insights into SME needs for enhanced efficiency and decision-making.

“The SME banking segment is a much greater opportunity, with much more revenue potential. If you look at the whole ecosystem play for SMEs, multiple providers can help and serve this segment,” commented SAP Fioneer’s Thomas Becher.

For Becher, it all comes down to what drives the bank’s needs. Becher was responsible for the buildup of the SME banking segment in ING in Germany. As an expert focusing on driving vertical sub-segment offerings for banks, Becher believes SMEs are the most relevant segment in every economy.

He says that managing the customer experience should be a priority for banks looking for SME banking. “Technology today is capable of addressing topics such as digital customer journeys, and customer experience at a comparatively moderate cost. At the same time, AI and machine learning capabilities make data available faster which can improve decision-making. It’s not just about fraud prevention […] but it’s also capable of providing capabilities for really lean operations. This enables banks to be really successful in the market.”

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Legacy systems remain the biggest challenge for incumbent banks. Transforming and upgrading are essential. He continues: “Banking will never die. SME banking will never die. But banks will do if they are not willing to jump on solutions. The responsibility of banks is to build value propositions to bring value to customers, to their end customers. And we, with our offering, help our banks by not only providing the technology and the capabilities as such but also with experts like me and others in our organization. […] We can help our banks drive or derive from our capabilities, [many] value proposition ideas that they can implement.”

And this is where it gets interesting. SAP Fioneer has launched the Fioneer SME Banking Edition. The solution enables both banks and Neobanks to offer banking capabilities in a digital-first and data-driven approach tailored to SMEs’ financial needs.

The plug-and-play solution benefits existing banks that want to rapidly deliver services to the SME banking segment. It also caters to new players who want to get to market fast and don’t want to build everything from scratch. Both segments need to compete on user experience quality, onboarding, KYC, integration with accounting systems, and instant loan assessment.

“This solution provides front-end capabilities, middleware and orchestration layers, and for sure, also core banking capabilities. Simply put, you get a full stack bank out from one provider. You don’t need to think about who’s the best front-end provider, best back-end provider and such,” explained Becher.

How SAP Fioneer SME Banking Edition works

SAP Fioneer is in a unique position as it can couple SME banking with embedded finance. An incumbent bank does not need to reinvent the wheel to enter SME banking. With SAP Fioneer, banks can build a new stack next to the existing legacy provision and enter the market more quickly.

An example highlighted by Dindar is the SME Purchase Order. If a corporate client orders goods and services from an SME, it shares every purchase order with SAP Fioneer’s Embedded Finance platform and all its connected banks. SAP’s Embedded Finance-as-a-Service platform delivers innovative experiences that are native within ERP and other enterprise systems. The platform is compatible with all major cloud providers, providing flexibility in deployment.

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“This means the bank is using our SME Banking Edition for origination and subsequent servicing as well as presenting the SMEs’ pre-approved financing of their options for this purchase order. This allows the SME to have access to funds faster. In the end, both banks and SMEs benefit from the streamlined processes based on the data provided,” mentioned Dindar.

“We are also pre-integrated to open banking providers. For example, banks can use the Open Banking API to Mastercard via our solution. This provides access to very powerful data (based on customer consent), which enables transactional screening and transactional scoring, among other things. All these pre-integrations help banks to jump into dedicated propositions without buying the whole SME Banking Edition. We are able to combine SME banking needs and capabilities with embedded finance. With embedded finance capabilities, banks can look at plugging their lending journey into e-commerce marketplaces,” added Becher.

Banks can move quickly into new businesses, develop new markets, create value, and develop their USPs.

“I am very proud […] that we are able to help banks support this critical segment of our economy,” Becher concluded.

Click here to learn more about SAP Fioneer’s SME Banking Edition.