Traditional banking institutions are unable to meet the financial needs of MSMEs across the Association of Southeast Asian Nations (ASEAN) as the market is fragmented. As a result, the market participants should collaborate across industries to help bridge this gap and deliver a new generation of financial and technology services, says GlobalData, a leading data and analytics company.

MSMEs underserved

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 like Vietnam, Philippines and Indonesia are particularity impacted by failures of the traditional banking system, and will see the most innovation from new players.

Malcolm Rogers, Senior Technology Analyst for Asia-Pacific at GlobalData, 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.”

Digital financial services

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

Cross-industry collaboration

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

Rogers continues: “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.”

MSME focus

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

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.”