Trusted banking relationships are key for SMEs to flourish in the era of financial technology

For small business owners, the holiday season is a major revenue period – but also a time when they experience significant challenges. Retailers must invest in inventory and extra workers, while restaurants need to pay more in wages as staff work longer hours and on public holidays.

Then there is the stress of sudden drops in sales, non-payments and unexpected production outages, as well as the endless grind of keeping up with financial records and accepting overseas payments.

Amongst other challenges, the cash flow crunch is a real struggle for many small and medium-sized enterprises, or SMEs. Plugging that gap is not always an easy fix, as banks are usually reluctant to lend to small businesses, especially start-ups.

This has created an opportunity for financial technology – or fintech – platforms. From peer-to-peer (P2P) lending sites and digital payments to using artificial intelligence and voice recognition, these innovations have changed the landscape for SMEs. For new and existing small businesses, fintech offers them access to finance as well as solutions to make them more effective and efficient.

According to data by Statista.com, there were 12,000 fintech start-ups globally as of August 2018. In Asia Pacific, that stands at 2,864.

While there have been some doomsday predictions about what this means for the future of banks, the reality is proving to be less dramatic.

In an opinion piece for the Financial Times last year, economics commentator Lawrence Summers said he did not "expect that in the foreseeable future fintech will have the kind of existential impact on banks that Netflix has had on Blockbuster".

EY’s report on "Unleashing the Potential of FinTech in Banking" sums it up nicely. The growth of the industry has strengthened the common belief that Fintechs will disrupt banking – but collaboration, not competition, will be the primary driver of disruption.

This could be the make-or-break factor for the future of Fintechs. Capgemini & LinkedIn’s World Fintech Report 2017, asserts that Fintechs have raised nearly $110 billion since 2009, yet "most are likely to fail if they do not build an effective partnership ecosystem".

Maybank agrees that both sides should find common ground for collaboration to better serve SMEs’ growth and capital needs.

"With time, my observation is that Fintech companies and financial institutions are starting to collaborate with one another- this is a positive sign." says Eddie Lee, Vice President of Singapore Fintech Association. "With both teams leveraging on each other's strengths, Fintechs could ride on the shoulders of the bank’s branding, the trust it has built with the people and the bank’s wide business network. Similarly, banks could also tap on the nimbleness, speed and innovative business model of Fintech companies."

According to research by PwC, partnering with fintech companies is up from 32% in 2016 to 45% in 2017. In addition, a survey for their report indicated that 82% of respondents expect to increase partnerships with fintech companies over the next three to five years.

As a leading financial institution in the region, Maybank launched a Fintech sandbox last year, aimed at helping ASEAN startups test and develop their financial products. The Maybank Sandbox provides developers in the region with real banking APIs to connect and make use of their existing bank functions. The bank also offers simulated data for analytics, as well as development tools to help create new web and mobile applications.

While, on the whole, this disruption has improved the prospects for SMEs, what has hurt Fintechs is the lack of regulation and transparency. Unlike the banking sector, there is currently no code of conduct or best practice binding the Fintech sector. It is also largely unregulated, with diverse methods for calculating and disclosing the cost of loans.

In remarks given at the International Monetary Fund’s Fintech Roundtable, the fund’s Tobias Adrian said: "Financial innovation is occurring at a time when public trust in the financial sector is low."  He added that the new challenges in fintech "call for a far-reaching regulatory response".

But perhaps the biggest hurdle facing Fintech is security. PwC detailed in a report that with more services going online, data ubiquity and security are proving to be a major challenge.

Maybank prides itself on high disclosure and transparency levels – precisely the qualities SMEs need when engaging with Fintechs. With collaborations such as these, SMEs can rely on their trusted financial institutions to help navigate through the fast-changing Fintech landscape.

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