The Big Change: Predicting SME banking tomorrow, with facts today

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>>>The writer is an SME Banking Researcher. He can be reached on 0549847220 and or [email protected]

Most times, technology firms like Apple, Samsung, Huawei, etc, would advertise new versions of hi-tech phones and tablets on the market, promising exciting customer experience to users.

Similarly, GSMA would also introduce new versions of mobile internet platforms like, H+, 3G and 4G/LTE, assuring smart phone user of speedy mobile internet connectivity. 5G is the recent addition onto the platform, promising high-speed mobile internet connectivity to business and corporate users. To complement this, several other fibre-optic cable projects are underway in some regions on the globe, seeking to boost reliable internet connectivity. 2Africa Submarine Fibre-Optic Project is a good example in this regard. In fact, the GSMA predicts global mobile internet penetration index to hit 66% (from current 47% of the total smart phone adoption) by 2025, a prediction which COVID-19 pandemic has hugely accelerated.

These are indeed fascinating developments in the technology landscape. But is it all about fascination? Certainly not! Something much more ulterior is intended.

In context of banking, what could SME customers expect within the glistering spectrum of increasing technology? Should incumbent banks be worried at all, as banking slopes into era of digitization?

The truth is that, as phones/tablets and mobile internet become cheap and ubiquitous, SME customers would rationally expect their banks to synchronise and condense their banking needs onto their smart phones/tablets, for convenience, agility and excitement. This expectation is much more heightened as global literacy index gathers noticeable momentum.

Traditionally, SME banking services are provided by incumbent financial institutions, most of which do so via bricks and mortar channels. These channels invariably come with unintended tacit challenges of convenience, agility, and transparency plus high cost of transaction to SME customers. It is against this background that customers seek better experience in banking, an experience digitization promises via smart phones/tablets.

Fintechs offer nimble digital solutions to SMEs mostly via Apps and USSDs, in areas like payments, lending, savings, insurance, and financial management. These solutions are usually embedded with AI and Machine Learning (ML) technologies, which provide agile and reliable deliverables, compared to the traditional channels. AI & ML technologies in banking perform several functions including, data mining and analysis, decision making, planning, voice banking, etc.

Fintechs adoption has recently gained momentous international traction and funding, especially in emerging markets such as Asia and Sub-Sahara Africa, with China being epicentre. A Survey conducted by EY Global Financial Services in 2019 indicates that, 25% global SMEs prefer Fintechs solutions to traditional channels, whilst 22% more are partially using Fintech services. It ended with projections that, Fintech adoption statistics will considerably increase in coming years.

In Europe, Fintech market is growing, but with uneven distribution (IMF 2019). In the US, “the market has attracted considerable amount of investment” (Baker McKenzie). In Sub-Sahara Africa however, Fintech adoption (in its strict sense) has not gained sensational headlines compared to Mobile Money adoption offered by Telcos. Here, Telcos offer Mobile Money Services in areas such as lending, payments, and remittances to SMEs and individuals consumers.

But the story is not all about Fintechs and Telcos. BigTechs, such as Amazon, Facebook, Apple, and Google are also notable players in the ecosystem. BigTechs have larger customer base, vast data-user pools, agile technology platforms and deep funding pockets. They can create all sorts of “things” for users at cheaper cost. The Chinese Bigtech firm, Alibaba has already made significant inroads in China’s digital finance landscape. Amazon for example, has online payments and money transfer services that allow online shoppers to initiate instant payments. It also offers online lending and swipe fee services. Google recently introduced business-App in India with Googlepay, which allows SME businesses to apply loans online. Apple’s “Siri” and Amazon’s “Alexa” are AI-enabled voice interactive software capable of performing voice banking. For example, one could ask “Siri”…“How much do I have in my account today?  “Siri” would reply you with voice details accurately.

The current evolution twirling in the financial services ecosystem is enough signal that, banking is at the cusp of monumental metamorphosis. Customers and Financial Services Providers (FSPs) alike cannot afford to live in the luxuries of primitive banking modules. The BIG change is the next “normal”. Led by Fintechs, Telcos and Bigtechs, the following BIG changes are significantly noteworthy:

  • Easy Customer on-boarding: Aided by Apps/USSDs, customers shall remotely create and own bank account easily like creating and owing Facebook or Twitter account. They shall initiate loan applications, complete electronic signature for loan contracts, etc conveniently with phones. Electronic KYC will however remain an evolving complex challenge for most Banks and Regulators.
  • AI enabled voice banking software shall replace basic repetitive human customer service functions. This would off course reduce human interface with customers, leaving specialised and personalised human customer service functions, dubbed, “high-touch” to few limited complex financial transactions.
  • Lending with Robotic Process Automation (RPA): RPA undertakes repetitive processes faster and more accurately than humans could. Extracting large data on customers for analysis, RPA is able to make faster and objective lending decisions, rather than subjective error-bound humans. RPA shall hugely influence lending activities in the coming years, replacing loan officers in many functions. Fast lending decisions would increase loan disbursements to Micro/SME businesses, thereby reduce the Micro/SMEfinancing gap drastically. Another thing to watch is the use of Cognitive Process Automation (CPA). CPA is AI-enabled software capable of undertaking large data mining and analysis, and assigns risk codes to same. CPA shall influence Micro/SMEs risk profiling, risk scoring and management. Proper risk scoring and management shall enhance credit expansion to Micro/SMEs to further reduce existing financing gap.
  • Governmental Policies & Regulations: True that the current evolution in the ecosystem is ticking at faster pace than regulators could adapt, regulatory institutions worldwide are speeding up with mechanisms to regulate the novel digital market. In coming years, more and more international and local regulatory policies shall favourably tilt towards digital agenda, giving reason for more players to enter the ecosystem. At the same time however, stricter regulations shall be instituted to safeguard the intricate ecosystem, giving cause for cross partnerships among players who are not meet the stringent policies by the regulator. The ensuing partnerships would also require cross-authority regulation for effective supervision of the market.

Indeed the future of SME banking looks exciting, interwoven in an intricate tapestry of digitization, competition, and strict regulatory environment.

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