FICO Insights: More than 3 in 5 Indonesian SMEs could abandon traditional banks in 2022

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Strong points

Impact of COVID-19 on SMEs:

  • 67% of Indonesian SMEs plan to take up new or alternative debt products in 2022

  • An overwhelming majority (70%) of SMEs in APAC are less than satisfied with access to credit from their primary bank

  • Other problems with traditional banks include lack of transparency, information and guidance

  • The top loan decision factor for APAC SMEs at all levels is competitive interest rates (41%).

New information from RFI Global (prepared for FICO based on research from the SME Banking Council) reveals early signs that traditional banks in Indonesia are at risk of losing small and medium-sized enterprises (SMEs) to non-traditional competitors.

Amid high interest in borrowing funds, between 62-70% of SMEs in APAC are less than satisfied with the level of support from their primary bank in response to the COVID-19 outbreak. Nearly 70% of Indonesian SMEs plan to adopt new or alternative/non-traditional debt products in 2022.

More information:

“The pandemic imposed a sudden and massive burden on SMEs, worldwide, and they didn’t think banks were doing enough to help them,” said Aashish Sharma, senior director of Asia-Pacific decision management solutions for FICO. “Indonesian SMEs have made it clear that they need financial support in 2022, but are less optimistic about getting it from their main banks. This is a potentially worrying trend for traditional banks, given that there are more than 62 million SMEs in Indonesia, or one for every five Indonesians.

Verdict: room for improvement

Banks need to understand what drives SMEs to consider alternative sources of financing. Survey respondents in the Asia Pacific region highlighted frustrations with the funding process typical of traditional banks and identified opportunities for improvement[1] in their response to Covid-19 through a range of funding-related factors, including:

  • Access to credit (70%)

  • Financial aid (69%)

  • Information and orientation (68%)

  • Transparency regarding decisions and processes (68%)

  • Speed ​​of response (64%)

SMBs Demand Competitive Pricing, Simplified Processes

According to this latest study, when choosing a loan provider or financial institution, the top three drivers for Indonesian SMEs are:

  1. Competitive interest rates

  2. Ease and speed of the application process

  3. The possibility of obtaining the required amount of credit.

“Alternative lenders have the potential to gain traction based on the challenges identified by this research and our own market observations,” Sharma said. “However, traditional banks have the opportunity to retain borrowers if they understand these key decision criteria as well as the challenges and sentiments of SME finance support and themes that have emerged.”

“If traditional banks are to experience continued and sustainable business growth in the SME segment in APAC, they must simplify the application process and improve transparency, as well as the customer experience,” Sharma continued. “From a bank risk management perspective, they can support these efforts with scalable, well-informed decision-making tools that can both speed up the process for everyone and minimize risk.

The results speak for themselves

One of Australia’s top four banks wanted to increase sales and margins by reducing decision-making time, while improving lending services and identified the SME segment as an area for growth. It has invested in the FICO platform and analytics services to create an automated, machine learning-based digital lending solution that uses transaction data. Risk model performance improved by 10% and the bank’s projections for annual lending to existing SME customers and incremental lending to new SME customers increased by A$6.5 billion and $800 million Australians, respectively.

RFI Global’s findings reviewed and analyzed two years of surveys from the SME Banking Council, which collects the opinions and sentiments of SME owners and operators responsible for making financial decisions for businesses whose annual turnover can reach 10 million dollars. The information in this release represents the results of the SME Banking Council’s 2019 and 2021 surveys to provide a before and after comparison of loan demand and business sentiment over the two periods. More than 4,700 respondents from Asia and Oceania regions participated. SL: n=720; AD: n=1044; ID: n=737; IN: n=729; New Zealand: n=1036; AU: n=508

About FICO

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