9 in 10 Singapore SMEs open to digital banks: Visa

Singapore

TRADITIONAL banks may need to watch their backs, as almost nine in 10 of small and medium-sized enterprises (SMEs) in Singapore are willing to move services over to the upcoming digital banks, according to a latest study by Visa.

Even so, the digital bank entrants will need to prioritise SMEs' desire for control over their banking needs, as well as establish trust and build partnerships if they want to convince this segment to make the leap.

The Visa study surveyed 513 decision makers in Singapore SMEs, from diverse industries and with revenues of up to S$100 million, on their views of the upcoming digital banks.

This comes as regulators are expected to announce the results of the five digital bank licences up for grabs - two retail and three wholesale - by the end of the year. New entrants are slated to begin operations by 2021-2022, with under-served SMEs a key target segment.

According to the Visa study, SMEs are most likely to switch to digital banks for services such as transferring money to another international account (39 per cent) and foreign exchange services (35 per cent).

However, the preference for digital banking comes with the expectations of overall lower costs of banking (55 per cent) and greater overall convenience (54 per cent).

Kunal Chatterjee, country manager, Singapore and Brunei at Visa, told The Business Times that the optimism expressed by the majority of SMEs on digital banks comes as they remain "relatively underbanked" compared to consumers.

This provides scope for digital banks to fill the gap by addressing SMEs' pain points when it comes to dealing with traditional banks, he said.

He noted that one of the issues that SMEs - especially the smaller ones - face is that corporate banking products have not quite caught up with the personal banking options available; and offer worse terms in areas such as interest rates, loan repayment terms or card offers.

"Banking on the consumer side has becomes so much more simpler and easier," he said. "But when you step back and do a comparison, that evolution hasn't taken place to address the SME side."

As such, even though SMEs may successfully qualify for corporate products, many are turning them down instead.

According to the report, some 85 per cent of SME owners prefer using personal banking products, mostly accounts and credit cards.

"A lot of the traditional institutions have not been able to give them either the line of credit or financial instruments to help address their business needs, so they are relying on their personal bank accounts," said Mr Chatterjee.

Another issue that SMEs face in dealing with traditional banks boils down to the lack of trust in their relationship manager (RM). This comes as micro SMEs believe that they are too insignificant for banks to service their account, which leads to a transactional relationship.

SMEs also reported frequent changes in RMs, and that they do not feel their time is being valued by banks.

For digital banks to capitalise on this lack of a banking relationship, they must reassure SMEs of their contactability to build trust, said Mr Chatterjee.

For smaller SMEs which do not usually contact banks, such interactions are even more critical as there are limited opportunities to change perceptions once they are set. He suggested that digital banks ensure availability to answer the occasional SME query, preferably via call centres.

"The research shows that specialised staff trumps the use of chatbots because they want to speak to a person as they want to be understood," he said. "SMEs would probably find that chatbots and artificial means of communication not very ineffective."

As digital banks are a new concept, the best way to boost trust is to embed themselves into as many government-related initiatives as possible, he noted. For instance, providing guidance and advice on government grants will help digital banks boost their reputation with SMEs.

However, he cautioned that relying on SMEs' trust in authorities is not enough - digital banks must also prove that they are able to function well and meet SME needs.

A digital bank with a good track record in the financial or technology sector also makes a difference for SMEs, and will more likely beat digital banks riding only on their familiarity with Singaporeans, said Mr Chatterjee.

Another area where digital banks can differentiate from traditional banks is in terms of control over their banking experience.

Providing an integrated business dashboard into their digital banking services, which will provide full visibility and more control over their businesses, is a sorely needed function that is currently missing in the market, he said.

While traditional banks may be able to make the above changes to meet SME needs, Mr Chatterjee noted that this "hasn't happened so far". This is where digital banks can carve a niche for themselves, he said.