FICO Insights: More than 3 in 5 Indonesian SMEs Could Ditch Traditional Banks in 2022

Rhea-AI Summary

Recent research highlights the dissatisfaction of over 62% of SMEs in the APAC region with traditional banks, particularly regarding credit access and lack of support during the COVID-19 pandemic. Notably, 67% of Indonesian SMEs plan to explore alternative borrowing products in 2022. The study, conducted by RFI Global for FICO, underscores banks' need to improve transparency and customer experience to retain business. Key decision factors for SMEs include competitive interest rates and a streamlined application process. Without change, banks risk losing ground to alternative lenders.

Positive

• Research indicates that SMEs are actively seeking new borrowing options, presenting banks an opportunity for improvement.
• FICO's involvement in the research bolsters its reputation as a thought leader in financial analytics.

Negative

• Over 70% of APAC SMEs are dissatisfied with their current bank's credit support, indicating a significant market risk for traditional banks.
• A concerning trend exists as 62% to 70% percent of SMEs may shift to non-traditional lenders due to dissatisfaction.

Room for Improvement -- Post-pandemic environment sees more than 62 percent of APAC SMEs less than satisfied with traditional banks across a range of categories

JAKARTA, Indonesia--(BUSINESS WIRE)-- FICO (NYSE: FICO)

Highlights

Impact of COVID-19 on SMEs:

• 67 percent of Indonesia’s SMEs expect to take up new or alternative borrowing products in 2022
• An overwhelming majority (70 percent) of APAC SMEs are less than satisfied with access to credit from their main bank
• Other issues with traditional banks include lack of transparency, information, and guidance
• The top loan decision driver for APAC SMEs across the board is competitive interest rates (41 percent)

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

Amidst strong interest in borrowing funds, between 62-70 percent of APAC SMEs are less than satisfied with their main bank’s level of support in response to the COVID-19 outbreak. Nearly 70 percent of Indonesia’s SMEs expect to take up new or alternative / non-traditional borrowing products in 2022.

More information: https://www.fico.com/en/latest-thinking/white-paper/what-do-smes-need-their-banking-providers-post-pandemic

“The pandemic put a sudden, massive burden on SMEs, globally, and they didn’t think banks did enough to help them,” said Aashish Sharma, senior director of decision management solutions in Asia Pacific for FICO. “Indonesia’s SMEs have made it clear that they require financial support in 2022 but are less optimistic about getting it from their main banks. This is a potentially worrying trend for traditional banks, considering there are over 62 million SMEs in Indonesia, which is one for every five Indonesians.”

Verdict: Room for Improvement

Banks need to understand what’s causing SMEs to consider alternative funding sources. Survey respondents across the Asia Pacific region pointed to frustrations with the typical funding process of traditional banks and identified room for improvement[1] in their Covid-19 response across a range of funding related factors including:

• Access to credit (70 percent)
• Financial assistance (69 percent)
• Information and guidance (68 percent)
• Transparency re: decisions and processes (68 percent)
• Speed of response (64 percent)

SMEs call for competitive rates, simplified processes

According to this latest research, 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 application process
3. The ability to obtain the credit amount required.

“Alternative lenders have the potential to gain ground based on the challenges identified by this research and by our own market observations,” said Sharma. “However, the opportunity is there for traditional banks to retain borrowers if they understand those key decisioning criteria alongside the challenges and funding support sentiments of SME and the themes that have emerged.”

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

The results speak for themselves

One of Australia’s top-four banks wanted to boost sales and margins by cutting down decision-making time, whilst improving lending services and identified the SME segment as an area for growth. It invested in FICO Platform and analytic services to create an automated, machine learning-powered digital lending solution that utilized transaction data. Risk model performance improved by 10 percent, and the bank’s projections for annual lending to existing SME customers and incremental lending to new SME customers increased by AUD $6.5 billion and AUD $800 million, respectively.

The findings from RFI Global examined and analyzed two years’ worth of polls by the SME Banking Council, which gathers the thoughts and feelings of SME owners and operators with financial decision-making responsibility for businesses with an annual revenue of up to USD $10 million. The insights in this release represent the results from the SME Banking Council’s 2019 and 2021 surveys to provide a before and after comparison of lending demand and business sentiment in the two time periods. Over 4,700 respondents from across the Asia and Oceania regions participated. SG: n=720; MY: n=1044; ID: n=737; IN: n=729; NZ: n=1036; AU: n=508

About FICO

FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded in 1956, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 200 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, manufacturing, telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in more than 120 countries do everything from protecting 2.6 billion payment cards from fraud, to helping people get credit, to ensuring that millions of airplanes and rental cars are in the right place at the right time.

Learn more at www.fico.com.

FICO is a registered trademark of Fair Isaac Corporation in the US and other countries.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220420005504/en/

Neil Mirano

RICE for FICO

+65 3157 5680

neil.mirano@ricecomms.com

Saxon Shirley

FICO

+65 9171 0965

saxonshirley@fico.com

Source: FICO

FAQ

What percentage of APAC SMEs are dissatisfied with their banks according to FICO's research?

Over 62% percent of APAC SMEs are dissatisfied with traditional banks.

How many Indonesian SMEs expect to seek alternative borrowing products in 2022?

Approximately 67% of Indonesian SMEs plan to explore alternative borrowing products in 2022.

What do SMEs consider the top factor when choosing loan providers?

Competitive interest rates are the top factor for 41% percent of APAC SMEs.

How has COVID-19 affected the relationship between SMEs and traditional banks?

The pandemic has led to increased dissatisfaction among SMEs with traditional banks' support, prompting them to seek alternative lenders.

What role does FICO play in the banking industry based on the recent findings?

FICO is positioned as a key player in enhancing financial decision-making through predictive analytics and insights.