New insights from RFI Global, prepared for FICO based on research from the SME Banking Council, has revealed early signs that traditional banks in Australia are at risk of losing small- and medium-sized enterprise 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 banks level of support in response to the COVID-19 outbreak. Just over 40 percent of Australia's SMEs expect to take up new or alternative/non-traditional borrowing products in 2022.
"The pandemic put a sudden, massive burden on SMEs globally, and they didn't think banks did enough to help them," says Aashish Sharma, senior director of decision management solutions in Asia Pacific for FICO.
"Australia's SMEs have made it clear that should they require financial support in 2022, they are less optimistic about getting it from their main banks. This is a potentially worrying trend for traditional banks, considering that SMEs account for more than 97 percent of all businesses in Australia, and contribute around $418 billion to Gross Domestic Product, equivalent to over 32 percent of Australia's total economy."
The report says banks need to understand what is 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 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)
According to the research, when choosing a loan provider or financial institution, the top three drivers for Australian SMEs are competitive interest rates, speed of access to funds and customer service.
"Alternative lenders have the potential to gain ground based on the challenges identified by this research and by our own market observations," says 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," says 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 minimise risk."