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Southeast Asia is a curious paradox – on the one hand, it is an underbanked region, with only 27 per cent of its 656-million-strong population having a bank account in 2016. 
Small and medium-sized enterprises (SMEs) in the region complain about the lack of business financing, with less than 60 per cent having access to bank loans. 
On the other hand, the region is home to the financial hubs of Hong Kong and Singapore – around 190 banks operate in Hong Kong and close to 200 in Singapore. 
This combination has resulted in a rapid leap in banking innovation. As the 10-member Association of Southeast Asian Nations (Asean) region opens up to trade and further development, its SMEs – long starved of financial options and services – stand to gain the most. 
Check out are some key banking innovations creating new opportunities for SMEs.
1. APIs for bank feed integration
The Hong Kong Monetary Authority (HKMA) launched an Open Application Programming Interface (API) framework for the banking sector in 2018. The framework will be rolled out in four phases, each delivering new benefits to bank users.
Phase one of the API roll out, which is currently in effect, allows for easy comparison between financial products. Users can, for example, quickly scan for loans with the best rates, without having to consult each bank individually. 
The implementation of an open API framework also helps in digitalising the accounting process – later phases will enable bank feeds to be integrated into accounting applications. This will allow financial data to flow seamlessly from the bank to the accounting platform, allowing business owners to have access to up-to-date data to make informed decisions. 
In addition, open banking APIs allow online merchants to link their platform directly to e-payment options that feed into their business bank accounts.  This means that any payment made through the app can be processed directly into the bank. This mitigates the need for a buyer to transfer funds separately to the merchant’s bank and speeds up the sales process. 
Most consumers are already familiar with this concept in the form of “in-app” integration. When items are bought on the Lazada shopping app, for example, there is no need for the buyer to make a separate payment to Lazada’s bank account – a single tap suffices to complete the transaction. However, this only scratches the surface of what open banking can provide.
APIs can also facilitate business-to-business transactions, such as allowing the rapid transfer of funds between two companies without their accounting departments having to go through traditional banking channels. This is especially useful to businesses operating in the less developed parts of Asean, which still see limited banking services. 
Lastly, APIs can also facilitate connections between consumers and microfinance, or insurance services. For instance, entrepreneurs taking out microloans can do so in minutes through an app, without needing to visit a bank. On the other hand, a traditional bank would not cater to loans below a certain quantum. 

2. Cloud-based finance services
With the advent of fintech innovations, traditional banks have rolled out cloud-based services for SMEs to facilitate payments. 
A digital cloud allows businesses to manage processes, such as payroll, accounting and payment to suppliers with greater security. In addition, businesses can reconcile transactions such as purchase orders with their bank statement, and check their financial status in an instant. 
Many businesses also benefit from cost savings after migrating to the cloud. When information is secured in the digital cloud, there is less need for expensive physical data storage equipment, such as hard drives or DVDs, which often need to be replenished, repaired, or replaced. 
In addition, cloud-based financial services provide a high degree of protection against viruses and hacking. Many SMEs would be hard-pressed to afford security of the same quality when using their own physical servers.
3. Biometric authentication on mobile
Biometric authentication refers to the use of iris scanners, voice recognition, fingerprints, or even vein patterns to identify users. Biometric authentication is considered more secure than the use of PIN numbers or passwords, which can be stolen.
Previously, the use of biometric security was not practical for businesses as the technology required the owner or a relevant staff member to be physically present at a bank branch.
Today, however, banks such as HSBC have enabled biometric security to work even on smartphones. HSBC’s mobile banking app, for instance, uses Apple’s iOS Face ID to authenticate a user and process a transaction in seconds. 
4. Rise of digital-only banking

SMEs are typically short on both time and staff. Their accounts departments, which may well be the business owner in small companies, can barely spare time to visit bank branches and wait in long queues. A purely digital bank removes the need for this by conducting the entirety of its operations online.
In addition, because of strict financial compliance regulations, SMEs in Hong Kong often find it a challenge to open bank accounts when they lack a prior history of operations or financial records in the country. 
However, the emergence of virtual banks – often backed by large organisations, such as Tencent’s WeBank – provides competition with traditional banks. Hong Kong recently granted licences to three virtual banks: Livi VB, SC Digital Solutions and ZhongAn Virtual Finance.
Virtual banks prompt greater innovation and competitive service pricing and increase financial inclusion as a result. More indirectly, the cost of renting and staffing a branch are significant costs to a bank. A financial institution that is spared these expenses can offer better deals to its customers, business or otherwise. This can translate to better spreads and lower fees in SME banking.
For example, DBS runs a purely digital bank in both India and Indonesia. DBS reported that its digital or internet-based customers are 42 per cent more profitable than their traditional clients, reflecting on both the sustainability of the model and the potential savings that can be transferred to businesses. 
5. P2P lending innovation 
Peer-to-peer (P2P) lending platforms are at the vanguard of financing options for SMEs. Despite being a relatively younger funding model – only 0.1 per cent of loans to Asean SMEs come from P2P lending – P2P lending has gained rapid acceptance.
P2P platforms allow lenders, sometimes called investors, to make small loans to SMEs through invoice or working capital financing. These loans tend to generate a higher interest rate than traditional bank accounts, sometimes as high as 18 per cent per annum. 
Data analytics capabilities have allowed P2P lending platforms to improve their screening of borrowers and predict the possibility of default, therefore  allowing them to decrease risk.
The end result is the allocation of more capital to SMEs from willing lenders. P2P platforms thus plug the lack of financing from conventional banks.
HKMA launched a fintech regulatory sandbox in 2016, allowing banks and their partnering technology firms to test out solutions among a small group of customers. The Monetary Authority of Singapore has done the same. Also in 2016, Malaysia became the first country in Southeast Asia to regulate P2P financing when it licensed six such firms.
SMEs boosted by fintech and banking innovation
With initiatives coming from both public and private sectors, including traditional institutions and fintech start-ups, SMEs stand to gain from fintech initiatives within the next few years. 
Those that make the move to digitise their businesses will be able to capitalise on these new products and solutions to improve their business performance.
 


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Rise in peer-to-peer lending, smartphone biometric security and instant access to virtual banks among many initiatives 
	 



Accounting digitalisation, direct e-payment access and cost savings by migrating to cloud can boost performance of SMEs  


On a cloud: Grow your business

Why banking innovation can change the game for small businesses

Accounting digitalisation, direct e-payment access and cost savings by migrating to cloud can boost performance of SMEs Rise in peer-to-peer lending, smartphone biometric security and instant access to virtual banks among many initiatives

Accounting digitalisation, direct e-payment access and cost savings by migrating to cloud can boost performance of SMEs

Rise in peer-to-peer lending, smartphone biometric security and instant access to virtual banks among many initiatives