Small and medium-sized enterprises (SMEs) are the backbone of the global economy, and they play an even more important role in emerging markets. In many emerging markets, SMEs account for up to 90% of all businesses and employ up to 70% of the workforce.
As such, the banking industry in emerging markets is increasingly focused on providing innovative and tailored solutions to meet the needs of SMEs. Here are some of the latest trends in SME banking in emerging markets:
- Digital transformation: SMEs in emerging markets increasingly use digital channels to conduct their banking business. This includes online and mobile banking and cloud-based financial management tools. Banks that provide a seamless digital experience will be well-positioned to attract and retain SME customers.
- Open banking: Open banking is a new regulatory framework that allows third-party providers to access customer banking data with the customer’s consent. This opens up new opportunities for SMEs to connect with financial service providers and access innovative products and services.
- Embedded finance: Embedded finance embeds financial services into non-financial products and services. This is becoming increasingly popular with SMEs, allowing them to access financial services without going through a traditional bank.
- Sustainable banking: SMEs in emerging markets increasingly seek banks offering sustainable banking products and services. This includes products that help SMEs reduce their environmental impact and effects that support social and environmental initiatives.
- Collaboration with non-bank financial institutions: Banks in emerging markets increasingly collaborate with non-bank financial institutions (NBFIs) to provide innovative financial solutions to SMEs. This is because NBFIs often have a deeper understanding of SMEs’ needs and can offer more flexible and tailored products and services.
These are just a few of the latest trends in SME banking in emerging markets. As the banking industry in emerging markets continues to evolve, banks need to stay ahead of the curve and offer innovative solutions that meet the needs of SMEs.
How can banks benefit from these trends?
There are several ways that banks can benefit from these trends. For example, digital transformation can help banks to reduce costs and improve customer service. Open banking can help banks to reach new customers and offer them new products and services. Embedded finance can help banks to generate new revenue streams. And sustainable banking can help banks attract and retain customers looking for environmentally friendly products and services.
What are the challenges for banks?
While there are several opportunities for banks in the SME market in emerging markets, there are also some challenges. For example, banks need to invest in new technologies to keep up with the pace of digital transformation. They also need to be able to adapt to the changing regulatory landscape. And they need to be able to compete with NBFIs that are offering innovative new products and services.
The banking industry in emerging markets is at a crossroads. Traditional banks face increasing competition from NBFIs and must find new ways to attract and retain SME customers. The trends outlined in this article provide some clues as to how banks can meet future challenges. By embracing digital transformation, open banking, embedded finance, sustainable banking, and collaboration with NBFIs, banks can position themselves as the preferred financial partners for SMEs in emerging markets.