Matthew Gamser is the CEO of the SME Finance Forum. For the past 11 years, he has worked for the International Finance Corporation in a variety of roles, including leading its advisory work for the financial sector in the East Asia-Pacific region.
With over 30 years of experience in private enterprise and financial sector development, Matt has worked with commercial banks and non-bank financial institutions in broadening and deepening services to households and enterprises previously lacking formal finance.
Matt is a supporter of Strands Finance, which recently joined the SME Finance Forum as a member. Our Marketing Director Victoria Yasinetskaya sat down with Matt to find out more...
How do you see the role of FinTech companies like Strands in helping SMEs in emerging economies, especially when it comes to financial inclusion?
Until now it's been very difficult for banks, particularly those in emerging markets, to find affordable ways to provide the type of business and financial management support services to SMEs and consumers that Strands offers. Banks can afford to invest time in customizing services for big corporates, but for an SME, this has been really hard to do in a cost-efficient way.
So what Strands is doing is by developing mobile business management possibilities through the latest in artificial intelligence and machine learning for business financials suddenly makes these individualized, timely service packages feasible for much smaller clients.
The potential for this sort of business financial management or BFM for SMEs in emerging markets is huge.
Can the products of companies like Strands be more impactful or useful in emerging countries because of the digital divide?
I think so, and not only in terms of tech, but also by improving the relative access of non-financial support services for SMEs. In emerging markets there are some “old school” but reasonably well-established business services, such as local economic development agencies or small business development centers like the Small Business Administration (SBA) in the US.
Similar entities exist in emerging markets, but they are fewer and the quality is often variable. So there's a huge potential for FinTech to add value in emerging market countries, especially when it comes to SMEs lacking essential business services. Technology can also play an educational role.
Just because these countries' economies are less developed doesn't mean their problems are simpler. The need for development among SMEs is just as great as in wealthier countries, but their supply of services is much lower.
How are SMEs in emerging countries already using financial technology?
Like consumers, SMEs in developing countries have rapidly taken up digital technology, especially mobile phones. There is a large number of small businesses and even micro SMEs in many countries, even very poor ones, that are doing more and more of their business digitally.
Although it doesn't necessarily mean they've found a way to use it to improve the way they manage their accounts or marketing. But the potential is there, which is a big change, even within the last decade.
In fact 10 years ago this potential was minimal in most emerging countries. But now you would be hard-pressed to find a country where you can't see this digital transformation. It’s now rare to find places where you don't have entrepreneurs using cell phones for more and more aspects of their business, and using other electronic POS devices. This really opens up the potential for applications such as Strands BFM.
Small businesses in developing countries are moving out of cash as fast as they can, because they see the unnecessary costs and complexities. In fact those businesses might be moving out even faster than companies in more developed regions.
Where are the biggest gaps in uptake of FinTech in emerging economies?
Consumers in emerging markets can see how easy it is to send money to another person via mobile, but there's much less of an understanding about how to extend that technology in a broader way.
For example, how can tech help with client acquisition? How can you move customers to paying digitally and avoid cash? How can you leverage data to help you understand how to run your business and serve your customers better?
We aren't seeing that level of application of tech just yet, but the transformation to paying suppliers via mobile and receiving digital transfers is just the tip of the iceberg of potential.
Are banks aware of their opportunity to bridge these gaps?
Some banks get it. They see how this shift to digital could actually lower the cost of doing certain types of business with SMEs, particularly lending.
Some banks see the potential. A great example is Commercial Bank of Africa in Kenya, also a member of the SME Finance Forum and a Strands' client - evidenced by their drive to be the first in the region to offer full-scale personalized digital banking.
Are banks like CBA the exception?
CBA is exceptional. What they are doing is not the norm yet. But many banks are now heading in the same direction. More and more banks are seeing that they have to be a part of this digital transformation.
Telecoms saw it before the banks and started providing financial services like M-Pesa. So if banks are not careful, non-banks will come and start partnering with the cell phone companies and the banks won't be able to get that market.
CBA were first movers. Other banks still think this isn't important, or that they can do it better by themselves without a partner, which is not always the case, because banks don't have a lot of points of sale in emerging market countries.
Telcos like Safaricom have more agents, don't they?
Banks are much newer to this game than telcos because they've looked at agents too narrowly. They regarded agents as basic cash handlers or tellers, instead of realizing that virtually all of these agents are actually SMEs. The banks have to look at their broader business needs if they want to stay relevant and profitable in emerging economies.
Telcos saw those agents as SMEs right from the start. Banks like CBA were quick to create partnerships because they wanted to build an agency network from scratch, which is a win-win for everyone. Not all banks are thinking like this yet.
Is Kenya a vanguard region that is more progressive in embracing FinTech?
Progress does depend on a country's regulatory environment. Some countries are not as open as Kenya with regards to what banks and telcos can do.
I think the Central Bank's deliberate decision to take a light-touch regulatory approach has enabled Kenya to go farther in building a whole ecosystem of FinTech services and opportunities on top of the pure P2P money transfer operation that started it all.
This openness has enabled Kenya to leapfrog technology. They are now engaged in that interesting stage of trying to fit in the appropriate regulation without killing the momentum of innovation.
Will other African banks will follow suit, take a different approach entirely or lag?
Let's be clear that Africa is not the only place where this is happening. We see e-commerce growing across Asia, as well as huge mobile phone penetration and in some cases a data infrastructure even more conducive to progress than East Africa.
For instance, we just have seen bKash in Bangladesh exceed M-Pesa in terms of business volume, and they are actually owned by BRAC Bank, so it will be interesting to see how that plays out. Of course, Bangladesh has a much larger population than Kenya, so the fact that bKash has finally outgrown M-Pesa isn’t entirely surprising.
When you talk to SME Finance Forum member banks, what are their key challenges in terms of this digital trasnformation?
It varies. If they already have a strong SME portfolio, then the emphasis is probably on niches where these banks can build the highest value for specific businesses. Those banks have a vested interest in SMEs as they are more likely to survive, grow, add jobs and value. From a banking point of view, they will generate more dollars per customer. Those that are just scratching the surface will need more SME-focused banking services, and not just on the lending side.
Most of our members are not top tier banks. They are largely regional and have never offered platforms like Strands BFM. They are trying to figure out how they can leverage the latest in digital technology to better serve their business banking customers.
That’s a tremendous business opportunity for FinTech companies like Strands. It's not just about money management and transactions, but how to make complex business relationships more reliable and predictable.
What tops SME Finance Forum members to-do list when it comes to tackling these challenges?
In general, banks that want to do more with SMEs need to automate more. Right now they tend to rely on labor-intensive procedures for SMEs, which most small businesses can't afford and won't generate profit.
So banks need to digitize and that's where FinTech gives them a competitive advantage. Our members are trying to ramp up to have a stronger start in the SME market, and support management skills and buyer-customer relationship management for SMEs.
While they do that, do you see many banks studying SME customers in order to understand their needs, behaviour and journeys?
There has to be much more consultation with SME customers in terms of product development. In some product areas banks, especially corporates, are starting to solve these problems for retail customers, but I don't see it happening for SMEs yet. That’s definitely a gap.