Banks risk losing SME business as open finance takes hold

KUALA LUMPUR: Malaysian banks risk losing a significant share of their small and medium enterprise (SME) business to financial technology (fintech) firms and challenger banks as open finance takes hold, a banking expert said.

Manaf Gardner Associates Sdn Bhd co-founder and chief executive officer Professor Dr Colyn Gardner said the experience in the United Kingdom (UK) showed how quickly non-traditional financial providers could gain ground in areas long dominated by established banks.

He said Malaysian banks should take heed, given the country's large SME sector.

"When you think about it, the big banks in the UK — Barclays, NatWest, Lloyds Bank — have been around for hundreds of years, and yet within the space of maybe less than 10 years, 60 per cent of lending to SMEs has migrated to either fintech companies or challenger banks.

"That is a frightening statistic. Over 95 per cent of companies in Malaysia are SMEs, and that is a lot of business to go after. It is a lot of business to lose.

"Banks need to be very mindful of the fact that there is the potential to lose this business if you are not changing some of the ways you do things," he told 'Business Times' in an open-finance networking session recently.

In the event, Manaf Gardner brought in UK practitioners with first-hand experience in developing and implementing open finance to share lessons with Malaysian banks.

Gardner said the shift towards open banking and open finance will give consumers greater control over their financial data and services, allowing them to share information across financial institutions with their consent.

But the implications go beyond greater convenience for consumers.

Fintech firms could use technology and access to financial data to compete directly with established banks.

Gardner said banks therefore need to improve their services while ensuring they have the right talent and capabilities to operate in an increasingly technology-driven environment.

Looking ahead, he said Malaysia's banking sector is relatively well-positioned to navigate the transition, although banks face significant implementation challenges due to their legacy information technology systems.

However, Malaysia is also not starting entirely from scratch, he said, as several payment-related processes already resembled elements of open banking.

Despite the growing role of technology, Gardner said banks should not lose sight of the human element.