KUALA LUMPUR (April 26): Nearly three in five Malaysian small and medium enterprises (SMEs) could ditch traditional banks in 2022 and take up new or alternative borrowing products, said California-headquartered data analytics firm Fair, Isaac and Company (FICO).

In a statement on Tuesday (April 26), FICO said there are early signs that traditional banks in Malaysia are at risk of losing SME business to non-traditional competitors.

It said that amid strong interest in borrowing funds, between 62% and 70% of Asia-Pacific SMEs are less than satisfied with their main banks' level of support in response to the Covid-19 outbreak.

It added that nearly 60% of Malaysian SMEs expect to take up new or alternative/non-traditional borrowing products in 2022.

FICO senior director of decision management solutions in Asia-Pacific Aashish Sharma said Malaysian SMEs had made it clear that they require financial support in 2022 but are less optimistic about getting it from their main banks.

“This is a potentially worrying trend for traditional banks, considering that there are an estimated 1.15 million SMEs in Malaysia, employing about 48% of the workforce and contributing over 38% of gross domestic product,” said Sharma.

FICO said banks need to understand what’s causing SMEs to consider alternative funding sources.

It said 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:

According to Sharma, alternative lenders have the potential to gain ground based on the challenges identified by this research and by FICO's own market observations.

However, he said 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 had emerged.

“If traditional banks are to experience continued and sustainable business growth in the SME segment in the Asia-Pacific region, they must simplify the application process and improve transparency, as well as customer experience.

“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,” he said.