Small and medium enterprises (SMEs) and micro-SMEs1 (MSMEs) form the backbone of many economies around the world. This is particularly true in Vietnam, where they account for nearly 70 percent of GDP and 80 percent of the country’s employment in 2020.
In recent years, Vietnamese SMEs and MSMEs continue to face challenges intrinsic to the sector, chief among them being productivity, network coverage, access to capital and the slowdown from COVID-19 pandemic. At the same time, there is strong resilience in the majority of businesses, especially aided by rapid digital adoption by customers and businesses leading to “new-age” online trade.
While banks in Vietnam have focused on serving SMEs, no bank has emerged as a clear winner due to gaps in the traditional banking business model for the segment.
- The first gap for many banks is their proposition, which is anchored primarily on secured lending – typically big-ticket, collateralized loans. There are limited offerings to address specific needs of several SME clusters e.g., small-ticket unsecured loans, liabilities-focused propositions, export-import related solutions.
- Second, banks continue to drive traditional commercial credit processes and underwriting that are more suited to large businesses, without adapting them to the SME context.
- Third, most banks have yet to offer a seamless digital O2O (online-to-offline, offline-to-online) process for customer onboarding and servicing of SME customers.
The MSME segment presents an additional challenge in that not many banks in Vietnam are adequately addressing the needs of the segment, where they face high operational and risk costs. MSMEs thus represent a “white space” market – constrained by supply, with the opportunity to create additional VND 500 trillion in loan balances through 1-2 million new loan recipients, according to McKinsey analysis.
Given the potential value at stake, banks seeking to gain a competitive edge in Vietnam’s SME and MSME segments could consider five key imperatives.
Providing personalized offerings beyond traditional commercial loans. Banks could develop a deep understanding of the SME and MSME segments’ fast-evolving needs and pain points – driven by business activities and cash flows. It is not about offering several products, but delivering a simple, sharp proposition tailored to the needs of targeted customer clusters (e.g., liabilities-focused proposition for customers processing large-volume transactions).
Leveraging digital for seamless customer experience and bank productivity. While there has yet to be an end-to-end digital-only banking customer acquisition and servicing journey in Vietnam, digital adoption in these segments has grown rapidly to manage business and financial processes. Thus, there are opportunities for a bank to enter fast with a SME/MSME-specific hybrid experience and rapidly evolve with the customer, market, and regulatory landscapes in the country.
Acquiring customers through multiple channels. By forming partnerships with digital platforms, banks could gain the opportunity to acquire SME and MSME customers at scale. However, it is not only about finding the right partners and setting up an API connection to drive volumes. Scaling through digital partnership is a continuous, rapid testing and learning journey, requiring a holistic strategy and roadmap, organizational alignment, talent readiness, and adapting to meet customers’ evolving needs.
Driving better decisions through proprietary data. Given that data availability might not be fully consistent across Vietnam, combining data from multiple sources, including proprietary and public data sources, can help banks develop a unique 360-degree view of SMEs and MSMEs to drive more personalized solutions for them. Analytics also feeds into customer acquisition, O2O experience, risk management, operating cost optimization, and more.
Creating a painless credit process. Through digital and analytics, banks have the opportunity to create more seamless credit underwriting running in the background, with no lengthy documents and a delightful, yet robust, credit process. Banks can test out such offerings by starting with small credit limits, within their risk appetite, and later rapidly expanding to good-credit SME and MSME customers.
The SME and MSME segments in Vietnam are vibrant and poised for future growth. Banks have the opportunity to earn a greater share, especially in the MSME white space, if they choose to reinvent themselves through more personalized offerings, digital and analytics, and streamlined processes.
1 The micro-SME segment in Vietnam is defined by annual turnover of less than VND 20 billion, and including registered enterprises (MSMEs) and Household businesses (HBs)