SMEs in Asia are increasingly turning to fintech solutions as a robust alternative to traditional external financing options.
According to a recent survey by Currencycloud and Asian Banking & Finance magazine, while half of Asian SMEs surveyed still rely on partnerships with banks and only 23% are already using a fintech solution, 54% of respondents said that they were keen to explore digital alternatives.
‘Revenue-based financing provides a flexible and accessible way for SMEs to secure funding for growth’
Gillian Choo, co-founder of Singaporean organic baby food brand Little Blossom, decided to move over to digital payments platform, Airwallex, which helps small businesses streamline payments and financial operations processes, eliminating costs associated with bank transfers and foreign exchange conversion.
Reducing complexity
‘As we started expanding from Singapore to the rest of Asia, we were growing very quickly and needed to scale efficiently,’ Choo says. ‘Expanding overseas meant increased operational complexity, from managing multiple currencies to getting a full view of each market’s performance.’
The platform was integrated into the Xero accounting platform (it is also compatible with other solutions like NetSuite and QuickBooks), transforming how Little Blossom managed and reconciled its finances. ‘We soon realised that we were able to maintain a clear financial picture with minimal effort,’ Choo says.
‘Through our global accounts, we can help companies open domestic and foreign currency accounts within minutes,’ says Low Cher Hao, Airwallex’s head of SME and growth. ‘We also help customers convert these funds to the currencies they require to operate their business efficiently.’
The platform has also helped companies like game developer World of Neopets with expense management and global payment processing. ‘With our crossborder payment capabilities, businesses can collect and hold funds in the currencies that matter most to them, avoiding unnecessary conversion fees and enhancing cashflow,’ Low explains.
Alternative financing
According to the Currencycloud survey, 29% of SMEs that partnered with fintech solutions did so to obtain credit lines, indicating demand for more convenient and affordable financing.
The revenue-based financing platform Choco Up has helped SMEs gain easier access to capital through an alternative funding model, which provides capital in exchange for a share of future revenue. The platform recently partnered with restaurant technology company Atlas to support food and drink firms in Singapore, providing S$20m in growth capital.
‘This can be helpful for young businesses without a long track record,’ says Niki Torres, Choco Up’s head of growth. ‘Our way helps with faster funding as the application process is typically quicker than traditional loans.’
‘Assess the fintech firm’s financial health to ensure they’re a reliable partner for the long term’
Businesses that work with Choco Up pay the investment plus a premium as a percentage of ongoing revenue payments, with a flexible repayment structure, Torres explains: ‘By aligning repayments with revenue, SMEs can invest in areas such as global expansion, marketing campaigns, website localisation and adapting products for new markets.’
With South-East Asia’s working capital gap estimated to stand at US$20bn, Torres says that cashflow is a constant challenge for many companies. ‘Overall, revenue-based financing provides a flexible and accessible way for SMEs to secure funding for growth without the constraints of traditional loan structures,’ she says.
The right match
Many SMEs struggle with scaling up because traditional financing options have made expansion difficult. ‘While traditional banks may offer advantages such as access to capital in various markets and a trusted global presence, their conventional approaches may not align with the efficiency and innovation needs of modern SMEs,’ says Low.
This can make partnering with a more nimble fintech provider a good option for small businesses. Low advises SMEs to consider their specific needs and objectives when seeking out a fintech partner, in particular around cost, scalability and security.
Businesses should also assess how well a fintech solution integrates with existing systems and infrastructure. Crucially, SMEs need to understand the full cost structure for any fintech solution they are partnering with and identify any potential hidden fees.
‘It’s important to find reliable partners who we can trust and work with’
A suitable partner, Low says, will be receptive to customising their offerings to meet the unique needs of an individual SME. ‘This includes not only accommodating increased transaction volumes but also broadening their range of offerings to meet evolving needs as the business develops,’ he says.
Building trust
A fintech solution should also demonstrate strong security standards and financial backing to establish trustworthiness. ‘Assess the fintech firm’s financial health to ensure they’re a reliable partner for the long term,’ says Torres. ‘You should research the fintech firm’s past performance, client base and experience in partnering with SMEs like yours.’
When seeking funding through fintech platforms, small businesses first need to ensure their operations are supported by verifiable sales data, Torres adds. ‘They need to consider the type of financial partner they need, whether it is just money or someone who understands the challenges of your business and your goals,’ she says.
For Choo, it was critical to identify a fintech partner capable of supporting the company’s expansion into multiple markets. Partnering with Airwallex has provided the company with an integrated payment solution that helps turbocharge the growth of its crossborder retail operations. She adds: ‘It’s important to find reliable partners, distributors and retailers who we can trust and work with.’
More information
See ACCA’s online short course for members on Financing opportunities for SMEs.
