Weathering the COVID-19 Storm with Fintech!

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As the tail end of 2020 approaches, it becomes clear that the COVID-19 pandemic and ensuing economic crisis are far from over. On 28 October 2020, The Monetary Authority of Singapore (The “MAS”) published the latest Macroeconomic Review where they maintained the prediction that the Singapore economy will face a 5% to 7% contraction this year. The review highlighted that shocks from COVID-19 had affected Singapore’s domestic-oriented industries harder than past recessions. Economic recovery will therefore take place over a longer time period barring renewed worsening of the pandemic.

Thankfully, the economy is expected to post significant growth in 2021. In view of that, SMEs will need to be well-prepared and ready to tide through this storm and seize upcoming opportunities. The utilisation of fintech solutions and grants provided by the government during this period will be crucial in helping SMEs set up a solid groundwork to transform their business, create lasting operational changes and be capable of scaling up when the opportunity arises.

The “New Normal” is far from normal

Just days after the MAS Macroeconomic Review was published, Robinsons announced the closure of their remaining two stores in Singapore. The end of the 162-years old brand was but one of a long list of COVID-19 economic casualties on our shores, with retail business closures hitting another high in September 2020. The cross regional economic shocks, border control measures and fragmentation of supply chain were main contributors to the woes of local SMEs amidst the ongoing crisis. As Manpower Minister Josephine Teo mentioned, the closure of Robinsons further signalled the need for local industries to transform their business to ensure survival as the consumer and business landscape continues to change. “If nothing else”, she noted, “COVID-19 has accelerated all of the transformation.”

In view of the aforementioned reasons, SMEs need to be agile and sharpen their focus on digitalisation to survive in the new normal. Unsurprisingly, ASEAN SME Transformation Survey 2020 found that 60% of surveyed SMEs placed technology as their top investment priority.

Being future-ready often requires capital. In this regard, SMEs may find it useful to explore governmental aid such as the Productivity Solutions Grant and the SME Go Digital programme. For more information on available grants in Singapore, check out our definitive guide on SME grants in Singapore.

Digitalisation is now a decisive movement

With Singapore being a financial hub, various fintech trends have taken root at the city-state way before its neighboring countries. Over time, the country has developed a mature fintech arena. Here are some notable fintech trends that can support SMEs in tiding through this pandemic storm, laying the groundwork, and enabling the firm to scale up when the economy recovers.

1. Digital Payment Solutions

Recognising that cash and cheques cost the economy 0.52% of its GDP, the Singapore government has laid out an e-payment roadmap. Such digital payments not only increase the efficiency of businesses, but are also convenient alternatives to the use of cash and cheque as traditional payment modes.

Contactless payment is a widespread payment method. Examples include PayNow, which is a widely adopted cross-bank fund transfer service, and in-house e-wallets from e-commerce platforms, such as FavePay by Fave. The usage of cashless payment and e-payment soared by over 50% amidst the circuit breaker measures which prompted consumers to explore digital ways of spending while practising safe social distancing.

Apart from providing a wider reach and easier point-of-sales experience for consumers, adopting digital payment solutions could simplify the stock-take and book-keeping processes for SMEs as well – since all transactions will be recorded within the chosen solution’s system for review.

Previously announced in the Fortitude Budget in May 2020, SMEs can also tap on the Digital Resilience Bonus to start setting up digital payments for their stores. The Government had also upped the ante in their effort to hasten digital adoption of SMEs via a new programme to get heartland-based stores to onboard digital payments through discounted schemes from various e-wallet solution providers.

2. E-invoicing Software

According to IMDA, Electronic invoicing or E-invoicing is the automated creation, exchange and processing of B2B payment requests between suppliers and buyers using a structured digital format. By automating the invoicing process, businesses can improve the efficiency of their finance team, reduce manpower costs and get paid faster.

More than 25,000 Singapore businesses have adopted e-invoicing systems since the pandemic wreaked havoc on our shores. The move towards remote working or telecommuting had necessitated the use of virtual invoices and approval via e-signatures, making e-invoicing softwares necessary in bridging that operational gap. While onboarding a new system may seem daunting, SMEs can take advantage of the lull in business to start staff training. The Digital Resilience Bonus and E-Invoicing Registration Grant may also help firms offset part of the costs.

3. Digital Banking License

In June 2019, prior to the black swan event of COVID-19, MAS announced the issuance of up to two digital full bank (DFB) licences and three digital wholesale bank (DWB) licences. These new digital banks will be in addition to existing digital banks currently in MAS’ networks. A digital bank offers banking services such as deposits, loans, debit and credit cards like a traditional bank, except that transactions are performed online and the bank does not have a physical branch. DFBs will serve retail customers while DWBs will serve SMEs and other non-retail customer segments. The awarding of the licenses have since been postponed to the end of 2020 due to the pandemic.

These Digital Bank licenses are poised to change how SMEs’ financial needs will be met. The days of lengthy processing time, tedious paperwork and a lack of transparency will likely be overhauled as industry red tapes gradually get removed. The entry of Digital Banks as competitors will likely spur a greater variety of financing options for SMEs. With lower operating costs from these Digital Banks, cost savings can be passed on to SMEs for better loan financing rates. By offering SMEs simplified and fast digital processing through open banking, SMEs will benefit from the greater convenience and personalised services. Additionally, SMEs can feel assured of their data security as the Digital Banks will be anchored in Singapore, controlled by people in Singapore, and headquartered in the city-state.

4. Digital Financing

Cash flow has always been an evergreen concern crucial to SMEs’ business survival. COVID-19 had only served to exacerbate the issue amidst falling domestic demands and reduced consumer spending. Due to robust fintech activities and strong governmental support, SMEs now have a wider variety of financing options to consider as compared to the previous financial crisis. For instance, Enterprise Singapore had extended the Enterprise Financing Scheme to approved financial institutions to encourage easier and faster disbursement of funds to SMEs who require loans, one of which being Funding Societies.

Historically, SMEs turn to banks and Financial Institutions to apply for conventional SME loans. As firms await the benefits which will come with Digital Banking Licenses, Financial Institutions in Singapore have evolved according to SME clients’ business requirements as well. Due to the agility of these fintech firms, they are able to structure financing products to better suit SMEs’ unique requirements at a shorter notice and offer tailored services through contactless and digital methods. Gone were the days of hard copy document submissions in-person; now, you can apply for Micro Loans online within minutes.

 

Many consumers are able to recognise the importance of fintech in their daily lives which can come in the form of convenience via digital payments and various prepaid debit card offerings. However, the effect of fintech advancements in Singapore may not be obvious to businesses. SMEs may view the onboarding of new solutions or upgrading of business processes as costly endeavours that disrupt their already-busy day-to-day operations. This pandemic, however, has put into perspective that digitalisation is now imperative, and can make or break a business.

COVID-19 is a devastating Crisis yet an incredible Opportunity

Research showed conclusively that the biggest shifts in company fortunes, for good or for worse, happens when businesses come out from downturns. This is the period where the organisation gets shaken up, company cultures are tested, and new practices to improve efficiency are implemented and made permanent over time. Given how fast change is happening, postponing digitalisation efforts till signs of economic recovery may be too late. 

Nearly 75% of Singapore firms have accelerated their digitalisation, spurred on by the need to survive the economic crisis of the generation. Are you one of them?


Recently approved as a Participating Financial Institution in Enterprise Financing Scheme (EFS) by Enterprise Singapore, Funding Societies is lowering the barrier of entry for SMEs who need financing urgently to tide through the storm. Keen to learn more? Reach out to us here!

Published 2 Dec 2020.

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