I had spent the past three decades in senior management roles across various leading financial institutions. At Citibank, I pioneered a robust SME banking franchise concept which subsequently was replicated across Citibank globally.
At DBS, I conceptualised and executed a regional architecture and blueprint for DBS Bank’s SME business across Singapore, Hong Kong, India, China, Indonesia, and Taiwan to improve the value proposition of DBS’ SME Banking.
My biggest takeaway from these years of experience was this: despite playing a vital role in the economy, SMEs remained underserved when seeking financing. In Singapore, 99 per cent of companies are small-and-medium enterprises (SMEs).
Together, they employ more than 70 per cent of the workforce. Their combined economic activity accounts for about half of Singapore’s GDP, US$382 billion in 2019, yet faces a daunting funding gap to finance their growth.
Unfortunately, across ASEAN, the SME bank loan-to-GDP ratio varies between four to 20 per cent. Therefore, this has resulted in a multi-billion dollar funding gap for SMEs, which presents a huge lending opportunity in the region.
When seeking loans, SMEs struggle with a poor industry track record, limited management experience, and a lack of hard collateral. Additionally, traditional lenders’ risk appetites have trended conservative —only further exacerbated by COVID-19.
The result: more often than not, these SMEs do not get access to credit that they sorely needed. Financing solutions must cater to an increasingly digital economy that no longer falls into conventional models’ traditional parameters. The rise of the P2P lending industry results from these changing conditions: it has come a long way since the early days of casual crowdfunding platforms.
Today, individual borrowers and small and medium-sized enterprises (SMEs) can access loans without the hassle of going through banks and lengthy financial assessments.
In online P2P lending, borrowers can skip past traditional intermediaries—such as banks— and seek finance directly from investors in a fast, efficient, and speedy manner.
A natural transition from traditional banking to SME lending
My transition from traditional banking to P2P lending was, for me, a natural progression. Having worked with so many SMEs, I experienced firsthand how many of their needs went ignored or unmet.
Seeing the recent advancements in Big Data analysis, AI, and the changing regulatory environments, I realised that there could be so much more done to drive SME lending innovation in the financial industry. Hence, I decided to join Validus, where I could make a real difference.
P2P lending connects lenders and borrowers directly on one platform. At Validus, we specialise in providing working capital loans and invoice financing—allowing SMEs to unlock their cash stuck in receivables.
This disintermediation reduces costs and increases the efficiency of loan transactions. It is beneficial for SMEs who are looking for an alternative financing method to jumpstart their businesses. Investors also obtain a higher interest compared to conventional bank savings accounts giving them an attractive investment alternative.
I have been fortunate to witness the positive impact of SME financing firsthand. Validus lending helped support over 10,000 jobs in Singapore in 2019, and SMEs who were using our services were able to experience strong employment growth of 12 per cent.
With more cooperation among industry players, P2P lending can complement the existing financial landscape. I am excited about the new opportunities that digital financing can bring to SMEs in Singapore and our region.
Building a stronger ecosystem through collaborations and partnerships
Years in the banking industry have given me crucial insights into what lessons the fintech industry can learn from established financial institutions. For one, we can learn from how large banks have put in place robust compliance and KYC/AML processes that make trust and stability the hallmarks of any banking system. We also have to understand the criticality of risk management in the P2P industry, which cannot be overstated.
Validus’ operational licenses from Singapore’s Monetary Authority of Singapore (MAS), Indonesia’s Otoritas Jasa Keuangan (OJK), and Thailand’s Securities and Exchange Commission(SEC) are a testament to our solid processes and robust risk management capabilities in these countries.
P2P platforms must appreciate that regulatory compliance requires a significant amount of investment in both people and technology and is a price worth paying to avoid problems like predatory lending and Ponzi schemes, which have affected the industry as a whole.
To get more out of the digital financing revolution, industry players must align with regulators and the needs of business stakeholders and beneficiaries, all to support the ecosystem’s digital financing revolution.
Validus’ evolution and growth
Our goal at Validus is to effectively address the SME financing gap and provide investors with attractive lending opportunities for diversified returns to become the #1 platform of choice for SMEs and investors.
We do this by implementing the latest virtual banking technologies and monitoring solutions, including data analytics, modern application stacks, a cohesive technology architecture, and microservices-based integration with mobile and web applications. In 2019, we created a presence in Indonesia, Vietnam, and Thailand, where SME funding opportunities are much larger than Singapore’s.
Despite the current pandemic, we are well on track and are confident that we can continue to make our impact in the countries we operate. We are continually building partnerships in each of our markets. Hereon, our focus will be to develop strong teams and a deep-rooted presence.
And building awareness among the largest pools of funding, which in turn allows Validus to scale up faster than the competition, building better business communities and promoting inclusive growth among the region’s SMEs.
Efficiency will be critical – and working cohesively together becomes more crucial than ever. We believe our direction is leading us on the right path, as evidenced by the Monetary Authority of Singapore awarding us the top prize among Singapore Financial Institutions in the 2020 Global FinTech Innovation Challenge.
As an experienced team well versed in the region, Validus wants to leverage deep technology to provide working capital loans to growing SMEs. But as with other startups, there are tradeoffs. Unlike being in a large bank with a safety net, running a startup can feel like we are constantly on a treadmill.
I, too, had to learn from my fair share of startup mistakes, recover quickly, and move on just as fast. But make no mistake. Failure is an essential part of the journey to success. I strongly encourage other startup owners to accept and embrace failure. Fail fast, fail often, but always learn from the experience.
The future of P2P lending shines bright
We must strive to bring together the best and brightest, not just from the financial services industry but also from the upcoming generation of graduates and talents with new ideas and aspirations for an inclusive, customer-first, digitally-led P2P lending space.
This humanises the technological aspects of providing financial solutions to SMEs through P2P platforms. Sure, Validus is a digital business, but it requires a lot of empathy. When a tech-to-touch model bridges offline and digital experiences, empathy addresses the day-to-day challenges and problems unique to each operating local ecosystem.
P2P platforms will need to adapt and react quickly to adequately address the increased financing gap caused by COVID-19 and manage the increasing risk of non-performing loans. The pandemic will be an important moment for the P2P lending industry – we will likely see some P2P platforms cease operations or consolidate, especially those who are not able to adapt quickly to the new normal.
As Southeast Asia’s fintech industry continues to grow, now is a fantastic time to be at the forefront of a growing business in the region. Banks will continue to be relevant, and fintech companies will plug the remaining gaps.
I am excited for the future of Validus and to welcome the new, improved, and integrated solutions that modern fintech companies can bring to bridging the financing gap for the core of all our economies … the SME!
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