Small (and medium) is beautiful: How banks can serve Thai business better

Small (and medium) is beautiful: How banks can serve Thai business better

The heart of Thailand’s economy beats through the country’s dense network of micro, small and medium-sized enterprises (SMEs)—those with revenues of up to 500 million baht. There are more than 3 million of such companies, which account for approximately 35 percent of Thailand’s GDP and above 70 percent of employment. Naturally, then, SMEs constitute an important customer segment for banks, generating almost 400 billion baht in annual revenue, or 25 percent of the total.

In addition, SMEs have proven innovative and adaptable in the wake of the pandemic. For a quarter of them, online has become a primary sales channel; it could rise to as much as 75 percent by 2026, according to a recent McKinsey survey of Thai SMEs. More than half already use third-party platforms for sales, and more than 70 percent of these have a multi-channel presence.

In short, Thai SMEs are rapidly shifting toward digital and multichannel operations. This changes what they need from their primary banks, but most banks have been slow to respond. While access to formal financing has historically been difficult for SMEs, it is now more pronounced. More than 50 percent of new-age digital SMEs—meaning businesses that depend on the web such as e-commerce merchants and online food service providers—struggle accessing adequate credit because they typically have a limited track record of business performance and a working capital cycle that is up to 30 percent longer.  

Even established digital SMEs face newer banking challenges or unmet needs in this rapidly digitizing context. They seek multi-channel payment facilities, faster reconciliation across multiple platforms (brick-and-mortar, own website, third-party platforms), quicker settlement from third-party platforms and enhanced business analytics for integrated cash flow visibility. Furthermore, the historical challenges vis-à-vis SME banking persist. More than half of the SMEs surveyed said it takes their banks twice as long to process loans as they expected, and more than 40 percent complained of onerous documentation and collateral requirements and high interest rates. That helps to explain why half have opted for a non-primary bank for secondary products and why more than two-thirds rely on informal sources for financing.

These are real problems. But they also present real opportunities for banks that step up. We estimate that doing so could unleash seven percent annual growth in the Thai SME banking pool—considerably higher than the four to five percent projected for the banking sector as a whole. 

To do so, banks need to get four things right.  

Offer products and services that address the needs of SMEs, including digital ones. More than 55 percent of SMEs consider a tailored range of products and services as one of the most critical factors for selecting their primary bank. There is a major opportunity, then, for SMEs to innovate on propositions to address needs and pain-points pertinent to target customer clusters. Examples include operating accounts that allow seamless payments across multiple channels, faster reconciliation, and the option to integrate personal and business accounts. SMEs comprise very different kinds of businesses, banks need to develop a deep understanding of their customers’ particular needs and difficulties and then deliver, simple, focused services tailored to address them.

Reimagine risk management through data and analytics. An effective, traditional and non-traditional data-based credit scorecard, using data from their partners, such as e-commerce platforms and telecoms, could replace lengthy, judgment-based underwriting. Banks could also explore AI-powered monitoring and early-warning systems and run systematic analysis of all available sources, including external, unstructured data; build predictive models; and combine them into a multistage exchange web services architecture.

Develop efficient onboarding and servicing options. The principle is to create seamless offline-to-online and online-to-offline capabilities to support SMEs’ digital migration journeys. SMEs need banking services via omnichannel options, but about half of banking services, such as loan applications, are largely restricted to traditional channels.

Support SME business operations broadly. Consider going beyond traditional banking services. For example, providing support for core business practices, such as payroll, accounting services, expense management, cybersecurity, and taxation can make banks more attractive partners. Going deeper, it may be possible to create trade platforms that can connect SMEs with each other or provide opportunities to grow their export-import businesses. 

McKinsey estimates there is more than 4 trillion baht in untapped lending in Thailand from micro, small and medium segments. Moreover, half of the SMEs surveyed identify access to finance as a top-three issue. The story for banks, then, is one of lost potential. 

In an age of innovation and digital technologies, it is possible for the country’s banks to do better. Indeed, it is essential—for their own future, and for the growth of the Thai economy.

Authors: Abhishek Agrawal is an associate partner in McKinsey & Company’s Bangkok office. Aalind Gupta is a research science expert in Delhi. Sameer Kumar is a partner in Kuala Lumpur. Rahul Singh and Deepak Dhyani also contributed to this article. For further details please contact Deaunrada Buasup (Candy), Thailand Communications Specialist, McKinsey & Company Co.,Ltd. Thailand, Email :

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