A semiconductor device has a semiconductor die with a plurality of bumps or interconnect structures formed over an active surface of the die. The bumps can have a fusible portion and non-fusible portion, such as a conductive pillar and bump formed over the conductive pillar. A plurality of conductive traces with interconnect sites is formed over a substrate. The bumps are wider than the interconnect sites. A masking layer is formed over an area of the substrate away from the interconnect sites. The bumps are bonded to the interconnect sites under pressure or reflow temperature so that the bumps cover a top surface and side surfaces of the interconnect sites. An encapsulant is deposited around the bumps between the die and substrate. The masking layer can form a dam to block the encapsulant from extending beyond the semiconductor die. Asperities can be formed over the interconnect sites or bumps.