Of the technology innovations in the specialist finance market over the last few years, it is hard to look past the rise of open financial data.
Many small businesses struggle to access the finance they so desperately need, and research from the Bank of England suggests that only a third make use of external finance – with a quarter of SMEs put off by the hassle and time taken when applying for lending, and more than half of SMEs only considering one provider when seeking a loan.
The provision of richer data sets within the industry – including management accountancy data, is giving lenders better information on borrowers, improving credit decisions and reducing the probability of default.
According to recent research carried out by Atom with financial intermediaries, many brokers agree that open finance can help their customers, with 44% agreeing that Open Banking technology would help improve SMEs access to credit. Yet, adoption of open finance is still not universal, with over half of UK lenders not leveraging the technology in their journeys.
How technology is already making an impact
When considering the impact technology has had on the sector, we have to recognise that historic data sets which previously used to drive a credit decision have shown to be less predictive of future circumstances – particularly during and exiting the pandemic.
Historically, existing bank account providers could better observe income, cashflows and existing loan performance than other potential lenders: a significant competitive advantage. However, open finance, combined with real-time monitoring and advanced decisioning, are enabling lenders like Atom to make faster and better credit decisions: real-time transactional data can be mined to verify income, derive affordability, identify risk indications such as high-cost lending, and mitigate risks associated with outdated information.
The opening up of transactional data is slowly leading to increased competition in UK banking and facilitating the creation of new and innovative customer propositions, all while providing SMEs with more options when considering external finance.
Adapt or die
When specialist finance firms are considering whether to utilise advancements that can in time improve customer outcomes, we actually see it being more of a case of ‘adapt or die’.
The Fourth Industrial Revolution is characterised by the convergence of new technologies and business models, creating new industries and materially changing existing ones.
Firms who resist change or are reticent to leveraging new technology may find themselves left behind. Today, customers’ expectations of digital are informed by their experiences in adjacent sectors, through companies like Google, Netflix and Amazon.
Fintechs today are offering customers greater choice, value and convenience and are already winning market share in specialist sectors of the financial ecosystem that were once considered too niche to be the target of meaningful disruption.
Forward thinking
The benefits of leveraging new technology, automating archaic processes, and re-imagining the provision of services to customers are too big to ignore.
At Atom, we want to make the experience of borrowing simpler, faster and better value than anyone else in the market. Brokers and their customers need, and are starting to demand, this.
Money saved through automation can be passed onto customers through better rates, with brokers and end users alike increasingly seeking to transact with firms who can provide certainty of funding and disbursement of cash quickly.Â
More broadly, the Covid-19 pandemic has only accelerated the adoption of digital financial services, with brokers and customers alike becoming more accustomed to conducting financial transactions online.
Open banking usage, for example, has more than tripled compared to levels at the start of the pandemic.
Specialist finance lenders should continue to look at adopting and investing in this technology and consider the various ways it can help brokers and SMEs in the long term.
We can expect significantly more technological developments within the sector and it is crucial that firms are constantly adapting and innovating to embrace these changes.
Tom Renwick is head of business lending at Atom Bank
