Matt Cockayne, CCO of Yapily
As the coronavirus-enforced lockdown starts to lift, businesses are beginning to tentatively reopen. But as lockdown rules remain enforced, it’s likely many will struggle to get revenues back to where they were pre-lockdown.
These businesses will need as much support as possible, and they’ll be looking to lenders to help them. Lenders have already approved nearly £27.5bn in bounce back and business interruption loans, backed by the government, to more than 650,000 businesses since the COVID-19 crisis began over two months ago. But there remain many questions from lenders about how viable it is to approve more loans, beyond government backed support, to businesses amongst so much uncertainty.
Meanwhile, many of the government backed loans have yet to be handed out to businesses.
With £330bn in total available as business loans, two months on, more money should have been distributed to ailing companies and at a much faster pace than it currently is.
This has created a stalemate. As lockdown lifts, businesses need fast financial support to remain trading and ensure the economy can bounce back. But lenders are either too wary of lending to businesses that are under immense pressure and near to folding, or too slow in distributing funds.
To move beyond this impasse, we have to look at new ways of speeding up the loan application and fund distribution processes. And find a way that enables lenders to make accurate and fair decisions, based on real-time financial information, that doesn’t leave struggling businesses without access to vital funds. The answers to these issues I believe are to be found in open banking.
Looking beyond COVID-19
Initially, the government relied on established banks and the likes of Funding Circle to distribute the three loan schemes – BBL, CBIL and CLBIL – to businesses. However, this led to serious backlash and frustration, with many struggling companies having to wait weeks before receiving critical funds. The issues facing lenders have been two-fold: a race against time to meet the demand for onboarding new customers and the need to make fair and consistent decisions on loans, quickly.
Typically, when onboarding new customers, lenders require three months of financial statements. But under the CBILS scheme, companies must supply six months. This significantly slowed the entire loan process down – adding an unnecessary layer of friction for already time-poor and stressed business owners. Not only do they have to find and share the correct bank statements, an extra level of delay is added with lenders having to review this documentation manually.
Open banking cuts to the heart of this inefficiency. Through open banking principles, lenders can get instant, real-time financial information on companies and analyse the required historical data in seconds. This reduces the friction involved in onboarding for both lenders and new customers. Removing any need for business owners to send bank statements or ID to lenders to analyse manually. And enabling lenders to make faster, better and more informed credit decisions in real-time. All of which will be essential as more companies look to stay afloat through accessing loans as lockdown measures are lifted.
Adopting open banking principles won’t simply enable lenders to meet rising demand. It will also add a much-needed layer of trust and increase loan personalisation for businesses and individuals. By basing their credit decisions on real-time financial data, lenders will be able to create a more accurate picture of their financial situation; and so make fairer credit offers.
Lending: the economy’s lifeline
Through adopting open banking principles, lenders will be able to onboard new customers and grant loans more efficiently, providing businesses with the critical cashflow required to keep the economy going and their workforce in jobs. With the borrowers’ consent, it will also give lenders oversight into how businesses are recovering, and enable them to monitor the rate at which they can expect the loan to be repaid. Meaning they can step in and provide support or additional loan offerings if and when required.
The role of lenders has always been essential to keeping the economy growing, but the COVID-19 crisis has shone a spotlight on just how critical cashflow is for thousands of UK businesses. To support the economy in recovering quickly, lenders should look to open banking principles to mitigate lending risks and make quicker and more informed credit decisions.