Lenders aren’t homogeneous. That’s one of the big challenges of SME finance. Different lenders will want things presented in different ways. We won’t lie, it can make for a challenging process sometimes where you have to re-arrange an application every single time you put it forward.
A lot people think that should change. At an event last month, the governor of the Bank of England set out the case for an open platform for SME lending. Such a platform would allow SMEs to upload and share relevant data and files with lenders, who could then determine appropriate terms. But, is such an option really the future of finance?
On the one hand, all it would take would be a common set of frameworks and API standards. Even if every lender had their own platform it would be easy to transfer your data. Then for the customer, you’ve got open competition, and for lenders the ability to access more and more data about their potential customers. Making things uniform does have theoretical benefits.
However, getting lenders – all of whom will have different ideas about how things should work – to agree on unified standards likely involves the words “herding cats”. That’s not to mention the other big issue – the removal of personality. If you only rely on the data, it’s easy for an application to be declined because it doesn’t check the right boxes. We’ve seen more than one client declined solely because they were over the arbitrary boundary a bank’s systems had for age, for example. Finance is complicated, and you need a person to navigate it. Taking that person out makes for uniformity, but also excludes a lot of potential punters.
Openness and competition in the lending world has been a big overall aim ever since the introduction of Open Banking. It’s a great idea, but is it viable? Only time will tell.