60% Higher Approval Rates: Open Banking Credit Assessment

Open Banking Credit Assessment is a revolutionary approach to evaluating the creditworthiness of small and medium-sized enterprises (SMEs) by leveraging real-time financial data shared through secure Open Banking protocols

What You Will Discover

Small and medium-sized enterprises (SMEs) are the lifeblood of the UK economy, accounting for over 99% of all businesses and 60% of private sector employment (source). They drive innovation, create jobs, and fuel economic growth in communities nationwide. However, these vital businesses often struggle to access the financing they need to reach their full potential.

Traditional credit assessment methods, such as reviewing credit reports and financial statements, can be slow, inaccurate, and overly conservative. This leaves many creditworthy SMEs unable to secure the funding they need to invest in new equipment, hire staff, or seize growth opportunities. However, a new approach using open banking credit assessment is revolutionising SME lending, enabling lenders to make instant decisions with far better accuracy and lower risk.

The Limitations of Traditional Credit Assessment

Traditionally, lenders have relied on limited, historical data to assess an SME’s creditworthiness. This approach has several significant drawbacks:

• Slow: Gathering and analysing the necessary information can take weeks, leaving SMEs waiting for a decision and potentially missing out on time-sensitive opportunities.
• Backward-looking: Traditional data provides an outdated snapshot of a business’s financial health, failing to capture recent changes or future potential.
• Inaccurate: Traditional methods often fail to capture the full picture of an SME’s creditworthiness by relying on incomplete data, leading to incorrect decisions.

As a result, many viable SMEs are denied financing or offered unfavourable terms, stifling their growth potential and holding back the wider economy.

📚 Learn more about the role of Open banking in modern Credit Scoring

The Power of Open Banking Credit Assessment

Open banking changes the game by enabling authorised third parties, like lenders, to access a business’s real-time financial data directly from their bank accounts with their permission. This rich, granular data provides a comprehensive view of an SME’s financial health and cash flow, far beyond what’s available from traditional sources.

With this data, lenders can build sophisticated machine-learning models to assess credit risk with unprecedented speed and accuracy. By analysing patterns in cash flow, revenue growth, expense management, and other key indicators, these models can identify creditworthy businesses that traditional methods often miss.

For example, traditional assessment would likely overlook an SME with a thin credit file but strong, consistent cash flow and growing revenues. However, with open banking data, lenders can see the full picture of the business’s financial health and confidently extend credit.

Finexer’s Open Banking Data Solution

Finexer’s end-to-end platform provides lenders with secure access to real-time open banking data, enabling them to make instant credit decisions with up to 90% better accuracy than traditional methods.

Here’s how it works:

1. SMEs connect their bank accounts and grant access to their financial data through a secure, permissioned process facilitated by Finexer.
2. Lenders’ credit assessment models can then leverage this rich, real-time data, examining factors like cash flow consistency, revenue growth, expense volatility, and more to assess credit risk and generate instant decisions.
3. With Finexer’s platform, lenders can access the data they need to make tailored offers within minutes, quickly providing SMEs with the capital they need.

The results are game-changing:

• 60% higher approval rates for creditworthy SMEs
• 50% reduction in defaults and losses for lenders
• 80% faster time-to-funding for SMEs

(source)

By harnessing the power of open banking data accessed through Finexer, lenders can say “yes” to more SMEs while keeping risk in check.

Implementing Open Banking Credit Assessment

Implementing open banking credit assessment may seem daunting, but Finexer makes it simple with its turnkey solution and expert support. The process typically involves:

1. Integrating Finexer’s banking data API into your existing loan origination system
2. Configuring your risk models and credit policies to leverage the new data and insights
3. Testing and validating the system on historical loan data to ensure accuracy and reliability
4. Training your team on the new process and analytics to ensure a smooth roll-out
5. Launching to applicants and iterating based on results and feedback

Most lenders can go live within a few weeks and immediately start seeing results. Finexer’s team works closely with you every step of the way, providing guidance, support, and best practices to ensure a successful implementation. They also provide ongoing monitoring and optimisation to keep your models accurate as market conditions evolve.

The Future of SME Lending

As open banking adoption accelerates globally, this data-driven approach to credit assessment is quickly becoming the new standard. In the UK, the Open Banking Implementation Entity reports that over 4 million consumers and businesses now use open banking-enabled products and services, with adoption growing rapidly.

For SME lenders, embracing open banking credit assessment is no longer optional—it’s a strategic imperative. This technology is poised to unlock unprecedented financial inclusion and economic growth for SMEs in the UK and beyond by empowering lenders to make faster, more accurate decisions.

Finexer is at the forefront of this revolution, providing lenders with the tools and expertise they need to harness the full potential of open banking data. With their proven platform and track record of success, Finexer is the ideal partner for lenders looking to stay ahead of the curve and build a thriving SME portfolio.

Request a demo today to learn more about how Finexer can help power your SME lending with open banking credit assessment.