Why won’t your SME customers share their financial data? It’s not them, it’s you.

By Pete Lord, CEO & Co-Founder at Codat.


The outlook for small businesses in 2023 is volatile. Along with through-the-roof inflation and dropping demand, accessing the finance needed to survive and grow is set to drift further out of reach for a great number of businesses. Even back in 2019, the Bank of England put the SME funding gap – the difference between the amount of credit growing businesses need, and the amount they can access – at £22 billion. Put simply, this gap continues to exist because the SME credit landscape is not set up for lenders nor borrowers to succeed.

As the UK hurtles into its second recession in less than two years, this funding gap will undoubtedly continue to impact and endanger small businesses, unless it is addressed.

There is another way

Improved data sharing – enabling better data flow and accessibility between lenders and the financial tools used by small businesses – is key to reducing the SME funding gap.

It is the first necessary step, which according to our recent research could close the gap by around £10bn, effectively halving it. The right initiatives have the potential to not only help SMEs but to unleash significant business opportunities for lenders and the financial services community at large. It’s a no brainer.

The technology needed to reduce the funding gap via improved data sharing already exists, therefore the onus now is on technology providers and credit providers to put it into action to better support small business access to credit.

The big myth: SMEs won’t share their data

Critical to the success of data sharing initiatives, is the willingness of SMEs to allow access to their business data. And while there is a common misconception that SMEs are not willing to do this, in fact, the opposite is true, as long as there is a clear incentive for them to do so.

Our latest research shows that over two-thirds of SMEs are happy to share their data with potential credit suppliers, a number that jumps to 90% of SMEs with 10+ employees, and 96% for those with 50+ employees. The larger the SME, the more open they are to data sharing.

Sole traders and micro businesses do tend to be more reluctant, in part due to a lack of awareness and understanding of how Open Finance and data sharing can benefit them. However, improving access to credit for larger SMBs is most important because these businesses contribute significantly more to GDP and the economy. Companies with 10+ employees represent just 5% of all businesses, but contribute 31% of turnover in the economy.

From the lender’s perspective, it’s the larger companies which also represent the main business opportunity. While their size and typical level of borrowing shouldn’t by any means preclude sole traders from accessing the credit they may need, they do borrow less often and borrow on average up to 10 times less than their larger counterparts.

Overall, it’s clear that the majority of SMEs are willing to share their data. If lenders are being met with reluctance from SMEs in doing so, the chances are that it’s down to the lender and how their services are being presented.

What should financial providers do differently?

The data shows that the best incentive for SMEs to share data is securing a lower rate. Almost a third of SMEs said they’d share more data in exchange for a better rate on a loan, and 22% would do so for greater transparency in the loan decision-making process. Therefore, for lenders to improve the willingness of SMEs to share data with them, the most important thing is to effectively communicate the value exchange, so that SMEs can draw a direct line between improved data flow and improved access to credit. In other words, something like ‘Connect your accounts for a decision in less than a week (2 weeks + without)’ is better than ‘Connect your accounts to complete your application’.

SMEs do have understandable concerns around data security – who will have access to their business data and how it will be used. However, the critical takeaway from our research is that SMEs will happily part with their sensitive financial data if they are reassured that it will be handled responsibly. For example, when we asked SMEs what they thought could be done to help alternative lenders build their trust, almost half of respondents said they wanted clearer limits around how their data would be used. To encourage more customers to share data, lenders must be explicit and transparent about data management and their approach to data security during the connection process. For instance, including a brief description of the privacy policy and security measures as well as a linking out to the full document and requiring an action from the user to confirm consent.

Our research also shows that 58% of SMEs trust high street banking, but that this drops to 18% for online-only lenders, mainly due to unfamiliarity, confusion around regulation and uncertainty about these lenders’ approach to data security. Addressing these issues will help to win over more SMEs to data sharing.

The time for change is now

The technology to improve the SME lending landscape for both SMEs and lenders is already here, as is the willingness from businesses to share their data, when provided with the right motivation and reassurance. Lenders must not let the myth that SMEs won’t part with their data be the justification for inertia. The providers that act now will find themselves ready to unlock significant growth opportunities, whilst also narrowing the SME funding gap thus improving the outlook for the UK’s small businesses.


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