A Milestone in the Financial World

Having successfully processed its first full funding application via Open Banking – a real milestone in the financial world – here Jonny Hawkins, Head of Data Science at Liberis looks at the benefits of Open Banking and the doors it could open for so many small businesses looking to grow.

Sourcing and securing the right funding for a business, whatever its state or size, is one of the biggest challenges in the current climate. Earlier in the year, our research into the world of small and medium sized businesses (SMEs) found that over 60% of small UK businesses said they require funding to grow, but 57% were unsure where to source it from.[1]

For many UK businesses, it’s becoming increasingly more difficult to obtain this funding due to stricter control on credit histories, legislations and current trading conditions. For small businesses, what is already a tough financial landscape is getting increasingly more difficult to navigate. Gaining funding can be even harder due to factors often associated with SMEs such as unpredictable cash flow, a lack of assets and the possibility of failure. These factors can make lending to SMEs high risk for traditional lenders.

However, the tides are changing and in addition to traditional support from banks, more alternative financing options for small businesses are coming to light in what is a continually advancing data-centric age for financial management decisions. Liberis is just one example of an alternative finance provider on a mission to help UK small businesses, helping them secure that all important funding and achieve their long-term ambitions. We are already making smart use of data and currently provide funding of up to £300,000 to small businesses based on a repayment system set at a bespoke, pre-agreed percentage of the business’ transactions. This is a great benefit for businesses who may struggle with seasonal cash flow issues as they can now affordably access funding despite an instability of revenue. 

Greater flexibility, convenience as well as complete transparency over your transactions are all benefits of alternative finance options. And with further technological developments on the horizon, new concepts such as Open Banking are set to boost their benefits through a system which is easier, faster and fairer to small businesses.

Open Banking and its benefits

Open Banking is a revolutionary, collaborative approach to third party finance development. It is a safe and secure way to give providers access to your transaction data quickly and efficiently, saving time and hassle for your business. With your permission, providers can then access this information and use the data to decentralise decision making.

Funding providers would have previously completed these tasks manually, but Open Banking cuts out this long-winded process by automatically connecting data directly to a provider’s underwriters. This gives a clear picture of the business’ funding needs and capabilities, enabling companies like Liberis to provide the necessary funding.

The benefits of Open Banking for small business owners have the potential to be huge and could shake the world of finance as we see it. The use of this technology will minimise the administrative burden that has previously been long associated with finance applications, lenders will be able to make faster and better lending decisions, improving the efficiency of securing funding. Decisions can be more accurately made based on the specific circumstances of each small business, offering a truly unique financial service.

This could be a pivotal moment for the financial services industry, potentially leading to an influx in the number of UK SMEs receiving vital investment. In the long-term, this is beneficial for both the growth of the business and of the larger UK economy.

By making the funding application process easier, faster and fairer, more UK small businesses will be supported in achieving their ambitions. Time which they were previously forced to dedicate to the administration process of securing funding can now be reallocated to developing business concepts and ideas, fuelling fast and effective growth. Ahead of the curve, Liberis is already making use of this data and has successfully completed its first full funding application. A true milestone for the financial world and a first glimpse of a world where businesses previously turned down by banks will receive access to that important funding because of Open Banking technology.

So, what does the future hold?

This smart data approach has the potential to empower better lending decisions to all and, in three to five years, the lending space is therefore set to shift with banks retreating from lending, especially to small businesses. This is for three main reasons: regulations, such as Basel III which affects the amount of capital that a bank needs to hold in order to lend to SMEs; long-winded legacy underwriting systems; and poor customer experience.

While there is some friction with Open Banking due to its infancy, as early adopters of this new technology, Liberis believe the benefits will be second to none so we want to deliver this to our customers as soon, and as safely, as we can. Data protection and security are top of the agenda for many businesses and by harnessing this technology at a time where data is more readily accessible, it’s an exciting time for the lending space.

The use of Open Banking technology is a watershed moment for small businesses finance and will fuel small business growth, vital for the wider UK economy and society itself.

Jonny Hawkins is Head of Data Science at Liberis, a leading alternative finance provider, offering a better way to finance UK small businesses

[1] Liberis Q1 Research, February 2018