CFIT’s coalition: unlocking financial innovation to improve outcomes for UK businesses

Our inaugural Open Finance coalition is in full swing. Advocates of Open Finance from across financial services, fintech, academia and regional associations have come together to drive financial innovation, consolidate the UK fintech industry’s world-leading position and deliver transformative change for both individuals and Small and Medium-sized Enterprises (SMEs).

To tackle this effectively, our coalition partners are focusing on either consumers or SMEs. We recently sat down with four of the partners leading the coalition’s work on SMEs, to hear about what UK businesses can expect from us in the coming months – and how that will unlock financial innovation.

The importance of Open Finance for UK SMEs

The need for better access to finance for smaller businesses is abundantly clear. 60% of SMEs are not confident that they can secure finance from banks. For many SMEs, credit decisions are currently based on the personal credit records of their directors. Banks are having to make lending decisions with only half the picture, gauging the financial health and potential of a business whilst only seeing the data aligned to an individual.

Glen Keller of CRIF Realtime, Navpreet Parmar of Woodhurst, Rory Tanner of Revolut and Stephen Ashworth of AperiData are leading the SME working group within CFIT’s Open Finance coalition. They represent a cross-section of the industry and understand the challenges SMEs face first hand. Their experience within financial services ranges from neobanks, whose growth has been predicated on the adoption of Open Banking, to data and credit score providers, who are all too familiar with the walled gardens within which much financial data is held.

Navpreet explained: “Open Finance is the future. It really is impossible to talk about making the UK the global leader in fintech innovation without capitalising on the opportunities that come from Open Finance. It enables finance and technology providers to innovate, use APIs and access newly opened-up datasets to provide SMEs with access to new products, services and applications that didn’t originally exist.”

Unlocking key datasets to improve financial outcomes for SMEs

The Coalition was able to quicky identify challenges and roadblocks facing SMEs, meaning they could direct their collective efforts towards defining impactful solutions. Working together, partners have mapped out a vast quantity of financial and non-financial data which is currently underutilised or inaccessible, across over 30 datasets. Identifying how to access these datasets and how they help improve financial services constitutes the first systematic definition of Open Finance.

Stephen explains: “The main area of research completed thus far has been in establishing the universe of potential data sources that could be used to determine their relative benefits and support the coalition’s mission of improving credit decisioning. This allows us to compile a priority list of datasets that will inform the solutions that the working groups are developing.”

This has involved ranking each potential data source that could be used on a matrix of value, effort and trust, in order to determine which is the most valuable and how they help improve financial services. Glen and Stephen described the value of leveraging trusted datasets that they had already worked with at AperiData and CRIF. Glen has been employing his experience of working with lenders to develop a portable credit file for SMEs, recommending data sources and, therein, identifying gaps.

A major breakthrough for Glen in all of this has been getting in the same room as those who deal with this data daily – the likes of Companies House, for example. “That direct access is the difference between banging on a closed door and working collaboratively to make it happen.”

The coalition is also developing a framework to simplify data integration and data access so that this full range of Open Finance datasets can be accessed by a single API standard.

Validating the work of the coalition

The next phase of the coalition work will be to build prototypes, or ‘proofs of concept’, which will show how the industry can design new products and services to make use of these underutilised datasets.

“This will allow us to show how enabling access to the new data sources for end users – primarily banks and lenders – will improve the efficiency and accuracy of their decision making for SMEs, and to therefore infer the positive impact of our work,” Glen explains.

Developing a blueprint for Open Finance

The work of the Coalition is primarily focused on what industry can do, by unlocking datasets that are currently available and creating prototypes that businesses will be able to take forward and commercialise. Alongside this, Revolut’s Rory Tanner, Head of UK Government Affairs, has been looking at other considerations that are part of a wider blueprint to roll out Open Finance across the public as well as the private sector.

“Open Banking was delivered through a combination of a Competition and Market Authority in order to accelerate competition in retail banking, and legislative actions through the Payment Services Regulation 2017, but this isn’t a copy and paste framework,” he tells us. “Open Finance is more complex and encompasses more sectors and wider datasets.”

In order to unlock Open Finance in the UK, the Coalition will therefore also outline an overarching strategy for what industry, government and regulators will need to do to make Open Finance a reality. That will be in addition to the resources the Coalition is creating for industry to use.

Having worked intensively on the challenges and opportunities presented by Open Finance, Glen, Navpreet, Rory and Stephen agree on the urgency of the matter, particularly if the UK is to become a global leader in fintech.

Navpreet observes that “the possibility of more solutions for SMEs could make the UK number 1 in the world in terms of fintech innovation”.

Or, as Rory puts it: “Open Finance is going to define the next 10 years of financial innovation, both in the UK and globally.”