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Plaid and Codat partner to improve small business lending in the UK

OpenBankingExpo | ,

Insight source: Plaid

In 2020, the UK saw more than double the loans made to small and medium enterprises (SMEs) at more than £54 billion than the previous year. Despite this significant increase in available credit, SMEs still experienced a massive funding gap of around £55B in 2019. With this in mind, it’s clear that many SMEs face a challenging economic environment right now and likely will continue to for the next several years. That’s why Plaid are partnering with Codat, an API for business accounting, POS, and commerce data, to help SMEs access the tools they need to manage their finances effectively.

Through the partnership, Plaid and Codat aim to help streamline the loan underwriting process. Despite SMEs’ outsized role in the UK economy, the obstacles they face in financial services are often ignored. Fifty-seven percent of all SME credit applications are either abandoned because they are just too hard, or ultimately rejected. And the average conversion of SME loans from a sampled high street bank was only 8%. Together, Plaid and Codat will enable SMEs to instantly connect and share a comprehensive range of their financial data with lenders during the application process so they can more quickly gain access to the capital they need.

Plaid’s API supplies user-permissioned banking data, which means transactions data comes from a trusted bank source, while Codat’s API provides access to contextual accounting, POS, and commerce data. Accessing data from these two sources allows lenders to form a more complete and verifiable understanding of a business customer, beyond what’s available from credit reference agencies, via one simple API integration.

Furthermore, access to these combined data sources also can help lenders fight fraud. Codat’s API offers deep insight into a business’s financial picture. When paired with Plaid-supplied Open Banking data, lenders can corroborate the actual financials of a business with what they submitted in the application process.

Access to more comprehensive and up-to-date business financial data on an ongoing basis can have even more added benefits. For example, it can enable lenders to flag key indicators early like increasing creditor pressure or concentration risk that Open Banking data alone may not reveal. As a result, lenders can assist their customers with monitoring their cash-flow or tailor the loan servicing experience to an SME’s particular financial needs.

Keith Grose, Head of UK, Plaid commented: “The current economic situation has made it more challenging for SMEs to get access to loans, and fintech has created many tools to tackle these obstacles. Open Banking with Plaid and open business data with Codat will lessen the burden of the loan process and improve the access to capital for SMEs”.