SMEs set to lose out as lenders aren’t embracing Open Banking, market study shows

An international study of over 1,000 senior professionals in the banking, lending, PFM, investment, and retail sectors by leading open banking provider Yolt Technology Services has revealed the lack of adoption of open banking into commercial lending, despite many acknowledging its benefits for customers. The results come at a time when small business demand for financial support has grown considerably due to the continuing economic difficulties brought on by the COVID-19 pandemic.

The research highlighted that over half (52%) of lenders aren’t currently using products and services based on open banking, with a particular concern being that 58% of those currently not using open banking products and services haven’t even considered it. Adoption levels among lenders were the lowest out of any sector surveyed in the report.

Two-thirds (65%) of those not using open banking cited data security concerns as a barrier, while more than seven in ten (71%) said it was not being able to find the right partner. Respondents were twice as likely to state these reasons for not implementing open banking than cost (34%) or complexity (33%).

However, the research also encouragingly revealed a majority of lenders believe that open banking can improve customer experience (57%) and operational efficiency (50%), which were also the two most cited benefits of open banking across the entire survey. Generating better insights is another benefit of open banking recognised by 47% of lenders, suggesting the sector may divide sharply between those hesitant to use open banking products and services and those who embrace them, who can then provide a faster and more personalised experience.

The emphasis on improved efficiency and customer service by lenders is not surprising given these have become essential recovery tactics following the continuing COVID-19 pandemic. With the government putting business lending at the heart of the economic recovery from COVID-19, many lenders are dealing with exponential growth in business loans and commercial mortgage applications from small businesses. Coronavirus Business Interruption Loans (CBILS) and Bounce Back Loans (BBLS) are designed to keep small businesses growing and investing, with £44bn already distributed by alternative lenders and banks since March 2020. Lenders must make sure they are able to cope with this increased demand while still providing the best possible service, particularly as the schemes have recently been extended.

Open banking technology means small businesses would be able to get a response from their loan application in minutes, rather than days and weeks. Yet with so much demand, it’s clear open banking must be embraced if lenders are to meet the Government’s economic rallying cry.

Leon Muis, Chief Business Officer at Yolt Technology Services, comments:

“Although open banking can make lending smarter, faster, more secure, and more efficient, many lenders remain reluctant to make the jump, with concerns around data privacy and finding the right provider holding them back. These concerns, however, can be resolved over time, as trust in the technology builds and widespread adoption in other sectors demonstrates that security can actually be enhanced through open banking. Regulators also have a clear role to play in educating lenders and wider sectors to alleviate some of these concerns.

“However, time is of the essence, given that business lending in particular is crucial to the continued support of businesses during the COVID-19 pandemic. EY forecasts business lending will grow by 14.4% this year compared to 2019, the biggest increase in 13 years after a period of decline, but more needs to be done by lenders to support their customers through the deepening recession.

“Many lenders do recognise the benefit of open banking, citing its ability to achieve enhanced efficiency and better customer service, for example by reducing the time it takes to link to customer data and check credit scores, while simplifying the identification process. However, many lenders are yet to take the leap towards open banking, which is ultimately to the detriment of their customers.

“With such stark differences in attitudes towards open banking, we could see a wider split emerge between those who have embraced the technology and those who haven’t, particularly when it comes to the quality of customer service and speed of service through the challenging weeks and months ahead.”