Why the Consumer Data Right isn’t ready (yet) to help solve SME funding challenges

It’s a segment in need of solutions too, with lending to SMEs finally growing again after years of stagnating and many now seeking advice given the challenging macro-economic environment.

Unfortunately, there is still much to do if the Consumer Data Right (CDR) is to play a key role in unlocking SME lending (even though enabling more data-driven lending is critical to helping SMEs obtain the funding they need to realize their full potential). Further, any talk of open finance is just a pipedream for SMEs if the basics needed aren’t in place.

There has been a significant focus in the press and industry lately suggesting that CDR has matured, that it is readily available, that screen scraping can be switched off and that various solutions now exist for borrowers, brokers and lenders (who leverage the benefits of CDR). This is true for consumer banking/mortgage lending use cases and for mortgage brokers, where great progress has been made across the eco-system by all the relevant parties/participants.

Unfortunately though, like many things in financial services over the last decade, SME lending and commercial broking hasn’t had the same priority or focus.

The uncomfortable truth is that switching off screen scraping will make things worse for SMEs and commercial brokers.

CDR just isn’t ready to take its place and doesn’t yet deliver on the promise of streamlining the SME loan application/approval processes.

There are 5 key issues that need to be solved by policy makers, the banks/lenders and other industry participants to turn this around (in addition to the availability of non-bank data which is being worked through already)

1. Many SMEs may want to share their data via CDR but aren’t able to 

Two of the major banks don’t provide any access to CDR if an SME uses their more sophisticated version of internet banking – i.e. an SME business that is large enough to have a finance admin function and/or payroll processes (which is anyone other than a sole trader or very small business). 

Several tier 2 banks have been granted extensions and/or allowed to delay when they must enable SME customers to be able to share their data via CDR. 

2. Those SMEs that can, have to jump through manual process hoops to be able to share their data via CDR

Many lenders have made it a double opt-in process for business customers to become authorised to share their data. The individual(s) that are already the authorised user(s) of a business account must go through a manual/paper form process to also authorise the sharing data via CDR. 

One major bank has created a default setting that any customer who existed before November 2021 must go through this sort of process. 

In reality, the process should be the same, or similar, to other data sharing mechanisms these same banks have commercialised already – e.g. the default at most of these banks is any already authorised user of an account can share their bank data with their cloud accounting platform in a fully digital experience. 

3. SMEs can only share data on a subset of the products they should be able to

Many banks haven’t yet made available all the products that should be available via CDR . For example, asset/equipment loan data has only been made available by five of the top 11 SME bank.

All the major banks have at least one SME loan product that should be available but isn’t (in one case this includes their largest SME term loan product). There are similar gaps across the banks when it comes to which business transaction and savings accounts, they have made available

4. The data on that is available to be shared doesn’t include all the key information needed for SME loan applications

The CDR rules have been written with consumer finance use cases in mind and missed some of the nuances associated with SME account data.

For example, SME lending can have structured repayment profiles or end-of-term balloon payments which aren’t the full principal amount and have various different interest rate reference rates that influence how the rate changes over time.

5. Bank data needs to be supplemented by both Australian Tax Office and Accounting Platform data given their importance to SME loan applications, being able to share all this via CDR would be easier and safer 

Most lenders to SME businesses require loan applications to include tax data and financial statements/detailed accounting data which is looked at in combination with and/or cross referenced to their bank data.

Instead of prioritising the other key data needed to help SMEs via CDR, the regulatory focus has moved on to other consumer use case industries like Telecommunications and Energy data. 

There is significant information asymmetry between lenders and SME borrowers and fast, safe and efficient access to the right information can help solve this.

The combination of SMEs getting the right advice and enabling access to the right data is critical to helping lenders make more informed, faster, and better lending decisions, which – in turn, leads to more funding for SMEs.

Without resolution of these issues, traditional screen scraping will remain far more practical for many SMEs and lenders than using CDR.

Graham Strain is a senior executive with deep global financial services knowledge gathered over 21 years in the industry, 14 years of that experience in the SME banking space at NAB and Judo.

After witnessing the poor experience for customers, brokers and lenders during the commercial lending process, Graham was motivated to solve this problem by co-founding  Cito+ (CitoPlus).