The open banking model zeroes in on the opportunities that third-party FinTechs might have by unlocking banking data of their clients. But as the concept proliferates throughout the financial services world, providers are examining new possibilities of consensual data sharing in other ways.
In what might be considered a bit of a reversal of traditional open banking, FinTechs are increasingly exploring how banks themselves can enhance their services to clients by unlocking data siloed within third-party platforms.
With pandemic relief and economic recovery at the front of everyone’s minds today, small business lending is often at the center of FinServ innovation efforts, and opportunities in unlocking data across service providers are emerging.
ForwardAI CEO and Co-Founder Nick Chandi and Chief Information Officer and Co-Founder Jag Barpagga said the time is now for banks to gain access to small business clients’ back-office accounting portals in a more seamless and efficient way to accelerate financing. Data transparency, they recently told PYMNTS, will be an essential component to accelerating and safeguarding small to medium-sized business (SMB) financing efforts in the months and years ahead.
An SMB-Led Effort
Data ownership remains a prominent discussion within the world of open banking, with proponents highlighting the model’s ability to let customers retain control of their financial data. While access to this information is certainly beneficial to banks and FinTechs, small businesses are the ultimate winner when data is shared, said Chandi.
According to Chandi in a Thursday (April 22) announcement, the ForwardAI Precise solution is an application programming interface (API) that unlocks data within SMB accounting portals to support loan underwriting. It stemmed from a request from a small business owner seeking help to access a loan to finance upcoming payroll.
“That triggered a lightbulb moment,” he said. “There is a need for lenders to have real-time visibility into the cash flow and financial data of … [SMBs] so they can make decisions very quickly.”
Speed is imperative in such cases like financing payroll when a business simply cannot wait to access working capital. The challenge arises not in convincing an SMB to release their data but in enabling a lender to access it efficiently enough to accelerate the underwriting process.
As Barpagga noted, this process typically involves business owners printing out financial statements and balance sheets or converting them to PDFs — the owners then need to submit that information to lenders. It’s a workflow that can take weeks for a financier to pore over all of that information manually.
Through API integration, lenders can instead gain read-only access to reports from platforms like QuickBooks Online and secure real-time visibility into the financial health of a potential borrower.
Safeguarding The Process
Initiatives like the Paycheck Protection Program (PPP) raised the curtain on just how important it is for lenders to accelerate access to capital for small businesses. The effort also, unfortunately, revealed just how troublesome the risk of fraud can be for banks and credit unions.
The traditional data-sharing workflow between small business and bank is far from ideal, particularly when it comes to mitigating such risks.
“Anyone can create a million-dollar invoice and can show, ‘Okay, I have this huge account receivable pending,’” said Chandi. “That can get you into some kind of fraudulent activity there.”
Direct integrations between banks and back-office platforms via API offer a data-sharing model with less opportunity to alter data. Looking ahead, Chandi said there are opportunities for technologies like blockchain to further preserve the integrity of SMB financial data, particularly as the number of sources of data expands.
“There are so many KPIs [key performance indicators] and ratios and parameters that we focus on,” explained Barpagga. “It’s not simply just pulling [up a] chart of accounts, bills, invoices — that’s just one piece of the equation.”
As comfort with data sharing increases and as technology evolves to streamline and safeguard that movement of information, the opportunity for lenders to tap into other sources like credit cards, statements from a business’s other financial service providers, and other loan products of the past will mean a more robust loan decision. Forecasting tools can support an underwriter’s need to look ahead to further mitigate risk, too.
For Chandi, the old ways of aggregating and sharing information are no longer fit for purpose. Financiers need troves of historical information dating back months or even years to make an informed decision — yet, as was the case in one experience he recalled, it can take weeks to merely obtain copies of invoices from accounts payable and third-party vendors.
With the success of SMBs and the overall health of the economy hanging in the balance, accelerating and securing the small business loan underwriting process will be imperative.
“We see a shift happening in business lending,” Chandi said. “The focus is moving from historical to real-time or predictive data.”
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