Funding Circle looks again at open banking

Funding Circle is reconsidering adopting open banking technology now that the customer experience has improved.

The peer-to-peer business lender does not currently use the data-sharing initiative, which mandates high street banks to share anonymised customer data with approved third parties.

Funding Circle’s UK managing director Lisa Jacobs (pictured) said that the platform had considered using the technology in previous years to help with its credit assessment processes, but was dissuaded due to concerns around accuracy of data and the customer experience.

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“I love open banking, I think it’s great,” Jacobs told Peer2Peer Finance News.

“However, I thought when it launched that it would take a little bit of time before it became really useful. And I think that’s what we’ve seen actually.

“At the start there were questions around a couple of things: one was coverage and accuracy of data, which is obviously very important; and the second was the user experience and what they call the user pick-up. It was a really clunky flow.”

Jacobs said this jarred with Funding Circle’s focus on creating an easy customer experience.

“The challenge with open banking when it first launched was that the user journey was pretty horrible,” she added. “I think that’s improved massively and there could be more opportunity than ever before for open banking to come into its own.

“We don’t use it at the moment because of the concerns we had historically but we’re starting to look at it again to see where it might have real value for businesses throughout.”

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Open banking launched in January 2018 to great fanfare, pledging to level the playing field in financial services for the benefit of the consumer. However, take-up has been relatively slow, partly due to consumer concerns about privacy of data.

“Customers have to be comfortable with providing that access,” said Jacobs. “I think the world’s moved on a lot since open banking launched a couple of years ago and people have got a lot more comfortable with the security around sharing.”

In the meantime, Funding Circle has been obtaining the data it needs through other methods, such as bank statements or the Commercial Credit Data Sharing (CCDS) initiative.

CCDS is a government initiative designed to stimulate competition in small- and medium-sized enterprise (SME) lending markets. It mandates the nine largest UK banks and three credit reference agencies to share, with the SME’s permission, the credit information they hold on SMEs equally with all finance providers. This includes detailed business current account data and up-to-date information on the performance of loans and corporate credit cards.

“Historically, we didn’t see the value in open banking versus those other tools that we could use,” Jacobs said. “However, I think things have changed now so we’re looking at it again. I’ve heard good things from other platforms that have been using it in terms of the take-up rate, so people are clearly starting to get more comfortable with it.”

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Funding Circle has invested heavily in its technology over the past year and now provides instant decisioning on around 40 per cent of loan applications.

Data gathering is at the very core of the improvements, Jacobs explained.

“Since we’ve launched, we’ve aimed to try and serve as many small businesses as possible and in order to do that we focus on getting data, improving our models and creating a very regular feedback cycle between the improvement of those models,” she said.

“We used to talk about the ‘virtuous funding circle’ – the most businesses we have, the more data we have and the better our models can become, which means that we can serve more businesses.

“That has been at the core of making technological improvements, because we had to have that data and we had to have built those models to be able to do instant decisioning.”

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She said that Funding Circle has built its own technology to bring in bank statement data to compliment other data sources such as CCDS. It has also worked on how to digitise bank statements if people don’t have access to online banking.

“It has made the process a whole lot slicker from a small business point of view because we pull in data from other sources so they don’t have to provide us with that data,” Jacobs said.

“It means that there’s a quicker response time on loan applications and it also means internally that there’s less processing, which feeds into making it a much better experience for the borrower.

“I think over time we’ll roll that out further to more applications. We’re always trying to raise the bar on innovation.

“It’s quite exciting actually because there are a lot of things you can do at the back end of that instant decision which will make things easier for small businesses.”