This article was first published on December 1, 2020.
The Consumer Data Right (CDR) in Australia, also referred to as Open Data, is designed to give consumers and small businesses control over how their data can be accessed and shared securely through digital channels. For consumers and businesses, Open Data should unlock materially smoother, faster and more innovative experiences. Processes that were previously paper-based and cumbersome can now become digital and instant. Customer onboarding and account switching can be completed in a few clicks. Brand new services such as subscription management and behaviour-based offers can become more common.
Open Data provides a timely and much needed opportunity to unlock access to credit for small businesses. Historically, obtaining small business credit products from lenders has been challenged by manual processes, long timeframes, and high rejection rates. While fintechs and some leading banks invested to address these challenges pre-crisis, few have been able to continue lending at scale despite substantial government support. Our research during the pandemic points to a heightened urgency to address access to capital for small businesses through intuitive experiences. Small businesses require capital both to sustain cash flows in the short term as well as to deliver business model changes required to address behavioural shifts that the pandemic has accelerated. These include a step change in the adoption of digital payments, e-commerce and virtual ways of working.
Existing credit assessments are typically backwards looking and calibrated on a historical period of relatively lower financial stress (in Australia). Their ability to efficiently assess the ongoing viability and credit worthiness of businesses post COVID-19 will be challenged. Ongoing government support schemes such as JobSeeker, JobKeeper, Government backed loans, interest and principal holiday periods, and tax write-offs add significant complexity to assessments of financial viability. Practically, the time and cost of assessing credit for small businesses is only set to increase unless new data and ways of assessing viability can be incorporated. This will require lenders to innovate fast towards credit decisioning and monitoring capabilities that use real time data, forward looking indicators and behavioural patterns.
This report introduces use cases to reimagine access to credit using CDR for more accurate credit decisioning and portfolio monitoring. We recommend actions for lenders to reset their small business credit innovation priorities in the new normal including prioritizing use cases based on impact and ROI, securing accreditation as a data recipient in the CDR ecosystem and designing forward looking credit capabilities. We also include an interview with Jill Berry, CEO of Adatree, an Australian regtech with practical perspectives on the potential impact of small business credit use cases and the hurdles that industry participants should be prepared for.