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How lenders can use consented customer data to better evaluate creditworthiness

Photo by Towfiqu barbhuiya on Unsplash

A small business’ financial and performance datasets are the holy grail for digital lenders. The ability to parse these datasets in real-time, and feed them into credit origination and monitoring engines, is a clear competitive advantage for lenders. The arrival of APIs that make it easier to integrate a business’ key datasets into lending systems will bring the timeframe for underwriting projects forward.

Why it is important:

Access to capital for small businesses is simply critical, especially during the economic volatility of recent times. The lenders, digital or otherwise, that can most effectively and efficiently provide this capital will reap the rewards.

How lenders win: Linking a business’ financial and operational performance data seamlessly in credit applications will reduce the time-to-decision. If a loan is approved, the integration with the datasets can continue to feed the credit risk monitoring systems moving lenders from reactive to pro-active risk management.

Is it winner take all? Not even close: The market for small business financing is fragmented. Businesses are heterogenous and as are their requirements in a credit product. E-commerce versus brick and mortar, B2C versus B2B, selling services or selling goods. These are but a few dimensions of differentiation that would benefit from careful consideration by lenders, especially when it pertains to which business datasets can best predict creditworthiness.

  • Not all small businesses are created equal. Their business model, industry, target customer, market dynamics, etc. will play a role determining which of their datasets can determine creditworthiness.
  • The explosion in software means, in aggregate, the surface area of where operational and performance datasets live in a business is always expanding.
Example – E-commerce businesses:

Accounting datasets: Gain a real-time view of the financial statements to understand the key dynamics of the business. Access these datasets via integrations to platforms like QuickBooks Online, Sage Business Accounting, and FreshBooks or via a business data API like 9Spokes Open.

  • Use the balance sheet to understand where the risk lies in the business.

Sales datasets: Dig deeper into the revenue numbers, SKU information, and chargebacks to better understand the sales trends. Access these datasets via integrations to platforms like Shopify, Stripe, and Square or via a business data API like 9Spokes Open.

  • Deep-dive into the sales trends and uncover any potential seasonality that needs accounting for when making a credit origination decision.

Banking datasets: Understand the health of a business’ cash flows by ingesting incomings, outgoings, and overdrafts. Access these datasets via integrations to specific banks, an open banking aggregator like Tink and TrueLayer or via a business data API like 9Spokes Open.

  • Cash flows are the lifeblood of all businesses, including e-commerce businesses. Assess and forecast cash flows with bank transactions as a source of truth.

Marketing & social media datasets: Assess marketing engagement across key channels to understand the growth levers businesses have. Access these datasets via integrations to platforms like Mailchimp, Facebook, and Instagram or via a business data API like 9Spokes Open.

  • Use trends within impressions, engagements, and followership to understand the business growth journey and future trajectory

HR & payroll datasets: Understand the key people metrics like headcount, turnover, and payroll expenses. Access these datasets via integrations to platforms like Talenox, ADP, and Gusto or via a business data API like 9Spokes Open.

Start with one segment, then expand: A data-driven credit experience, from application to origination to servicing, will look different for different business segments. Take e-commerce as an example

What to watch:

As more and more lenders explore how to augment their credit products with open datasets, expect competition to ramp up. Being a first-mover in this space will only yield incremental benefits given the fragmented nature of the small business financing market. The question will be who can deliver the best experience to each of the market segments.



How 9Spokes can help

At 9Spokes, we can help you connect to your customer’s tech stack and access always-on data from all major categories of business applications including banking, accounting, PoS, payments, commerce, marketing, and social media. 9Spokes Open is our small business data API that enables the data connection. 9Spokes Track is our white-labelled SMB engagement platform – a modular toolset that helps small businesses manage their business better while arming bankers with always-on insights to generate new business. 9Spokes can partner with financial institutions to build an end-to-end customer experience that builds brand stickiness and the business banking bottom-line.

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