Study reveals the lack of adoption of open banking into commercial lending

The study was conducted by open banking provider Yolt Technology Services.

The results come at a time when small business demand for financial support has grown considerably due to the continuing economic difficulties brought on by the COVID-19 pandemic.

The research highlighted that over half (52%) of lenders aren’t currently using products and services based on open banking, with a particular concern being that 58% of those currently not using open banking products and services haven’t even considered it. Adoption levels among lenders were the lowest out of any sector surveyed in the report.

Two-thirds (65%) of those not using open banking cited data security concerns as a barrier, while more than seven in ten (71%) said it was not being able to find the right partner. Respondents were twice as likely to state these reasons for not implementing open banking than cost (34%) or complexity (33%).

However, the research also encouragingly revealed a majority of lenders believe that open banking can improve customer experience (57%) and operational efficiency (50%), which were also the two most cited benefits of open banking across the entire survey. Generating better insights is another benefit of open banking recognised by 47% of lenders, suggesting the sector may divide sharply between those hesitant to use open banking products and services and those who embrace them, who can then provide a faster and more personalised experience.

The emphasis on improved efficiency and customer service by lenders is not surprising given these have become essential recovery tactics following the continuing COVID-19 pandemic. With the government putting business lending at the heart of the economic recovery from COVID-19, many lenders are dealing with exponential growth in business loans and commercial mortgage applications from small businesses.

Coronavirus Business Interruption Loans (CBILS) and Bounce Back Loans (BBLS) are designed to keep small businesses growing and investing, with GBP 44 billion already distributed by alternative lenders and banks since March 2020. Lenders must make sure they are able to cope with this increased demand while still providing the best possible service, particularly as the schemes have recently been extended.

Open banking technology means small businesses would be able to get a response from their loan application in minutes, rather than days and weeks.