The growth in open banking and B2B buy now, pay later (BNPL) is making it easier than ever for sole traders and other small and mid-sized businesses to access credit, while also giving lenders more certainty about their creditworthiness. Speaking at the recent AltFi BNPL forum in a panel titled ‘How Open Banking and BNPL Are Working Hand in Hand’, Hokodo’s VP of Operations and People, Sania Kudaibergen, discussed how Hokodo is using open banking to make better lending decisions, the broader challenges of data sharing in the B2B world and how technology advancements could change how businesses use open banking data in the future.
Here are three key things we learned from the panel.
1. Open banking data is boosting credit access
While trade credit is a well-established form of borrowing for large corporations, many other businesses have traditionally struggled to access the market because they are too small to have a credit score or too young to have built up a reliable credit history, says Sania. By combining B2B BNPL financing with open banking data, small and medium-sized businesses that were previously ineligible are now able to access short-term credit, while those that had restrictive credit limits are now able to borrow in greater size.
“For us, as the provider of the credit, it helps to conduct more accurate credit risk assessments, as well as fraud risk assessments, so that we’re more confident in giving, for example, a higher credit limit to a business,” says Sania.
2. Business account data poses challenges
Open banking in the B2B world is lagging behind the consumer market, in part because there are more challenges when it comes to sharing business data, Sania says. First, some businesses have more than one bank account, which means providers must integrate into all of those accounts (and some banks may not have the same level of connectivity as others). Second, many businesses operate in multiple countries, where some may have stricter rules on data sharing. By contrast, most consumers typically only have one bank account and usually just live in one country.
Another challenge is converting the raw data into usable information. Categorising transactions, for example, is harder for businesses because it will often depend on the context of the transaction, Sania says. “There’s potentially less accurate categorisation available from existing open banking providers because a lot of times the data is trained on consumer data, rather than business account data,” she explains. Some businesses may also be reluctant to share their banking data, particularly in countries where the concept of sharing data digitally via an API is less developed, Sania adds.
3. Open banking holds a lot of potential for B2B lending
Artificial intelligence and machine learning tech could potentially be used with open banking data in the future by amassing large quantities of transactional data and then training the algorithm to more accurately tag transactions. “You could teach it what each transaction is and then also the context—if it is this type of company in this type of industry, then this transaction should be classified as X,” says Sania. “That would be a very useful application because you could potentially speed up the whole process of making the data useful and be able to generate insights from it and to feed it into your risk models.”
Open banking is also still in its infancy—in the next phase of open banking, it may be possible to use a customer’s data to improve credit monitoring. That would allow credit risk assessments to be updated on a much more frequent basis using fresh data and well ahead of companies filing their official accounts, Sania says.
Want to learn more? Watch a replay of the full panel on the AltFi website.