Codat, Plaid partner to support small business lending in the UK

By Sunniva Kolostyak

UK FinTechs Codat and Plaid have announced that they will be joining forces to help SMEs connect and share financial data with lenders to get quicker access to capital.

Codat, which offers an API to power the SMB data ecosystem, and Plaid, the data network connecting financial accounts to apps and services, believes small and medium businesses will continue facing a challenging economic environment for several years.

In a statement, the two FinTechs revealed that the UK SMEs saw more than double the loans in 2020 compared to 2019, at more than £54 billion. But despite this significant increase in available credit, SMEs still experience a massive funding gap of over £55 billion.

By working together, Codat and Plaid will enable SMEs to instantly connect and share a comprehensive range of financial data with lenders during the application process so they can more quickly gain access to the capital they need.

Plaid’s API supplies permissioned banking data, which means that SME owners grant Plaid permission to access their transactions from a trusted bank source, and Codat’s API provides access to contextual accounting, POS, and commerce data. Combining and comparing these two sources allows lenders and underwriters to form a complete and verifiable understanding of a business customer, beyond what’s available from credit bureaus, via one simple API integration.

The FinTechs aim to change the loan underwriting process, as SME obstacles are often ignored. In fact, 57 per cent of all SME credit applications are either abandoned because they are just too hard, or ultimately rejected. And the average conversion of SME loans from a sampled high street bank was only 8 per cent.

Furthermore, access to these combined data sources also can help fight fraud, the companies stated. Codat’s API offers deep insight into a business’s financial picture. When paired with Open Banking data, lenders can corroborate the actual financials of a business with what they submitted in the application process.

Lenders will also be able to flag key indicators early like increasing creditor pressure or concentration risk that Open Banking data alone would not reveal. As a result, they can assist their customers with monitoring their cash-flow or tailor the loan servicing experience to an SME’s particular financial needs.