Compound data: the key to digitized lending

A staggering 90% of small- to medium-sized enterprises fail. Aside from operations and strategy, one of the biggest reasons is limited funding or lack of timely cash flow. This is no surprise given that 72% of SME loans are rejected; it takes three months for SME borrowers to get their cash; and still 52% of SME financing needs are unmet.

Lenders actively seek qualified borrowers, so what is causing a breakdown in the flow of capital? Information – or rather, the lack thereof, is to blame. With sufficient data, however, and a seamless data gathering approach, both the lender and borrower journeys can be improved. In fact, banks that digitize their workflow reduce their risk and still see 2% higher ROE than their peers who don’t.

So, where does the data come from and how can insights be derived?

Some banks such as Bank of America attempt to create multi-year aggregation projects to gather data onto their own systems.  Other FIs partner with fintechs like the CIBC-Borrowell partnership to overlay solutions to derive insights from the unstructured original sources. Whatever the approach, it’s clear that data is key to better lending, with Forbes calling data the “umbrella” lenders need to protect themselves from the risks that accompanies business lending.

The lending process, however, hasn’t kept pace of this change, resulting in a funding gap of $5 trillion for SMEs. To date, the lending process for SMEs has remained largely manual, involving historical information such as financials and credit checks. This is akin to evaluating the growth trajectory of a company by looking in the rear-view mirror. Challenges include data gathering, processing, negotiating internally for approval and even ongoing risk assessment. It’s slow, cumbersome and fails to meet businesses where they are.

New data sources alleviate these challenges. FIs are increasingly realizing that data lakes — combinations of “simple” data (singular data sources) — give the most complete picture of a business. This is what we at Boss Insights call “Compound Data” which is the union of all available simple data to reveal the clearest insights. This clarity can unlock new business from the 72% rate of rejected loan applications. For instance, a small business with a poor quarter on paper might have tripled leads recorded in its sales data. Additionally, it could be seeing more marketing reach or have added a new adviser, an indication that it may be poised for growth. And while traditional lenders may reject this SME, Compound Data would give lenders additional data points to consider and capture untapped opportunities. This is the reason why Boss Insights introduced the concept of Compound Data through scalable APIs.

FIs have historically devoted resources to polishing single-source data sets instead of harmonizing multiple data lakes. This robs them of insights from synergies between multiple data sets. Although FIs are recognizing the importance of accessing these new data sources and making efforts to do so, most are doing this one API at a time.

With SMEs doubling their spending on cloud technology since 2016, more back-office software systems (the BOSS in Boss Insights) are being used today than ever before. These systems all store data in the cloud, but each speaks a different language. For instance, Quickbooks and Salesforce data sets both reside in the cloud but have no way to interact with each other.

APIs connect them all together, but the integration of “simple data”, or APIs in isolation, is ineffective. Lenders require the ability to gain insights from this data to see businesses in the same way that they see themselves. And in the race towards the best AI and best understanding of the borrower, Compound Data provides a key strategic advantage.

It’s often said that data is the new oil. Today, this is undeniable. Stated more accurately, however, insights are the new oil and Compound Data is the drill. By laying the pipes to gather the best insights, Boss Insights is setting a framework that fuels the economic engine of future small- and medium-sized businesses.

Keren Moynihan is the CEO of Boss Insights, which is part of the INV Fintech program.

About Boss Insights

Awarded the Canadian Lenders Association’s Top 25 Executive Leaders in Lending Award, Boss Insights opens the door to customer arbitrage enabling FIs to acquire new business borrowers without taking additional risk. By developing a universal API platform, Boss Insights provides 360⁰ insights on business borrowers, integrating all of their data and streamlining the borrower and lender journey. Our big data and AI platform accelerates loan qualifications and approvals from months to minutes and provides real-time alerts to drive post-loan origination profitability. This digital lending functionality takes only 8 weeks to adopt