In April 2016 the UK government launched the SME credit data sharing scheme with nine banks and three credit reference agencies
The participants are as follows:
- Banks: First Trust Bank, Bank of Ireland (UK), Barclays Bank, Clydesdale Bank, Danske Bank, HSBC Bank, Lloyds Banking Group, Royal Bank of Scotland Group, and Santander UK.
- Credit reference agencies: Creditsafe, Equifax, and Experian.
The purpose of the scheme is to increase the sharing of SME credit data. Up until April 2016, existing providers of SME business accounts had a competitive advantage because they held a lot of information on the business and therefore were better able to accurately assess credit risk than competing lenders. This asymmetry of information led to poor competition in pricing or even no alternatives at all for some SMEs. FSB Wales refers to these occurrences as “information capture or lock in,” which is a drawback of relationship banking.
In practice, relationship banking can enable the use of soft information to mitigate the lack of hard verifiable financial data. A survey conducted by FSB Wales found that businesses that had a “developed customer-loan relationship” with their bank had a “lower probability of experiencing a worsened credit outcome than those that did not.”
Using SME data from the British Bankers’ Association and the Department of Business, Energy and Industrial Strategy, GlobalData has identified regions in the UK in which relationship banking may be more prevalent. The South West and Scotland have a disproportionate share of lending relative to their share of small businesses. The implementation of the new SME credit data sharing scheme now makes those regions attractive for customer acquisition.