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|CMA order will revolutionise SME lending – Equifax comments|
|Thursday, 04 August 2016|
On 9 August 2016, the Competition and Markets Authority (CMA) is due to order seven major high street banks to produce new loan pricing and eligibility tools to address the lack of competition in SME lending. They are expected to be given just six months to do this.
Nic Beishon, Head of Commercial, Equifax UK & Ireland at Equifax, comments on how this new initiative will revolutionise lending for SMEs, and the challenges for banks in meeting the deadline.
“The CMA’s retail banking market investigation has shown that many SMEs turn straight to their current account provider when they need a loan, rather than shop around for the best rate. By forcing the big banks to implement new lending tools, the CMA intends to simplify and speed up applications to encourage competition in the sector. While the new tools can be implemented without lengthy and costly internal IT changes, banks must act now to ensure SMEs can easily access the best finance deals within the six month window.
“The current state of play is costing SMEs time and money. In 2015, we estimate SMEs collectively spent nine and a half years applying for loans – almost one year of this was by customers who went on to be declined. The new tools will circumnavigate the full underwriting process to provide quick but reliable indications of eligibility for credit, as well as an indicative APR. The new tools will see laborious form filling cut from as long as an hour to a matter of minutes.
“The CMA is focusing on seven banks in the initial stages, but any bank serious about targeting SMEs, including the challengers, should introduce the same tools to ensure their offering remains attractive. Otherwise they run the risk that customers turn to the banks with the easiest application tools.
“SMEs are vital to the UK. As part of its support for the UK economy, The Bank of England intends to free up capital for lending, but it’s important that businesses can access this capital at competitive rates. The new initiative from the CMA is a very positive step towards improved transparency and access in SME lending, boosting competition in the market and opening up more attractive products and rates for SMEs.”
The order will be part of the CMA’s final report on its ‘Retail banking market investigation’. The provisional report issued in May cited the HSBC loan eligibility tool developed with Equifax as the most advanced it is aware of on the market.
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