On 12th March 2020, the Bank of England (BoE) published a Paper proposing an Open Data Platform to facilitate access to finance for small and medium sized enterprises (SMEs).
In June 2019, the BoE had identified certain priority areas – one of which was to help develop an Open Data Platform to boost access to finance for small businesses, in particular to help close the £22bn funding gap for SMEs across the UK.
The Paper outlines the industry engagement to date and the proposed make-up and functionality of the Open Data Platform (the Platform). The Paper should be seen as part of wider efforts such as the Government’s Smart Data Review and Digital Markets Taskforce, as well as the Financial Conduct Authority’s Open Finance initiative. Most importantly, the Paper is going to be part of the BoE’s input to the Government summit announced in the March 2020 Budget, regarding what data needs to be made accessible to make it faster and easier for SMEs to ‘shop for credit’.
The Proposal: Building Blocks
The Paper lays out three essential building blocks for the Platform:
- Identity verification, including digital identification, authentication and permissioning;
- Data and messaging standards, enabling portability and interoperability; and
- Platform integrity and governance, ensuring trust and security.
Identity verification will allow for quick identification of a business and a more seamless user experience. The Paper notes that the Legal Entity Identifier (LEI), a 20 digit code, is likely to play an important role as it has the capability to offer a unique code to every one of the 6 million SMEs in the UK. Once the SME entity is identified, it can be digitally authenticated in order to validate instructions. This authentication can then be delegated to a person’s mobile device (e.g. allowing one-touch permissioning).
Data and messaging standards makes it easier to interpret the data held by different institutions in different systems. Standardising the messaging protocol through Application Programming Interfaces (APIs) makes it easier to request and receive the desired data quickly and effectively.
Governance and integrity of the Platform is key in order to maintain the security of the Platform. World-class encryption is needed to protect against cyber-threats, alongside a clear legal framework to set and maintain a dispute resolution mechanism.
What will the Platform look like in practice?
The Paper notes that, in practice, the Platform would be a decentralised network of data providers using a standardised set of APIs to move data around the financial system instantly, at the request of the SME. There would not be any data moving without the permission of the SME, no central data repository or physical file, and no infrastructure to build.
An SME would be able to permission an API call to a handful of data providers with whom it already has a relationship (e.g. bank, utility company, insurance company) to instantly share specified data fields with a third-party. This transfer would be encrypted end-to-end and would provide access for a specified minimal period of time. If the third party needs access again, they can request it easily and the SME can authorise the request effortlessly (e.g. via their fingerprint or using a smartphone).
The Paper also highlights that the Platform has the potential to be used as a “personal financial passport” by enabling individuals to pull together their data from different sources. This would allow consumers to move their personal information from one platform to another.
On the issue of the Open Data Platform, Mark Carney, (the now former) governor of the BoE, said: “An open platform for SME lending would enable open banking and empower SMEs. It would help avoid lock-in on existing platforms and enable providers of finance to compete for SME lending, helping to broaden the products available to companies and offer more competitive rates, making access to finance quick, easy and cost effective.”