If you bank with Barclays and you want a personal loan, there’s a good chance the bank will have “pre-approved” you on the basis of your record as a customer and will be able to show you instantly how much you can borrow and at what interest rate. The bank’s knowledge of the way you manage your current account and your record as a borrower is obviously the crucial information that enables it to do this – nothing new there – but the difference today is that digital banking is making the whole process instant and frictionless. Also, because the bank already holds all the crucial data on your finances, the loan offer does not involve any search that would show up on your credit file: an important consideration for some.

Jeremy Takle, MD of consumer lending at Barclays, says that 45% of Barclay’s personal loans are now taken digitally, with the money moved instantly into the borrower’s account, up from 38% a year ago. Similar things are happening in the bank’s unsecured SME lending operation as well.

This ability to pre-approve lending and release funds instantly is likely to be an important part of the major banks’ answer to the challenge from digital platforms, particularly Peer-to-Business lenders that have carved out a niche by offering rapid approval of unsecured loans that banks have traditionally much longer to process. In small business lending this matters because speed has been probably the most important early advantage that alternative finance providers have enjoyed over the banks. If banks are prepared to compete on speed with the alternative providers to advance unsecured loans this should shift the focus on to different ground such as interest rates, fees and terms (early repayment penalties, for example), which in turn depend on things like the lender’s cost of capital and its overheads and operating efficiency. If nothing else, it signals that competition will persist in markets where people had perhaps assumed banks no longer wanted to play.

It also points to the growing importance of the customer data held by the banks, on which all these super-fast pre-approved loans depend. Much of the value of the new alternative lenders will ultimately reside in their ability to collect and analyse data, and the same is true of the traditional banks. Given that the Competition and Markets Authority has just decided against radical action to increase competition in retail and small business banking, such as breaking up the big four, it is arguably becoming more important than ever to ensure wider access to banks’ private data on their customers – enabling everyone to price a borrower’s risk using the same data.

In its report on October 22, the CMA said: “An SME’s business current account (BCA) provider will benefit from better financial histories on their existing SME customers than alternative providers. This gives an SME’s BCA provider an advantage in pricing and assessing risk. This is particularly relevant for smaller SMEs as there is a lack of publicly available information on the trading and financial performance of such SMEs. As discussed above, access to information can also reduce the time involved and inconvenience to SMEs of the loan application process. There are a number of government reforms in train that have the potential to mitigate some of the informational advantages held by the BCA bank in relation to SME lending, however these have yet to be tested. We therefore conclude that access to transactional data is a barrier to entry and expansion to SME lending.”

The CMA suggests either mandatory sharing of bank and HMRC data on small businesses with credit reference agencies, which would in turn be mandated to share the data with finance providers, or an extension of the government’s Open Data initiative to encompass small business banking. This would involve the so-called “Open API” enabling direct access to customers’ current account data (with their permission). The Economist recently noted that in the absence of access to banks’ proprietary data, even digital finance leaders such as Lending Club and Zopa are reduced to requesting smartphone pictures of bank statements, “a retrograde step, by fintech’s standards, and one that limits the insights they can gather”. 

As the day comes closer when this trove of data finally opens up, banks are starting to operate a little more like the digital alternatives – with faster, smoother approval processes for unsecured loans – and the digital platforms in turn will gradually start to look more like banks. The end of auctions on Funding Circle can be seen as part of this process – fixed rates remove the uncertainty over pricing that comes with auctions, thereby allowing the platform to offer something that looks very like the “pre-approved” loan facility a business might be offered by its current account provider.

How much real competition and shopping around by would-be business borrowers this might produce is impossible to say at this stage. But there’s no doubt that the Competition and Market Authority’s conclusions make customer data the most important asset of all in the age of digital finance.