Part 1 – An introduction to the CCDS scheme
Competition in banking: improving access to SME credit data
Data sharing within the commercial space historically was governed under SCOR as part of a voluntary arrangement. In 2012, the Breedon Report was published highlighting the issues at the time in the lending to the SME market and triggering further government consultation. The existing commercial data sharing scheme, by its voluntary nature meant not all lenders were providing all their data in a consistent way. And while this included credit and performance information for lending, there was no positive information on current account showing the balances, the debits and credit that contribute to its turnover. This was a fundamental gap in assessing the performance of a business, and a near real-time view of its cashflow.
It has been almost 10 years since the government initiated a consultation paper to increase access to credit data on small to medium sized enterprises (‘SMEs’) to stimulate strong and diverse competition in the SME lending market. At the time, the largest four banks had a market share of SME lending of around 85% and these levels of concentration were not considered optimal to support better business lending outcomes. A step change was required, and the passing of the Small Business Enterprise & Employment Act 2015 mandated changes; enter the CCDS scheme.
What is CCDS?
CCDS or the Commercial Credit Data Sharing scheme shares summarised business current account data and up-to-date information on the performance of lending products such as, business loans and corporate cards from the leading business banks. The scheme includes any lending to micro- businesses through to businesses with a turnover of £25M which covers over 99% of the entire business population.
How does it work?
The scheme is reliant on banks sharing their data which then allows access to information shared by other lenders, effectively a reciprocal arrangement. At the time of initiation 9 banking institutions, referred to as the designated banks with the majority of market share, were mandated to provide accurate and up-to-date performance information on the products within the scope of CCDS.
These designated banks have been providing this information on an ongoing basis since 2017 to designated Commercial Credit Reference Agencies (CCRA’s). The designated CCRA’s, of which Dun & Bradstreet is one (others include Creditsafe, Equifax & Experian) then ingest this data helping to build out a commercial credit profile for the reported business.
What are the benefits of CCDS?
The CCDS scheme allows contributing members to gain a view on a business customers’ commercial credit commitments across all sharing members, providing a unique perspective on the credit activity and payment performance of a businesses. While elements of lending payment performance may have existed previously, there has never been the level of completeness of performance data and till now no current account turnover information. By distilling this complete dataset, it can be applied to multiple use cases as an overlay to existing financial information as well as other trade data. As such, CCDS is a powerful component, providing coverage where other sources of information may be sparse or unreliable.
The use of this data translates to better credit decisions & anti-fraud measures for lenders, ultimately with the goal of getting finance to SME’s. But the benefits don’t stop there, having a view on lending across the industry should also be advantageous for policy makers by providing valuable insight on lending within the economy.
Are there any gaps or downsides?
The CCDS data is a huge step forward, but as with all data and technology there is an ambition to continually improve and optimize. Its introduction has provided insight into the credit performance and turnover of small businesses, plugging a gap for financials, which at best would be updated 12-18 months in arrears if available. In contrast, the CCDS data updates would be available between 4-6 weeks based on sharing arrangements and in most use cases this would be more than sufficient. But what if a business was subjected to a material event in the last 2-3 weeks that impacts their financial position? Certainly, in a market where things can change very quickly, there may be benefit in gaining a real-time view for marginal or high value/risk decisions.
Has CCDS succeeded in increasing access to SME’s 10 years on?
There are many factors to consider when evaluating the success of CCDS. Firstly, what cannot be ignored is the level of change that has occurred over the last 10 years, in part driven from global and historic events (think COVID, Brexit, inflationary pressures). Not to mention, the continual challenge of meeting SME expectations of a more consumer-like experience. These factors have further accelerated innovation & adoption within financial services from a technological and product perspective.
As much as the changes in legislation are welcome, they were brought in to meet the needs of a specific time. Things have changed and there needs to be a better way to adapt to an evolving environment. The benefit of an evolving approach is that it can adapt to market needs of today. This would avoid the risk of constantly playing catch-up after challenges arise while businesses endure poorer outcomes in the immediate term.
As with any reciprocal arrangement, its value is only fully harnessed when there is complete data sharing, where data is ubiquitous. For now, the CCDS initiative has certainly opened the door to facilitate better lending and it remains a significant step in the right direction. But there are areas of
improvement and suggestions for changes which we discuss in part 2.
Looking to make more confident lending decisions on SME businesses? Find out more about D&B Lending Intelligence today.