ThinCats has heralded the benefits of open banking for lenders that facilitate cashflow-backed loans.
The alternative business lender recently partnered with Salt Edge, a fintech firm offering open banking solutions, to improve its credit assessment and loan monitoring processes.
Open banking is a data sharing initiative which mandates high street banks to share anonymised customer data with approved third parties, to boost competition in the financial services sector for the benefit of consumers.
ThinCats said that open banking gives it a real-time view of business revenue and allows it to test the accuracy of cashflow predictions made at the time of funding. The platform said this is especially important as it has many cashflow-backed loans.
Testing these forecasts will improve the accuracy of its credit model and enable a quicker assessment of its credit appetite and pricing, the alternative lender added.
ThinCats uses its PRISM credit model, which contains about two billion data points on mid-sized small- and medium-sized enterprises, to build a credit score, important for its loan pricing.
The lender said it can use open banking to access real-time current account data and combine it with huge amounts of historical data through PRISM.
“For a lender such as ThinCats, which funds a large number of cashflow-backed loans, having access to the movements of a borrower’s current account provides valuable data to support more informed credit decisions and to set covenants that are aligned with the borrower’s business cycle,” ThinCats said in a blog on its website.
“For example: how exposed is a borrower to a particular customer or supplier? Is there any seasonality to its revenue?
“The great advantage of open banking for cashflow lending is that we can analyse the data in multiple ways, which is simply not possible using physical current account statements.”
ThinCats said open banking also enables lenders to identify potential problems earlier so that they can work with the borrower to resolve them.
“With Covid-19 causing heightened uncertainty around future cashflows, this enhanced transparency helps improve the efficiency, accuracy and flexibility of the lending process to ensure borrowers get the best funding solution for their needs, both now and in the future,” ThinCats said in the blog.