SMES play a crucial role in bolstering economic development across the globe. The same holds true in the UK as well. SMES in the UK employ 60% of the private-sector workers and account for over 48% of the UK’s economic output, making them critical to the UK’s economy. Despite this, several SMEs struggle a great deal to acquire the capital they need to flourish. In many cases, traditional lending methods can prove cumbersome and result in lenders and SMES missing out on vital opportunities.
According to a study conducted by the CFIT, 900,000 small businesses are at risk due to inadequate funding opportunities. That’s where smart data comes in. It is a revolutionary approach that leverages predictive analytics, consumer behaviour analytics, and real-time data to close the massive gap in funding that UK SMEs face.
The Funding Gap: An Opportunity Worth £22 Billion
Lending to UK SMES has decreased by 20% over the last ten years, leaving an estimated shortfall of £22 billion in funding. This gap inhibits SMES from investing in innovation, raising output, and developing their businesses. Still, almost 30% of the 5.5 million UK SMES have searched for viable funding options during the past three years. Several small businesses were hesitant to approach lenders and gave up early on due to complicated application procedures and a lack of transparency.
Smart Data: A Game Changer for SME Lending
Smart data is the application of sophisticated technology for the gathering, analysis, and interpretation of enormous volumes of both organised and unstructured data. This implies using real-time data and financial insights, customer behaviour patterns, and predictive analytics for SMES to build a whole financial profile. Lenders can better understand the financial situation and creditworthiness of an SME by combining data from many sources, including customer contacts, accounting software, and bank transactions.
Open Banking and Its Role in Making Funding Accessible to SMES
In 2017, the Competition and Markets Authority (CMA) mandated the 9 largest banks in the UK to facilitate the sharing of customer data, especially current bank account and credit card data. As of November 2024, there are more than 11 million Open Banking users.
Building on the platform provided by Open Banking, certified third parties can provide a variety of creative services to consumers and small businesses, including:
Smarter Saving & Spending Tools
- Round-Up Card Payments: Automatically round up purchases to help users save effortlessly with each transaction.
- Vacation-Friendly Payment Cards: Offer tourists better exchange rates and eliminate international transaction fees for seamless travel spending.
Intelligent Business Tools
- Cloud Accounting Services: Equip companies with tools to manage taxes and cash flow efficiently, helping streamline financial operations.
- AI-Powered Credit Checks: Use smarter credit assessments to extend loans and credit to small businesses and freelancers with fluctuating incomes.
All-in-One Financial Oversight
- Expenditure Analysis Apps: Analyse spending habits to suggest actionable savings, like cancelling unused subscriptions.
- Unified Financial Dashboards: Display data from multiple bank accounts in one place for holistic financial management and planning.
- Platforms like Pulse are gaining popularity as a comprehensive platform that offers several tools, features and modules designed to help SMES optimise, automate and grow. Pulse’s cash flow forecasting module, aiPredict and accounts receivable module DebtorIQ, help simplify and automate critical aspects of business for SMES.
Barriers to Open Banking Adoption – And the Opportunities We’re Missing
Despite the clear potential of Open Banking to revolutionise SME finance, adoption has been slower than expected—particularly among small businesses. While over 11 million users now benefit from Open Banking services in the UK, many SMEs remain hesitant. Understanding what’s holding them back is key to unlocking the full potential of smart data.
Factors Hindering the Adoption of Open Banking
- Lack of Awareness and Understanding
Many small businesses are still unclear about what Open Banking is or how it can benefit them. There’s a perception that it’s only relevant to tech-savvy startups or individual consumers. Without targeted education and real-world use cases, SMEs may see Open Banking as complex or irrelevant to their immediate financial needs.
- Data Privacy and Security Concerns
Sharing financial data—even securely—can be daunting. SMEs worry about how their sensitive information will be used, stored, and protected. The absence of consistent standards and assurances around data usage, ownership, and transparency has created trust issues that inhibit adoption.
- Fragmented User Experiences
A key challenge has been the lack of seamless user experiences across different platforms. For Open Banking to deliver real value, it must integrate fluidly into the daily tools SMEs already use, such as accounting software, invoicing tools, and banking apps. If integration feels clunky or inconsistent, users won’t persist.
- Limited Feature Implementation by Banks
Even though Open Banking regulations are in place, not all banks have fully embraced or promoted advanced features—such as real-time data feeds, streamlined credit applications, or automated savings functions. As a result, many of the most impactful tools remain underutilised.
Missed Opportunities: Beyond Access to Credit
The benefits of Open Banking go far beyond improving loan eligibility or simplifying onboarding. There are tangible, high-impact functionalities that SMEs are missing out on due to under-adoption and under-implementation.
1. Automated Cash Sweeping into Savings or Investment Products
One of the most overlooked capabilities is the ability to automatically move excess funds from current accounts into higher-yield savings accounts, money market funds, or treasury solutions. This functionality could help SMEs to:
- Maximise returns on idle cash
- Improve liquidity management
- Set aside reserves for tax payments, payroll, or upcoming expenses
Such automated “cash sweeping” mechanisms, common in enterprise banking, could easily be tailored for small businesses. Yet most SMEs are not even aware this is possible let alone using it.
2. Micro-Investment and Treasury Features for SMEs
With smart data, SMEs could access personalised savings products, such as short-term fixed deposits, instant-access savings with tiered interest, or even ESG aligned investment tools, automatically recommended based on cash flow patterns and risk appetite.
3. Predictive Alerts and Proactive Advice
Open Banking could power alerts that notify business owners when they’re about to dip below a healthy cash threshold or suggest optimal times to pay suppliers or chase invoices. These predictive nudges, powered by real-time data, could drastically improve financial discipline.
4. Smarter Financial Aggregation
Many SMEs manage finances across multiple accounts, sometimes across several institutions. Open Banking allows for unified dashboards showing real-time balances, upcoming payments, and historical spending across all accounts. But without user-friendly interfaces and widespread implementation, this remains an unrealised benefit.
Recommendations from the CFIT Task Force
The task force advises supporting the SME “Smart Data Challenge”, a useful project meant to highlight the clear advantages of smart data use and promote general acceptance across the board. Reviewing and enhancing HM Treasury’s Bank Referral Scheme and the Commercial Credit Data Sharing (CCDS) Schemes is also highly critical. Both initiatives will help SMES access other funding sources when conventional approaches prove inadequate.
Apart from this, it also recommends that a national e-invoicing system be created to simplify financial operations for SMES and bring the UK into line with global best practices. Ultimately, the strategy stresses the need to develop trust in specialist lenders by means of focused education and enhanced transparency, enabling SMES to feel more confident in investing in non-traditional funding sources and supporting the adoption of alternative finance providers.
Real-world Impact: Proof of Concepts and Pilot Projects
Smart data has already demonstrated strong advantages regarding small business funding. Working with HSBC, CFIT ran a pilot showing how using fresh data and auto-populating business loan applications might greatly affect lending options. The study found that, with open financing in place, over a quarter of businesses whose loan applications had been forwarded for manual underwriting may have received a credit offer without the need for manual intervention.
A recent study has also shown how improved data-sharing can help offer customised financial assistance to 40% more customers who are experiencing financial challenges; that’s an extra 150,000 people a year. These cases highlight how smart data can simplify procedures, lower costs, and enhance results for lenders and SMES alike.
The Role of Open Finance in Empowering Small Businesses
Open finance lets consumers and companies safely share their financial data with outside suppliers, hence extending the ideas of open banking to a wider spectrum of financial products and services. This translates to SMES having more access to a range of financial solutions tailored to their specific requirements.
Working with fintech firms, banks, and authorities will help create mutual trust, promote data exchange, and unlock innovation and scalability across the financial technology industry. Programs like the “Smart Data Challenge” clearly show the useful advantages of open finance and support general acceptance. The Smart Data Discovery Challenge (Oct 2023 – Mar 2024) invited innovators across sectors to propose impactful Smart Data use cases for consumers, small businesses, and society. The initiative shaped the £600,000 Smart Data Challenge Prize (launched in January 2025) and helped advance the UK’s Smart Data economy. Four winning teams—Mealia, Rodeo, Smarter Contracts, and Smartlayer.ai—each received £5,000 for their standout ideas.
Overcoming Challenges and Creating Trust
Adopting smart data in SMES presents numerous challenges, despite tangible benefits. Privacy and data security issues can make SMES reluctant to provide their financial information. Lenders could also be wary about using new data sources without accepted rules and guidelines. For example, Pulse recently acquired ISO 27001 ISMS certification (Information Security Management System) to help small businesses understand that their data is safe and secure while the platform follows the highest standards and regulations to ensure safety.
The Road Ahead: Effective Collaboration
Effective application of smart data solutions calls for coordinated effort across all the involved parties. Policymakers have to design a conducive environment using regulations and supportive frameworks. Financial institutions must invest in the required technologies and processes to properly leverage smart data. SMES must be open and ready to use new tools, strategies and platforms to improve financial control and access to funding solutions.
Smart data offers a revolutionary path to empower SME borrowing in the UK. Real-time data and financial insights, consumer behaviour analytics, and predictive algorithms used in conjunction can help SMES display a more accurate and complete picture of their financial situation. This improves not only their chances of obtaining funds but also creates a more transparent and effective lending environment.
The suggestions and ideas of the CFIT SME Finance Taskforce also clearly outline how smart data can enhance SME lending. Through collaborative efforts and a commitment to innovation, the UK can move closer towards bridging the £22 billion funding gap and empower SMES to achieve their full potential.
