The Power of Data Podcast
Episode 2: Using Data & Technology to Drive Small Business Growth
Guest: Max Firth, Managing Director - Funding Xchange
Interviewer: Edward Thorne, Managing Director - Dun & Bradstreet UK
Welcome back to the power of data. I'm Edward Thorne, the MD of Dun & Bradstreet UK. I'm delighted to be joined today by Max Firth to the Power of Data Podcast. Max is the managing director of Funding Xchange, the business funding marketplace. He's somewhat of a veteran in the data and analytics industry. Having started his career at PH Group, which was acquired by Experian, and then led the Business Information Services Division experience for many years before taking his current position at Funding Xchange. Welcome, Max. And thanks for joining us today.
You held a number of senior positions at Experian and recently taken a new and exciting role at Funding Xchange. Can you tell us a bit about your journey to date in the data and analytics space? Actually, what attracts you to the new world that you've got a Funding Xchange?
Well, I think one way or another, I've actually spent a major part of the last two decades working on SME lending, but I think it's fair to say that most of that time, I looked at it from the perspective of the lenders and actually probably the bank's perspective. So, whether it was a marketing perspective, PH trying to help banks identify which customers to approach with which products, or perhaps from a credit risk perspective with Experian. What really attracted me to Funding Xchange was they looked at the problem from the other end of the telescope, they have an absolute focus on reducing friction in the SME lending journey. But because I've always looked at the SMEs perspective, you get a very different answer. From the way I've looked at it historically. So, the marketplace gives SMEs access to over 40 lenders in a completely transparent and impartial way. And it's completely unique in the market. Perhaps more excitingly now, we're actually delivering our technology to banks and lenders so that they can give their customers a much better experience as well. It's quicker, easier and ends up with a better result, both the SME and the lender, what's not to love about that. So, I think overall, I guess it's using data and technology to transform SME lending is the short answer on why I ended up where I've ended up.
Okay, really interesting Max, and you focused on I guess, the use of data and technology to transform the SME lending market. Can you tell me a little bit more about the actual Funding Xchange model itself, in terms of actually how it works?
Yeah, I mean a unique element of Funding Xchange is that we actually hold our lenders’ – over 40 of them – credit underwriting policies, and that's across eligibility, affordability and pricing. So, the marketplace has its heart, a decisioning engine with almost 200 criteria, which we put those policies through, using live links out to the CRAs and accessing the same closed group data that lenders use. So, using that platform, SMEs can then get access to personalized offers in under four minutes. And actually, in some cases, get money out in 10 minutes. I think what's really important is by being completely transparent, so we show what product the SME is offered from which lender, we put the power in the hands of the SMEs, and that's a real difference. And again, I guess it reflects my own journey from looking at it from the point of view of the lenders and the banks to looking at it from the point of the SME, how do you put the power and all of the information that the SME needs so that they can make the best choice possible and crucially, because it's never more expensive for the SME to go through us, we avoid the inherent risks that exists with the broker market where there's a misalignment between the brokers’ interests, and the SME. So, I think, again, it's the combination of data and technology that works both for the SME, and for the lender through it.
You mentioned the combination of data and technology. I mean, obviously, you've got extensive experience in the data analytics space from your work at PH group and Experian. How do you feel that I guess that experience has impacted your approach to Funding Xchange and the overall business model itself?
I mean, it is an amazing time to be working in SME lending in the UK, it's radically changed over the last decade or so, after really quite a long period of being roughly the same for about 30 years or so. We've got new data sources available and a huge increase in the number of lenders in the market. And so all of that creates a radically different environment for the SMEs to benefit from. I think if we look at the data first, everyone's clearly focused a lot recently on open banking, and it is an incredibly important step forward for the industry. I think it's fair to say it's been relatively slow, so far, but it'll pick up and it'll be hugely influential, especially the points of credit underwriting, it's always important to remember with open banking, there is that very significant consent that the SME needs to give. And I think that means that it'll always be quite far down the decisioning journey before actually that data can be used. I think, if we look at other data, and so we've talked a bit previously about CCDS, which actually gives access from the main banks to current account data and stuff like that, I think that'll be incredibly important, because it sits under the same consents that all CRA data sits. And what that means is practically, is that one can start to use that data much earlier on in the customer journey. Now, the impact of that is huge. It means that it's not just about credit decisioning, which is important and it's going to be important in that, it's actually also about the customer experience because it brings it right up to the front of the journey, and it actually allows lenders or us to offer quotes based on very high, very accurate affordability calculations, transforms it from the SMEs perspective and then massively reduces lenders’ operational costs. So actually, there's a huge operational impact on bringing some of this new data in well beyond just how accurate can one make credit decisioning.
It's really interesting. One of the key things that I'm noticing, especially in the small business space is, in terms of behavior, small businesses seem to behave very similar to consumers. And if we look at the technology and the solutions, they expect, again, there's similarities in that process. If you look at the Funding Xchange model, I mean, I believe that it actually embraces that in terms of it feels like much more of a consumer experience when you're looking to obtain lending. Can you talk me through I guess the strategy and the approach that you're taking there?
I think that's exactly it. I mean, in short, it is really trying to bring a consumer experience to SME lending and I think it's interesting That, you know, if you go back even a small number of years, as alternative finance started to appear, one starts to actually have a sort of choice at that point, which was well, you either went through a bank and had to be honest a pretty horrible experience, but the end of six weeks, if you were lucky, you might actually get a yes. Or you went to an alternative finance provider, we had a great experience, but actually, it was really, really expensive. I think what we're now seeing as the market has developed, become more mature, and actually through the transparency that we’ve brought to the market, where you get keener and keener pricing, you now get alternative finance that is as cheap as – well even at times cheaper – than the banks for the better rated companies. So I think what we're seeing is a real tipping point here and the same way that about 10-15 years ago, there was a tipping point in consumer when consumers would say well, I won't necessarily just go to my main bank first. I will look around. I think we're just on that cusp now, where SMEs are beginning to look first outside their bank. And that will only continue from now on.
So you mentioned that cusp in terms of actually the SMEs looking beyond the traditional banks. But I mean, if you actually look at some of the stats, it still seems that the first port of call when those organizations are looking for funding is still the traditional banks. Why do you think that is?
.I think it is a knowledge point too, in part. There's an awful lot of SMEs that just don't know what's out there. I think it is fair to say, if you look at SMEs, you go to price comparison websites first, about two, three years ago, it was 1%, now it’s 16%. I mean, that's a big increase. But clearly, it's not the whole of the market. But I think as pricing in alternative finance becomes more competitive, and also as lending solutions become available in more and more areas, and this is an area that we're very much going towards, then it will become more prevalent. So, it's moving from rather than lending being a reactive activity, where the SME goes to the lender and quite often very late in the day and says ‘help I need Money’, actually what we're seeing and where we're implementing our solutions with lenders and other people, that actually you go to where the customer already is where they're already thinking about finance. So we're putting our solution into Cloud accounting software, into payments apps, and obviously, also into lenders and banks. What that means is where the SME is going about its normal financial day to day activity. We give them access to finance upfront, and so it's shifting that decision from last minute, ‘I suddenly need some money’, and actually then it's very, very reactive from the lender’s perspective, to a much more proactive approach to making sure that there's an always on solution for the SME.
Absolutely makes sense. And I know from spending time with you, Max how passionate you are around making sure that you drive the change that's required in this space. One of the key pieces is going to be around knowledge. Do you think there's things that we should be doing differently when I say we, I mean yourselves, us Dun and Bradstreet, in terms of as a CRA, the government other things that we should be doing to help educate those small businesses?
Yeah, I think there's an education piece. But I think there's also actually the piece about how do we use data. There has been a massive increase in the amount of data that's been available. But I think it's fair to say, and dare I say from the CRAs is, really the main focus has been well, can I just push more data out? And say there's been a kind of alignment between the CRA, or some of the more traditional lenders, which is, well, if we just put more data into this bucket, is that going to end up with a better result? And it really doesn't actually, it doesn't help to just shoehorn more data into old decision processes. So what we feel very strongly and what we're doing, is saying well rather than just pushing data out to lenders and saying, well, you try and work out how to use it is we are delivering accurate quotes through our decisioning engine, but exploiting all of that new data. And that's a really big difference from just shoving more data into the final decisioning. Because as I said earlier, it actually moves the leverage of the data from the end, where you might only be dealing with five to 10% of the SMEs that started the journey, right up to the top, where you're dealing with 70-80% of them are actually benefiting from that data. And I think it's a lot to do with, if you can really make sure that it's not just data, it is the power of the analytics and decisioning delivered through to lenders, that transforms the SME’s experience. And if you then combine that, with where do they actually get access to these solutions. It's not just when they go to the bank, but it is the cloud accounting software, it is the payments, apps, etc. Then, in fact, getting access or knowing for an SME to know that it has access to finance at their fingertips, that it’s easy, it's always on. That will really transform SME lending, rather than just shoving more data into the pipe.
That absolutely resonates with me, Max. I mean, it's definitely what we see in the market as well. It's that movement away from a CRA’s perspective of just selling data and actually moving to actually deliver specific solutions around specific needs.
I think that's right. And I think the other thing that that reflects is, I mean, you know, and having been at Experian, I know this is a problem, there's a great attraction to just selling data, because you can box it up. And it's the same lump of data. That one sells to every single lender, when you actually moving up the food chain when you're moving up the customer journey, and you're helping them understand their eligibility and affordability. Every single one is different. Yeah, you cannot offer a solution just in a box and say, there you’ve got to take it. But the power of it is 10 to 20 fold the power of the raw data and so I think it's a really key point where actually the way that lenders and banks access data and benefit from data is going to radically change, radically change, compared to where it's been for the last two, three decades.
So, it sounds like a huge focus for Funding Xchange is around the technical platform itself, and the analytics that's driving that decision. So I guess what's next for you at Funding Xchange on that basis?
Well, so as you say, it is where we sell our software, which we call credit as a service, to lenders and banks, and at the moment, we're dealing with a number of the banks and lenders who won money from the RBS Capability and Innovation Fund, as they were all trying to actually make sure that they come good on their commitments, and leveraging our software. I think the key change will be; that will continue, and in the UK we're doing masses of that, but also, as we get into other types of areas where SMEs engage with their finance, it is cloud accounting software and payments apps and things like that because that is where they go on a regular basis and that will be when we move from the reactive last minute lending need to proactive ‘always on’ service, which puts SMEs in control of how it borrows. And that's got to be a good thing.
Sounds like a very exciting future ahead of you
So I wants to finish with a softer question. So from a personal perspective, I've had a number of mentors over the years who’ve had an impact on me, on my career, the way I approach things, is there anybody who has had a particular influence on you and your career?
Yes, I think it's fair to say that Rolf Hickman who founded the PH group, did have an enormous influence on me. I worked with him for something like 17-20 years. It definitely triggered a rather sad interest in data that has stayed with me throughout then I'd say, and across a broad range of industries. And really, actually how could one use data to really transform how businesses can leverage their data and transform. Back then it was their sales and Marketing prices probably. I think the other thing that he also really taught me It led to an absolute love of talking to clients and listening to their problems. So that actually, one is always learning from talking to lenders, banks, clients, , etc. And that has stayed with me as well throughout.
Great, really interesting to hear. It's been an enormous pleasure interviewing you today, Max. And thanks so much for your time and your insight. Thanks very much.