A UK government agency tasked with fostering financial innovation has mapped out how it hopes ‘Smart Data’ will support British SMEs. and how this can be achieved.
Smart data has been a big talking point in financial policy circles over the past year or so. Under the Conservative government, the Department for Science and Innovation (SIT) launched the Data Protection and Digital Innovation (DPDI) Bill, which examined this area.
This Bill was put on hold by late June and early July election campaigning, and with the victory of the Labour Party – some MPs within the party had been vocally crucial of the Bill – Keir Starmer’s government has now introduced its own legislation, the Digital Information and Smart Data (DISD) Bill.
Yesterday, HM Treasury-commissioned SME Finance Taskforce, chaired by the Centre for Finance, Innovation and Technology (CFIT), outlined a seven point plan for how smart data can be leveraged for the benefit of Britain’s extensive SME network. Three of these are recommendations CFIT argues should be followed as soon as possible.
Seven points for Smart Data
The first of these is to prioritise the passage of the DISD Bill. The Bill’s policy of creating what CFIT describes as ‘smart data schemes’ is of particular interest to its SME taskforce, which believes the initiative will make it easier for businesses to move data between organisations securely and easily.
CFIT is also encouraging a review of existing schemes relating to smart data to ensure relevance to evolving market conditions.
Schemes under the spotlight include the Bank Referral Scheme, where nine designated banks are required to fer a declined loan application to a designated platform; and the Commercial Credit Data Sharing Scheme (CCDS), which facilitates sharing business account and loan information between Credit Reference Agencies (CRAs) and other lenders.
Lastly, the body argues that the government should prioritise the creation of and funding for a ‘Smart Data Challenge’, encouraging businesses to find best use cases for smart data. This could be built on existing initiatives such as the Smart Data Discovery Challenge.
The remaining seven recommendations are meant to be more long-term. The government should focus on long-term improvement of the quality and provision of public sector data, CFIT believes.
This could be done by the HMRC tax office reviewing VAT to digital receipts and government gateway access for lenders and aggregators, with SME consent. Companies House, the UK register of companies, could also verify company Directors and provide standardised naming conventions, and both organisations could work digital API access and data standardisation.
Developing private sector-held SME data access schemes, meanwhile, would be valuable for lenders and intermediaries in assessing finance applications for SMEs, according to CFIT. The task force’s recommendation is that organisations familiar with standards should define and implement these standards for the industry.
An organisation that is familiar with standards and a user ecosystem should define and implement the standards that are required. The same organisation should set up a working group to progress an MLA, and later an associated commercial model.
The final two long-term recommendations concern e-invoicing and trust. CFIT believes that the former should become the de-facto for all invoices rather than the exception, and that the government can achieve this by consulting on proposals for UK e-invoicing standards and adoption.
Lastly, CFIT states that SME lenders are often reluctant to accept lenders for finance, which can often hold these businesses back by restricting access to finance. The task force recommends that the British Business Bank (BBB) work with trade associations and develop proposals to improve trust and education.
The wider context
SMEs are often described as the backbone of British business and the country’s economy. In its report, the CFIT taskforce noted that there are over 5.5 million SMEs active in the UK as of 2024, up from 4.5 million in 2010 and accounting for 60% of British businesses overall.
Payments and finance firms, as well as related companies in fields like technology, in turn make up a significant proportion of these SMEs. Private sector reports often point to how many of the UK’s most valuable start-ups come from the payments, fintech and Artificial Intelligence spaces.
“For SMEs to develop from start-up to scale-up, and from employing a handful of people to a hundred people, requires financing,” Charlotte Croswell MBE, CFIT Chair, said in the forward to the SME Taskforce’s report.
“While many SMEs are happy to stay small and we should recognise that, many want to grow and expand. These SMEs have the capabilities, ideas and desire, but often can’t get access to the finance they need.
“This needs resolving. We discovered that this isn’t anyone’s fault; lenders, both traditional banks and specialist lenders, want to lend to businesses that can demonstrate they can afford to repay. It is, of course, in their interests to help find solutions, too.”
For the governing Labour Party, ensuring support for Britain’s vast network of SMEs could be critical to the newly-elected administration’s plans for economic growth.
Throughout the election, Keir Starmer and Rachel Reeves – who now sit in the top jobs of Prime Minister and Chancellor of the Exchequer respectively – repeatedly made the case that Labour is the party of business. Ensuring data support for SMEs and UK business as a whole could be crucial to the party proving its credentials in this area.
Additionally, smart data is also important to another area the UK government is treating as a key objective – Open Banking, and by extension Open Finance. This was an objective of the Conservative government via its DPDI Bill, and Labour has similar goals with its DISD Bill.
UK Economic Secretary to the Treasury and City Minister, Tulip Siddiq, who has primary political oversight of financial services industry policies, has responded to the report’s findings.
“Ensuring businesses can access finance quickly and efficiently is critical to their growth and success,” she said.
“New and innovative technologies, such as Open Finance, can play an important part in unlocking the potential of SMEs across the country and I will carefully consider the taskforce’s recommendations.”
