The UK government’s small and medium sized businesses (SME) credit data sharing scheme went live today.
According to the government the scheme will make it easier for new challenger banks and alternative finance providers to check credit worthiness of potential business customers.
In addition, the government said it will increase competition in the SME lending market and help more businesses find the funding they need to grow.
"This will improve the chances of them being able to provide finance to SMEs," the government wrote.
The government is requiring nine banks and three Credit Reference Agencies (CRAs) to share, with the SME’s permission, the credit information they hold on SMEs equally with all finance providers.
The banks are: AIB Group (UK) (t/a First Trust Bank), Bank of Ireland (UK), Barclays Bank, Clydesdale Bank, Northern Bank (t/a Dankse Bank), HSBC Bank, Lloyds Banking Group, Royal Bank of Scotland Group, Santander UK.
The designated Credit Reference Agencies are: Creditsafe business solutions, Equifax and Experian.
A number of bodies, including the Office of Fair Trading and the Competition Commission, have all highlighted how a lack of information about the creditworthiness of SMEs has been a major barrier to competition in the SME lending market.
"The biggest banks currently have access to much more data than challengers and the new regulations will enable over 100 alternative finance providers to compete effectively in the SME lending market," the government wrote.
Harriett Baldwin, the economic secretary to the Treasury, said: "The government is determined to encourage a competitive banking system that supports growth and creates jobs. Small businesses are the backbone of Britain’s economy and it is right we make every possible source of finance available to them.
"The best way to deliver this is to increase competition in the banking sector and remove the barriers to new sources of finance for SMEs. Requiring banks to share data is a major structural reform that will level the playing field between banks and alternative finance providers."
"The government expects data sharing to begin later this year when tests between banks and CRAs confirm that data can be shared accurately and securely."