APIs Could Move UK SMBs From Siloed to Connected Data

Small- to medium-sized businesses (SMB) make up the backbone of economies.

That statement is hard to challenge considering the abundant data available showing the significant contributions these businesses make to boost economic activity worldwide.

In the United Kingdom, for example, SMBs represented 99.2% of the total business as of the start of 2021 and accounted for around half of the turnover in the U.K. private sector, according to the country’s National Federation of Self Employed and Small Businesses.

U.K. SMBs also accounted for three-fifths of total employment during that period, a clear indication that these businesses are the lifeblood of the economy and improving on their operations goes a long way to benefit not just the business but society as a whole.

For Peter Lord, CEO of London-based API provider Codat, that goal starts with replacing siloed data with a connected ecosystem that merges different financial data sources.

“Our mission is to make life easier for small businesses [by providing technology] to financial institutions and financial services, who in turn use that technology to provide better products and solutions for SMB customers,” Lord told PYMNTS in an interview.

See also: Amex Ventures, PayPal Ventures Invest In SMB Data Firm Codat

To achieve this, the financial data company connects clients, which range from insurers and payment providers to those offering points of sale (PoS) software and expense management, via a single application programming interface (API) that enables them to access SMB customer data in real-time.

This goes to solve two main issues, he said, first the reconciliation burden that small businesses have in synchronizing data between their systems.

The second one, he added, is all about improving access to finance by allowing clients to better understand their SMB customers using consented data that these small businesses share from their applications that Codat connects into.

And it is this second category of use cases that the firm has expanded upon through a recent partnership with Moody’s Analytics, the global provider of financial intelligence and analytical tools.

The deal will see Codat’s API integrated into Moody’s Analytics CreditLens solution, — “an out of the box tool,” according to Lord — enabling lenders and financial institutions using Moody’s solution to easily connect with multiple accounting platform providers, collect,  and analyze credit data.

Read more: Plaid, Codat Team To Target UK SMB Loan Sector

He said Codat will enable the data sources that they’ve built integrations to be able to pump data into that credit lens product, improving the loan underwriting process for small business owners across the U.K.

The end goal is to drive financial inclusion particularly for newer SMBs that historically have had a much more difficult time accessing credit, Lord said.

“When you compare that [Codat’s live data] to static accounts that can be out of date, it means that lenders have more information and can act with a greater degree of confidence because they’ve got a wider dataset,” he said, citing the possibility of accessing detailed invoice information as an example to better understand customer and supplier risks.

Overcoming the Standardizing Challenge

But as much as those large amounts of information are beneficial to improving the services offered to businesses, Lord said standardizing large volumes of data is not always easy.

“When you think about a small business and their data model, it’s vast and the challenge is standardizing that because the way that same data is stored and structured across the different applications that we connect to is very different,” he explained.

To tackle this, the API-based platform recently began building integrations into enterprise resource planning (ERP) systems that are used by larger SMBs, but Lord said no matter the size of the business, the process for Codat data is very similar.

“We need to be able to have access to the data, then we’ve got to map it to our standard model and then ensure that the data is consistent and accurate,” he noted.

And not only has Codat been expanding in terms of the types of systems that it connects to, but they’ve also been extending that data model of a small business by adding new types of coverage to provide an even larger, holistic picture of each SMB.

Lord pointed out that edge cases remain the hardest part of building these integrations: “It’s only when you’ve seen data on tens of thousands of small businesses that you have seen all the edge cases that can take place within the systems that we connect to.”

International expansion

Launched in 2017, the U.K.-based FinTech has stated that its API is used by five of the world’s largest financial institutions, with a client roster including Paypal-owned Zettle (formerly iZettle), Virgin Money, Clearco, Brex and FreeAgent.

Last year, the company formally launched in the United States, an attractive market for the API provider, according to Lord, given the huge number of innovative products being built for SMBs there that can benefit from Codat’s technology in getting to market faster.

Read also: Codat Raises $40M To Expand SMB Data Sharing Tools

Overall, he said the pandemic and the acceleration in digital transformation has had a positive impact on the business as its customers have become more interested in providing products that work with one another to SMBs, showing strong growth prospects for the business this year.

“We’re really gaining traction in North America and from London we’re reaching further into the rest of Europe so [we have] a very exciting 2022 ahead,” he said.