Of course extending SBR to include sharing financial data between businesses and financial institutions is a natural next step. There is some hope that Australia will be able to follow the Netherland’s lead, where companies can now provide XBRL formatted financial statements to banks for the purposes of loan applications. Not only has this significantly reduced information asymmetry between the two parties, but is reducing the time it takes to receive a credit decision. ING, one of the frontrunners in this space, has indicated 4 day turnarounds and discounts for XBRL enabled paperless applications.
Unsurprisingly, there is evidence that suggests XBRL can play a role in lowering the cost of lending. After being spearheaded by the National Bank of Belgium back in 2005, today more than 95% of Belgian private firms’ annual accounts are voluntarily filed in XBRL. Research published in the Journal of Accounting and Public Policy in April 2016 has also indicated a correlation between XBRL adopters and lower interest rate spreads. This supports the commonsense notion that lower information processing costs have a downward effect on loan costs.
Tech focussed banks are in a unique position to work with governments and accounting software providers to leverage XBRL formatted data. Of course as information asymmetries dry up, larger, incumbent banks which have used this as leverage against their competitors will need to improve their offering quickly. Imagine as a business owner, being able to instantaneously shop your financials around several institutions without impacting your credit score or requiring a long transaction history with a provider. Banks relying on this being ‘too hard’ as their competitive moat today – which by the way many do – will certainly need to sharpen their product line.
There is nothing more satisfying than being understood. Yet for many small business owners seeking credit, this is still far more difficult than it should be. XBRL has the potential to help both sides of the lending equation communicate with each other better, faster and more fluently.
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.
