How the Commercial Data Interchange is making small business financing more accessible

SMEs account for 98% of Hong Kong businesses, forming the bedrock of the city’s economy. But for small businesses, applying for loans can be a challenge. Extensive paperwork, along with the need for collateral can burden companies with limited time and information to dedicate to these applications.

To address these challenges, the Hong Kong Monetary Authority has officially launched the Commercial Data Interchange (CDI), a “next-generation financial data infrastructure” designed to facilitate consent-based commercial data sharing and enhance financial inclusion in Hong Kong. HSBC has been an active participant since the CDI’s pilot phase.

“Data has the potential to significantly enhance SMEs’ access to financing solutions,” Christina Ong, Head of Business Banking, Commercial Banking, Hong Kong, HSBC said at Hong Kong FinTech Week 2022. “Having a new and secure way to share data opens up fresh avenues of collaboration between banks, digital platforms and our SME community.”

Since 2021, HSBC has partnered with HKTVmall and Octopus to use commercial data to streamline the loan application and approval process for their merchants as part of the CDI pilot initiative. With the prior consent of merchants wanting to apply for a loan, HKTVMall and Octopus would provide the relevant commercial data for HSBC to facilitate credit assessment. This streamlined process removes the need for SME loan applicants to provide financial statements or collateral. In some cases, loans were approved within three working days.

After the CDI was officially launched in October 2022, HSBC has also developed an end-to-end solution to obtain credit records from a Commercial Credit Reference Agency (CCRA) through the CDI upon customers’ consent for business loan applications within HKD10 million. The process also enables automated loan decisioning and helps ensure data accuracy.

Having access to stores of data previously unavailable, banks can also gain a better picture of a company’s future cashflow and revenue patterns for better credit risk management. If a customer exceeds their own sales targets, their credit standing will improve through the updated data shared via the CDI.

“Through the use of alternative data, the CDI is helping to streamline the credit decision-making and monitoring process and enhance the customer experience,“ Jaff Lau, Head of Strategy and Innovation, Business Banking, Commercial Banking, Hong Kong, HSBC who also participated in a panel discussion at the Hong Kong FinTech Week 2022.

The CDI is also a boon for information security, given that it adopts a blockchain-based design whereby data is not stored locally on the CDI platform.

With the use of blockchain, the transaction records are immutable, traceable and verifiable, ensuring a proper audit trail. Additionally, the CDI uses APIs to ensure the information exchanges are scalable and efficient.

The launch of the CDI marks a significant milestone in Hong Kong’s FinTech development, providing the foundation for more innovative financial solutions to emerge and enabling more SME businesses to thrive.