Visa to spread the word about credit fintech Uplinq among its banks

Uplinq Financial Technologies, a credit assessment platform for small business lenders, is working with Visa to expand its reach to more financial institutions. 

The two companies announced a partnership on Wednesday, in which Visa will refer financial institutions to Uplinq for its credit decisioning technology, which relies on alternative data sets. Uplinq already counts several large banks among its clients, including two of the top 20 banks in the U.S. by asset size for small business lending, two of the top five Canadian banks, two pan-African banks, a Mexican bank, Equifax, a Mexican credit bureau and the World Bank. They range from $25 million of assets under management to hundreds of billions of assets.

"One of the things we've identified [as a need among banks] through our conversations with financial institutions is, how do we better underwrite our small business customers?" said Matt Baker, head of small business solutions in North America for Visa. 

Patrick Reily, cofounder of Uplinq, sees small business lending as the "missing middle," where lending decisions are not as automated as on the consumer side, but these businesses lack loan balances high enough to justify the "high touch, high feel" nature of commercial lending. 

"We bring a solution to lenders that lets them stay within their credit purview," he said. Uplinq turns to more than 10,000 global data sources on small businesses, including those related to accounting, the economy, the environment, real estate, and taxes, to help lenders underwrite for small business owners. Uplinq integrates with financial institutions' decision engines, loan origination systems and core platforms, and uses application programming interfaces to capture data from its sources, take requests from the lenders and return results to the lenders.

Reily said his product satisfies SR 7-11 supervisory guidelines on model risk management set by the Federal Reserve, the Basel III international regulatory accord, Dodd-Frank 1071 standards and more.

There are several benefits to this partnership for Visa.

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One is the chance to "augment our value proposition," as an issuer of payments products, said Baker. In recent years Visa has also partnered with Ranqx, a digital lending platform for small- to medium-sized businesses, and business intelligence company 9Spokes, both based in New Zealand, to introduce their products to financial institutions. 

Another is the idea that if lenders are comfortable extending bigger lines of credit to small business owners, more payment volume will flow across Visa's network.

"We know through our research that there is a large proportion of small businesses where, if they got access to a high credit line on their card, they would use their card more," said Baker. "There is almost a tension between what small businesses want and what they are able to provide within the confines of credit underwriting." 

According to Visa's 2022 Small Business Payments study, about a quarter of the 2,800 small business owners surveyed within the U.S. say they definitely or probably will switch their primary credit card within the next year, with roughly a third doing so for a higher credit line.

Moreover, "we want to help small businesses thrive," said Baker. "We want to be advocates for small businesses." 

Finally, Visa will earn revenue for successful referrals.

Both Reily and Baker believe the timing is apt to help lenders broaden access.

A survey by the 12 regional Federal Reserve banks in March found that about 40% of small businesses applied for loans, lines of credit or cash advances last year, up from 25% in 2021. Meanwhile, funding is getting harder to find. Biz2Credit, a company that helps small businesses find funding, observed in its own survey that loan approval rates at banks and credit unions plummeted in April. This finding was reinforced by a Federal Reserve survey of midsize banks around the same time that found they were tightening up their underwriting on business loans.

These sentiments are echoed by the American Bankers Association's headline credit index, which is based on a survey of chief economists at 15 of the nation's largest banks. The economists expressed greater pessimism about business credit availability than consumer credit availability, but they expect both to keep worsening.

Still, David O'Connell, a strategic advisor at Datos Insights, is skeptical that banks will embrace this approach to small business lending decisions.

"The goal of 1071 is to root out and identify where disparate impact is happening in the small-business lending world," he said. "The more variables and alternative data you bring in, the more you can bump up against disparate impact. I suspect other banks would see that flag."

In his view, banks are most interested in the flipside: deploying traditional data in alternative ways, particularly with embedded lending.

"What I'm seeing is folks providing terrific automation for the things that are already done in small-business loan underwriting rather than building an elaborate new small-business lending mousetrap with new kinds of data," he said.