The benefits of Open Banking for SMEs

13 January 2019 marked the first anniversary of the launch of Open Banking in the UK, aimed at improving competition and services in the banking sector for both retail and small business customers. The programme was mandated by the Competition and Markets Authority (CMA) following their Retail Banking inquiry. 

While Open banking is still relatively new, it is a significant technology and regulatory initiative. Open Banking is the secure way of sharing your financial information with various providers using open Application Programming Interfaces (APIs). APIs are common ?rules and specifications? that enable different systems to communicate with each other.

The Open Banking Implementation Entity reported there are now 100 regulated providers. Open Banking technology was reportedly used 17.5 million times in November 2018, up from 13.9 million in October and 6.5 million in September.

The key word here is ?open?, as the initiative will open the way for small to medium-sized businesses to source the best financial services and products for their individual circumstances at the best price. Open Banking can also help with money management and provide much greater understanding of a firm's finances. 

Although Open Banking is a major topic in banking and fintech circles, it is no surprise that the initiative has relatively low awareness and is yet to be a talking point for most SMEs. However, behind the scenes there are now 100 regulated providers and Open Banking is developing a sophisticated ecosystem that will accelerate in 2019.

Open Banking will deliver many benefits to SMEs. The open API data enables account aggregation, better financial management, the ability to credit check customers and to integrate lending and accounting applications.

SMEs will be able to receive and make payments using different platforms with better visibility and in close to real time. This greater visibility will give businesses greater control over cash flow. Applications will also be able to generate accurate cashflow data that can be compared against forecasts and self-generate new forecasts. Meanwhile SMEs will be armed with better analytics to manage late payers.

Other benefits include personalisation, greater choice and easy comparison of products and services. By making financial data available to service providers, SMEs can be made aware of products that may be ideal for their needs which they may previously have been unaware of. Potentially, information will be available that is market sector-specific, able to generate information to help with prospecting and export opportunities. 

In short, Open Banking is an evolution that enables data to be used in a way that will drive SME productivity and enhance competition.  PwC predicts that by 2022, 71 per cent of SMEs will be using Open Banking.

Area of expertise: