Open banking means open for business

Open banking is a significant step towards a fully digitised future. It opens up huge opportunities for banks and other financial organisations to provide new and enhanced digital services to consumers and businesses alike.

Some elements of open banking build on existing, proven data sharing models, which are already available to a subset of the market. An example being Xero’s direct bank feeds, which populate Xero accounts with bank account transactions, making bank rec easy – and in turn giving small businesses a better handle on their financial position.

>See also: Open Banking is a secure way to disrupt the financial sector

Open banking holds the promise of democratising such facilities, greatly extending the reach and benefit. Here’s how small businesses can use open banking to get ahead:

Forecast your financial position

Banking data is required for everything from cash flow forecasts to assessing a business’ worthiness for a credit facility. Rather than continuing with what have effectively been custom-built integrations between banks and accounting providers to deliver feeds, open banking will enable digital bank feeds to be made available through standard APIs.

This bank account data, when enriched with accounting data, provides new and exciting opportunities to model, report and project cash flow – a discipline that in practice is always harder than it sounds.

Enter the likes of UK providers Futrli and Fluidly, each of which provides powerful tools that work in conjunction with accounting software to help businesses better understand and manage cash flow. Getting such tools into the hands of more small businesses and their accountants is imperative to improving financial health in the small business economy.

All enabled by service providers with customer permissions securely access bank data.

Get paid quicker

Under Open Banking, ‘payment initiation services providers’ can initiate a payment from a customer’s bank without the need to log into an online bank account. As a result, it will be far quicker for customers to pay for goods and services from within other applications.

>See also: Open banking – Who’s data is it anyway?

In a small business context, imagine being able to securely initiate payroll or reimburse expenses from within your cloud accounting platform. This is how open banking promises to make small businesses more productive by removing points of friction in everyday financial tasks.

Open APIs are already connecting businesses to a wealth of apps that help small businesses get paid quicker. With the advent of open banking, these capabilities will get even more sophisticated. We already connect with a number of payment leaders, such as Stripe, PayPal and Worldpay. Recent data has suggested that businesses who provide a ‘pay now’ button on their e-invoices fueled by a payments partner, get paid 50% faster.

Payment processes will become slicker and payment options broader as a result of Open Banking, consistent with the vision of the Competition Markets Authority to create more competition and stimulate innovation in financial services.

Accessing credit or capital when it’s needed

This new era of data sharing will transform the ways that small businesses can access credit or capital when it’s needed most.

Lenders will be able access richer business data to make better assessments of credit risk, and to work out the best solution for small businesses. And new dashboards and reporting tools for accountants will help businesses advisors intervene at the right time, helping small businesses avoid problems before it’s too late.

>See also: Open banking can be a revolution… if consumers see value in it

Lending and finance companies like iwoca and MarketInvoice have already built integrations within open APIs not only to understand risk, but to streamline accounting for repayments.

This seamless flow of data creates opportunities for small businesses that before were only open to large business. This levels the playing field for small business.

The future’s bright

Open banking is a key step in a revolution that will transform the financial landscape, and there is already real progress in the provision of new services that are satisfying business needs. For traditional banks, the imperative is to adapt and remain relevant.

Across all sectors, firms who choose not to act on these developments are putting their future at risk.


Sourced by Edward Berks, director of Fintech & Ecosystem at Xero

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Nick Ismail

Nick Ismail is a former editor for Information Age (from 2018 to 2022) before moving on to become Global Head of Brand Journalism at HCLTech. He has a particular interest in smart technologies, AI and...

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