What is open banking?

There’s plenty of buzz around Open Banking, and with good reason. This innovative platform has the ability to transform the way we use and access financial services. Whether you use one of the big nine UK banks and building societies, or bespoke apps via third-party providers, Open Banking opens the way for your SMB to make your money do more.

So how do you navigate through the Open Banking environment and what will it mean for your business going forward? 

What is Open Banking?

Open Banking is reforming how banks deal with your financial information. Initiated by the Competition and Markets Authority (CMA) competition watchdog in 2018, the goal is to transfer the ownership of financial data from the banks to their consumers. 

In turn, this has seen the explosion of apps and websites from third-party providers using Open Banking API (application programming interface) technology to drive competition and innovation in the financial services sector. Data can be securely transferred but only with the customer’s consent and authorisation. Some examples of APIs in action in other sectors include Uber’s Google Maps tracking and Air BnBs property locator map.

Offering streamlined and fast direct payments, a plethora of financial services and at-a-glance access to your business financial data, Open Banking aims to create a better experience for all users. 

How does Open Banking work?

The Open Banking platform uses APIs to move data between providers in a structured and regulated environment. Currently, the nine largest banks and building societies have made their APIs available to authorised Account Information Service Providers (AISPs). 

In turn, these AISPs will need to show that they will safeguard data and only use it for the services you wish to access. APIs also allow third-party providers to access data without the need for Payment Services Directive (PSD2) compliance. 

APIs no longer require inconvenient screen scraping to access the required information. The correct data is transferred seamlessly without the need to disclose password information. 

But this process can only happen between authorised and regulated providers in the Open Banking environment once a customer has given full consent and authorisation for its use. By putting the customer in control, you can give consent to the services that interest you and opt-out at any time.

The development of the Open Banking platform

In 2016, the CMA report on banking in the UK found that the larger banks were no longer competitive while newer banks were finding it hard to get access to the market. The proposed reforms led to the launch of Open Banking in 2018, a platform designed to make it easy to share financial transaction data, compare accounts and access new financial products. 

Any provider enrolled in Open Banking must be regulated by the FCA or a European equivalent and must comply with data protection laws. Providers should appear in the FCA registry or the Open Banking Directory and are expected to provide account information and payment initiation services.

The Open Banking software platform has developed a safe and secure way to share your financial information:

What can Open Banking do for you?

Open Banking may be opening up the market for FinTech and smaller financial services providers, but how does that impact your SMB?

The Open Banking environment allows smaller FinTech providers to offer a range of services. That, in turn, puts pressure on the big nine banks to improve their financial services offerings.

Lenders will have instant access to data to make smart and informed lending decisions, without the need for data gathering from a range of sources. When it comes to business loans, lenders can simply pull the data they need with no need to screen scrape.

Under the EU’s PSD2 directive, banks must allow third-party providers to initiate payments on your behalf. Your small business may benefit from reduced payment costs and a more streamlined service.

Access to APIs is already delivering a range of useful apps and other tools for consumers. The integration of AI is expected to open up more predictive pathways to making your money work harder and smarter.

Small businesses may already use a system such as QuickBooks to automate a range of bookkeeping processes.

The transparency of the Open Banking system allows SMBs to identify unnecessary monthly charges while at-a-glance data visibility makes spotting potential fraud simpler.

The outlook for Open Banking

Open Banking has the potential to revolutionise how your business manages its money. FinTech innovation has the power to disrupt traditional banking to deliver innovative products that respond directly to your needs, combining the best available products with convenience and speed. The future of money is here, and you’re in control.

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