5 Ways Your Small Business Could Benefit From Open Banking
With 4.8m small businesses expected to start using open banking by 2022, isn’t it time you had a look at how open banking could benefit your small business?
Open banking in a nutshell
Open banking is a result of a series of banking reforms. If you’ve ever tried to prise a packet of sweets from a toddler’s firm grasp, you will know why these reforms were required.
Up until recently, high street banks have had total control over who has access to your data, meaning your choices with regard to different financial products and services were limited to what the banks would offer you.
You had no way of comparing new financial services based on your particular spending habits, no way of knowing if an innovative savings product from a startup fintech company was the best one for your certain circumstances, and no way of viewing all your different bank accounts in one place. Instead you just had to take it as read that the banks had your best interest at heart, and were giving you the best products.
No more. The previously closed realm of banking has been blown wide open and major banks have had to share their precious data with trusted third parties. In the words of openbanking.org:
‘Get ready for a world of apps and websites, where you can choose new financial products and services from providers regulated by the Financial Conduct Authority (FCA) and European equivalents’.
In essence, open banking is a way of securely sharing your financial data with third party providers, using a system of application programming interfaces (APIs).
And that is all great, but how can your small business benefit from open banking? Here are our 5 reasons why you should consider open banking for your small business.
Open banking affords you more choice
No longer will your small business be hindered by the limited financial opportunities limply offered by the high street banks.
With open banking, your small business will have more knowledge, better insight and increased access to products that might not have previously been available to you before.
With open banking you will have access to new financial providers
Startup fintech companies, such as FreeAgent, who have just entered the market can now compete with high street banks. No longer resigned to the sidelines, these innovative new startups are leading the charge.
And thanks to open banking, they are taking all of that once closely guarded banking data, combining it with their financial products, and offering you numerous benefits that banks just haven’t been.
Take for example:
- Free agent are the UK’s first accounting software to offer direct bank feeds via the open banking platform.
- OpenWrks provide a service to small businesses whereby they run a comparison of all available banking products that are suitable for that particular small business, basing their decision on data provided around how your specific small business runs. That’s personalised financial advice, for each and every small business owner.
- Funding Options are a free marketplace for small businesses needing business finance. They help businesses to find finance that is right for their situation, searching through some of the best lenders in the UK.
Open banking will speed up lending
If you’re one of the 5 million small businesses operating in the UK currently, and you are seeking finance in the shape of a business loan, from an alternative lender, the majority of your application will be done quickly, online, through a simple form.
However, in order to assess your credit rating and determine if your small business is a financially sound investment or not, you still have to submit bank statements in either scanned or photo form, drawing out what would otherwise be a relatively short process.
With open banking, that old fashioned credit check would be a thing of the past.
With API you simply share your financial data with the alternative lender, instantly, no need for scans or downloads or whatnot. The whole credit check part of lending with open banking will be automated, as long as you give your permission.
The result? Speedier lending decisions as all of the information alternative lenders will need will be available at their fingertips.
Open banking can keep you on top of your tax
There are fintech companies springing up all the time that can help you keep on top of your tax bill. These companies have developed apps that combine a current bank account with basic accounting.
Designed specifically for small businesses, self-employed people and freelancers, the beauty of companies such as these is the simplicity of their offerings. By opening an account with them (from your phone in just a few minutes), you get banking and accounting in a oner.
- The app shows you a rough idea of how much tax you owe so you don’t get a surprise bill in January.
- It does your basic expenses for you (but you have to make a judgement call on whether the expense is allowed or not), and it has tips and advice for how much and what you can claim to help you make savings on your tax bill.
For people who know what they’re doing accounting wise, open banking is going to make their lives even easier.
Open banking will put you back in the driving seat
Up until now, your banking data has been held exclusively by the banks. But open banking takes that power away from them and places it firmly in your hands.
You get to decide who you share your data with, you get to choose whether you want a third party to provide you with business advice, financial advice or any number of different services, based upon the permissions you give them regarding access to your data.
So there you have it, 5 ways your small business could benefit from open banking. Don’t be shy, don’t be put off by the idea that sharing your data with third parties, away from the relative safety of your banking institution, is somehow putting your finances into jeopardy. That isn’t the case at all (as long as you stick to regulated providers).
Open banking is coming in fast. The number of regulated providers is increasing by the day, and the number of people who are taking advantage of it is growing exponentially. Don’t miss out. The financial system is changing, it’s been a long time coming, and for once, it’s going to benefit the little guy.