Posted: August 11, 2022 By Kieran Darmody

Open Banking and its Impact on SMEs Accessing Finance

In our latest blog, we discuss how Open Banking has changed the way businesses can access finance.

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Scanning the horizon a few years ago, who could have foreseen the benefits that Open Banking – the process of banks and other financial institutions opening up data for regulated providers to access, use and share – would bring to small and medium-sized enterprises (SMEs). For example, at its inception, it didn’t appear there would be many uses for it in a corner shop. What possible use could a bricks-and-mortar business have for Open Banking? It seemed that the only businesses that would benefit were those based online. But what actually happened is Open Banking has become transformational for these local businesses – often playing a central role in keeping them running. Not only does it keep these businesses thriving by employing more staff; It enables them to keep contributing to the economy.

How has it helped?

Open Banking has the power to unlock rapid access to funding when SMEs need it most. These businesses need to be able to secure credit with providers they can trust without the uncertainty and fear of rejection. We know that access to such funding has a demonstrable positive impact on business growth. Data from Stripe Capital shows that businesses processing less than $100,000 a year saw revenue growth of 140% within 16 months after accessing revenue-based finance, compared to 114% without.

Business owners have enough to worry about with the day-to-day operations of their business – from maintaining a competitive edge, to managing staff, to managing stock – they want funding to be the least of their worries and, crucially, to be easily accessible. In the old days, obtaining the funding they needed was a laborious, antiquated process involving reams of paperwork that also required a good relationship with their bank manager.

So, just look at what Open Banking has enabled today! Business owners can instantly find out how much funding they can access. Open Banking also enables some identity verification requirements to be satisfactorily carried out online, in real-time, with minimal friction for the business owner.

The evolution of Open Banking has been transformational for embedded finance providers like Liberis. In a relatively short period of time, Open Banking has gone from a blossoming idea to data that really makes a difference to the development of our products. Fintechs are harnessing the power of Open Banking data to get a rich picture and a deeper understanding of how a business operates, enabling them to provide support when they may otherwise struggle to access the finance they need. There is no longer a need for businesses to manually access and send copies of bank statements, a time-consuming job that can lead to human error.

Why has this come about?

Changes to the way businesses operate

The pandemic forced businesses to find creative solutions to continue trading, with digital footprints expanding as a result amid ever-growing eCommerce. This seismic shift in how businesses trade via online channels has created a need for new payment methods. Businesses can use Open Banking to take direct payments from their customers in a much simpler and streamlined way. By embedding Open Banking into an app or website, businesses have an easy and instant channel for customers to pay them.

Cloud accounting works so much better with open banking

Connecting your bank account to your cloud accounting software makes life so much easier! This enables data to instantly pull through from your bank account, which is automatically matched to your invoices, payments, and purchases – saving time, improving data accuracy, and importing historical data. Business owners can see the benefit that comes from sharing banking data in a tangible way.

Increased familiarity and trust with online data

There’s been a steady rise in levels of trust when using Open Banking. People understand that it’s simply a view into their banking data and that there’s no loss of control or sharing of usernames or passwords. Consequently, more than six million people already use Open Banking services in the UK, rest assured that they are benefitting from secure apps, services and transactions.

Regulation is adapting to user needs

In the UK from September, full re-authentication with the bank every 90 days will no longer be required. Instead, a more user-friendly reconfirmation with Open Banking service providers is taking a foothold. Europe is handling it differently by extending the re-authentication process from 90 to 180 days in November. Both new processes are demonstrating that getting the right balance between control and user experience is vital – further enhancing the adoption of Open Banking technology.

What’s next?

What’s coming up? Exciting times are ahead with recurring payments set to hit the Open Banking landscape. Businesses will now benefit from even more ways to secure payments from their customers. Payments via Open Banking rails are instant. There’s no waiting for a payment to clear like with a Direct Debit. For embedded finance providers, the option to use Open Banking as a repayment method for funding is really enticing. Fintechs can suddenly have a suite of payment methods at their fingertips and can tailor their products to ensure they meet their user’s needs.

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