Open Banking for Small Businesses
Kenny Pattie of The ID Co shares his thoughts on the opportunities that Open Banking can deliver for the UK’s SME market.
The small business case for Open Banking
Edinburgh-based FinTech The ID Co was one of the pioneers of Open Banking. The company’s technology analyses live financial data and connects to around 5,500 banks across 32 countries, supporting roughly 30,000 account holder verifications a month.
Here, Kenny Pattie, Content Marketer for The ID Co, highlights some recent Open Banking insights.
Five million small business in the UK believe they are being offered a “substandard financial service proposition,” according to a study from McKinsey and Co.
Another report from professional services firm Accenture found the main reasons why small businesses leave their bank is because the products they desire are not available.
With the option of switching accounts or moving money to where it can be better serviced, Open Banking will force banks to provide more bespoke deals and offers in order to attract and retain customers. Customer retention, and working harder for each customer, will thus become critical for financial institutions in 2019 and beyond.
New lines of credit
One indicator of how the banking sector is not currently working is the Bank Referral Scheme, a government initiative to help SMEs find loans. The project forces banks to refer SMEs to the Referral Scheme should they turn down an application for a loan, which then matches the SME with a broker.
Now, using Open Banking, SMEs have a richer and more diverse set of options should they wish to apply for credit, including peer-to-peer lending, a form of crowdfunding for business.
Making life easier for SMEs
Our Chief Executive at The ID Co, James Varga says: “I’m really excited to see what new products will be brought to market to help SMEs with their finances. We have already seen – as in the consumer space – cashflow and budgeting apps, but the potential within the business sphere goes way beyond that.
“I’m thinking that having all of your accounting, revenue and tax information in one source. Then budgeting assistants can initiate payments on your behalf, transfer money to where it is needed, gain better rates of interest, and digitally manage payments and invoices. We could see artificial intelligence assistants, and robo-advisors become commonplace. Ultimately, all of this will work to lower fees and increase competition in the banking market.”
With links to accounts, leases, payroll, tax and other liabilities, the ability to see a consolidated view of income and outgoings is important to small businesses. One of the biggest obstacles SMEs face is cash flow management, so integrating this information alongside analytics and forecasting tools could give the opportunity to save substantial time and resource.
Account aggregation is the primary service we’ve seen being rolled-out so far by both banks and FinTechs.
This is helpful in cash flow planning and savings – but is just the beginning of the better, more intuitive services that Open Banking will bring to both consumers and small businesses.