Rebuilding the economy as we tentatively emerge from the pandemic is no small task, particularly for small and mid-sized corporates, many of whom may have suffered significant financial losses. However, there are silver linings, not least Open Banking, which promises to improve decision making, enhance cashflow visibility, and allow real time instructions/payments to banks, helping their business customers to manage money more effectively.
The challenge is that many companies remain unaware of the potential benefits on offer, argues Ed Adshead-Grant, General Manager at Bottomline, the cash management and fraud detection company. With over 20 years’ experience in the payments sector, Adshead-Grant is passionate about helping financial institutions and corporates to better power and protect their payments and financial messaging:
With the vaccination roll-out appearing to have blunted the impact of covid-19, businesses are reopening their doors and welcoming both staff and customers back into offices and stores. However, new paradigms, such as working from home, will continue to have an enormous impact on where, when and how people trade and use services both locally and globally. With such uncertainty still at play, it helps to look at some of the technologies and new regulatory frameworks that can help transform how businesses operate, no matter the size.
Why Open Banking?
As part of a wider digitisation trend, which cuts away unnecessary and outdated processes and overheads, Open Banking has the potential to upend the usual ways of doing business. Put simply, Open Banking uses open Application Programming Interfaces (APIs) to enable third party developers to build applications and services around traditional banking institutions, making bank account information more accessible in real time.
The principal challenge facing Open Banking in the SME sector is a lack of understanding. According to the recent Business Payments Barometer Report, only 38% of small businesses and half of mid-sized corporates are prepared for the new era of Open Banking. There is a clear need for education as to what it is and what it offers in simple and relevant ways for the SME community.
As a game-changing catalyst for innovation, Open Banking has multiple use cases, including facilitating real-time payments, Confirmation of Payee fraud prevention, and Request to Pay for receiving funds more effectively from customers. The main difference is the power of real time information and real time actions. Financial information is retrieved, shared and presented on screen at the moment it is most relevant. Any subsequent payments through Open Banking use the Faster Payment rails so are faster than 3-day Bacs transactions and cost less than traditional card payments. For small and mid-sized businesses in particular, it opens up a whole new world of transparent, real-time, low-cost transactions with total visibility of data.
Many banks viewed Open Banking as a compliance project when the UK regulator first ordered them to open up their data vaults to customers. Innovation was not a primary driver when on the back foot, negotiating yet more internal budget on imposed mandates. Conditions have changed. With over 400 permissioned companies now offering Open Banking service, the incumbent banks have had to embrace the opportunity to modernise and better serve corporate and consumer customers or risk disintermediation in the battle to be ‘top of glass’.
What’s in it for business?
Open Banking has proven invaluable during the pandemic, with the UK Government leading the way, using it to validate covid loans and grant applications. This endorsement of the technology at the highest level is helping drive adoption beyond consumer applications and into business, supported by a range of clear benefits:
- As a cloud-powered technology, Open Banking services require no upfront investment or capital outlay; instead, you pay for new functionality as you need and use it, and can scale up and down accordingly, enabling you to use innovative tools for better efficiency. This enables the agility that the post-pandemic market requires to thrive.
- By aggregating multiple bank account information in multiple currencies into one platform, with full visibility of all data, Open Banking helps businesses and customers to optimise their cashflow. It creates a much more powerful dashboard to make better decisions especially when working capital needs to be managed tightly in a difficult economic environment.
- Most recently, Open Banking has been mandated to enable ‘Sweeping’ from 2022. This is the automated movement of funds between accounts to help customers avoid charges or benefit from better interest rates. This happens real time with no lag of a few days floating inside or between banking systems. Control is improved and the money works harder.
- Open Banking can eliminate paper-based references and in-person meetings. For example, credit underwriting on new customers can be performed automatically by pulling data, via APIs, from other sources, allowing you to onboard new customers online with perhaps only a scanned passport required for ID. In a post-pandemic world, anything that minimises the need for face-to-face transactions is an advantage.
Essentially, Open Banking gives small and mid-sized corporates the power to control finances more effectively, with real-time visibility of relevant data and the ability to take real-time action on their accounts. This means businesses can make smarter decisions in many ways from the quality of incoming customers and the protection of fraud to managing their cash effectively and reducing the cost of their operations.
Partnering for success
The Open Banking revolution is happening today, albeit it digitally under the covers. Innovative companies are appearing on the fintech circuit every week, investors are making bullish bets and the volume of Open Banking transactions are doubling every four months. In such a crowded market of providers, it pays to be careful. So, what should SMEs look for when it comes to Open Banking providers and solutions?
Firstly, credibility is key. So, look for a partner with a proven track record and longevity, that is regulated by the FCA, meets ISO standards, and is recognised as a critical national infrastructure payment player. Secondly, do your homework and make sure the technology is fit for purpose. Finally, insist on full 24/7 support so your service in the digital world is never compromised.
Open Banking is on the move. It has already grown from consumer and SME accounts, through corporate Treasurers and on to Open Finance which moves beyond the UK entry point of current accounts. Globally, the theme of open banking is only accelerating with leading G20 economies publicising their plans. The possibilities are limitless – and, with the right partner in place, you’ll be well placed to take advantage of the benefits of Open Banking now and in the future.