In August 2016, the Competition and Markets Authority (CMA) unveiled proposals to shake up the UK’s banking sector and give customers more control over their financial data. A little under 18 months later, Open Banking is finally here. But what exactly does it mean for British businesses?
With CMA data showing that only 4% of business customers switch their bank account every year, a large part of Open Banking is about creating more competition in the financial services sector, and encouraging customers to explore and compare alternative products.
The nine major high-street banks are now obliged to share customers’ data with third-party providers who can then point customers towards products that might better suit their circumstances, or to build new products that fundamentally improve people’s experience of financial services. However, banks can only share this data with their customers’ permission, which means control is now firmly in the hands of consumers, not the banks.
It’ll be a while before businesses really feel the benefit of Open Banking, not least because five of the nine big banks missed the initial deadline for implementation. However, here are some examples of how the initiative could improve the lives of business owners across the UK:
- By allowing banks to share their data with alternative lenders, businesses should be able to get a quicker and fairer decision on their funding applications, with lenders having instant access to a company’s transaction and credit history.
- Granting the same access to price comparison websites will allow them to analyse a company’s spending patterns, and possibly suggest a better business credit card, current account or overdraft.
- Using an app like Bud, which has been rewarded by Nesta for its innovative application of open banking technology, businesses will be able to manage all of their finances in a single place, making life easier when it comes to filing accounts and monitoring expenditure.
- Fluidly, another of the companies recognized by Nesta, can plug into an SME’s bank account or accounting software to spot financial opportunities, automate cash flow forecasting and help businesses get paid faster using “intelligent credit control”.
Imran Gulamhuseinwala OBE, trustee of the Open Banking Implementation Entity and global head of fintech at EY, said: "It is difficult to overstate just how revolutionary open banking could, and should, be. New products will emerge from incumbents and entirely new entrants will join the market. New ways of managing money, of making life-changing financial decisions, of paying for things, will appear."
The Open Banking website offers further information on the initiative and how you could potentially use it to your business’s advantage.