Open Banking is now live. For those businesses not sure what it means and what impact it might have, we sat down with Stephen Whelan, Spotcap UK’s business relationship manager, to find out more.
What is Open Banking and why does it matter?
Stephen Whelan: Initiated by the Competition and Markets Authority, or CMA, Open Banking aims to increase competition in the market and drive innovation of the financial products and services businesses and consumers use.
The regulation requires banks to share customer data with approved third parties, provided that account holders give their permission. This means that businesses can make the most of their financial data and securely access services from a range of companies.
In what way can businesses benefit?
Stephen Whelan: Open Banking can be beneficial to small businesses as it will lead to streamlining certain banking and accounting functions. For example, by directly connecting to a company’s bank account information, accounting processes or credit assessments will be done much faster, more efficiently and accurately.
Imagine a manufacturing or retail business which needs a short-term loan to bridge receivables. With the help of Open Banking, a trusted lender can now instantly access a businesses’ bank account information – no more need to manually share bank statements. This helps streamline the entire credit assessment and loan application, making the entire process more accurate, faster and cheaper.
Where is the ‘but’?
Stephen Whelan: The introduction of Open Banking has also raised a number of security concerns. Sharing bank account information can make money management easier for businesses overall, but they have to be aware of rogue firms that might potentially misuse the information or pass it on to unauthorised third parties.
Therefore, there is a need for judicious regulation to ensure that sensitive business data remains safe. This is where the General Data Protection Regulation, in short GDPR, comes into play. The regulation is coming into force in May this year and will introduce strict new rules designed to protect confidential private and business information. Failure to be ready in time could see firms fined up to €20m (£17.6m) or 4 percent of their annual global turnover in the worst cases–hopefully this will address security concerns.
If you are interested to read on, check out the following articles:
- City AM: Open Banking explained
- Specialist Banking: New providers predicted to come to fore in wake of Open Banking
- Business Insider: An invisible banking reform that ‘could fundamentally change how we manage our money
Originally published January 15 2018 , updated February 24 2020
