Open Banking for SMEs: A Snapshot

The man in the grey wool coat and collection of morning papers under his arm was focused. There were only a few open seats in committee room 14 at Westminster Palace, and he was getting one of them.

The occasion?

A panel consisting of MPs, regulators and bank directors convening to discuss a new report by independent financial services consultant, Faith Reynolds, on the opportunities ‘open banking’ has the potential to deliver. While the findings and discussion focused on consumers the report also examined SMEs’ current attitudes to the following three use scenarios.

All-inclusive accounting software

Accounting software that is based on a deeper understanding of a business because it has direct access to the SME’s banking information.

Instantaneous credit assessment

Credit assessment for a lending product that is faster and more accurate as the lender will have permission to see the SME’s financial information directly.

Bespoke financial product comparison

Financial product comparison services that use banking information to provide recommendations for products based the SME’s needs. It would be similar to how grocers know what you order on a weekly basis and recommend products that are right for you before check out.

SMEs were asked to examine these use cases, and assess their likely impact on the business and perceived value. They found the most appealing aspect to be the ability to link accounting software directly to their bank account to make reconciliations and payments easier. Key concerns were related to giving up control and confidentiality of business performance to an outside party.

For SME alternative finance providers, this means we need to take an active role in building awareness, understanding, and trust to address the control and confidentiality concerns. It needs to be clear to British SMEs what they can gain from open banking not only from a payment perspective but from a funding and product comparison perspective as well. At the end of the day, when easier access and better capital terms are on the table business owners with an entrepreneurial mind-set don’t tend to say, “I’ll pass on that, thanks”.

“Open banking offers exciting and powerful ways to reshape people’s and business’ experience of financial services,” Faith Reynolds concluded. “There are some fantastic opportunities and there are some key risks and the success of it will be whether collectively we can take advantage of the opportunities while minimising the risk.”

A link to the report can be found here.