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How Open Banking will affect UK businesses

In Planning growth, Raising finance, Rapidly scaling - 1 year ago - 5 min

How Open Banking will affect UK businesses

Guest Author: Funding Options

Open Banking has been a much discussed topic over the last two years, but there’s still a lot left to say about what it means for businesses in the UK.

The initiative was introduced by the Competition and Markets Authority (CMA) to increase the number of new financial providers entering the market. A report by the CMA showed that the UK’s major banks weren’t having to compete hard enough while challenger banks, fintechs and other third-party providers struggled to enter the market.

“The lack of competitive pressure in SME banking is highlighted by the fact that more than 50% of start-ups looking for an SME account choose the bank with which they have a personal current account, over 90% stay with their Business Current Account (BCA) when the initial free banking period comes to an end, and around 90% then go to their BCA provider when they are looking for business loans” the CMA report reveals. (

This is a problem, because if the bank can’t help, business owners often don’t look anywhere else, or simply don’t know that there are alternative options.

Open Banking effectively means that bank customers can securely share their financial data with third parties. Consequently, this means that major banks are required to open up the data they hold on you, so you can use it to your benefit. This article will give you an overview of what the new regulations mean to business owners and how they can take advantage of it.

How does Open Banking work?

The new regulations require nine of the UK’s major banks to give fintechs, challenger banks, and other third party providers access to the financial data they hold on their customers — provided the customer wishes to do so.

Via a secure API (application programming interface) authorised third parties can access bank statements, revenue, profit, and other cash flow data instantly. However, access can only be given with the customer’s explicit permission. It can also be revoked at any time. Essentially, Open Banking is similar to online business banking — the customer needs to log in with their online banking details in order to grant access.

There will be a standard API, which enables third party providers to develop products using this data. Whatever they build will be compatible with all the major banks, so we can expect more useful tools and apps to emerge through this initiative.

What is the benefit for businesses?

Open Banking is a positive change for the 5.7 million businesses across the UK, because it makes things a lot easier and faster for business owners thanks to reduced admin and the option to merge several different systems into one. In the Open Up Challenge by Nesta, the global innovation foundation, ten fintech companies created new tools, apps and services that can help business owners understand their finances better.

This way business owners can take advantage of this knowledge to make positive changes for their business.  Here are some of the positive effects explained.

Be prepared, plan ahead

Understanding your financials better also means you’ll be able to better plan and prepare for certain situations. There’s a variety of apps on the market that help businesses track and forecast cash flow, but they’re often separated from day-to-day bookkeeping. Open Banking allows you to integrate many different systems such as accounting and business banking software into one system, which could lead to better financial awareness and reduce software management. In a nutshell, software using the Open Banking API can help you make the most of your financial data.

Reduce administrative burden

Open Banking can help you reduce paperwork and time you spend on admin. Bookkeepers and accountants, for example, could access your financial data instantly, which will make the process a lot faster and easier. Instead of waiting for bank statements and other photocopies to be sent over, they’ll be able to access the data with only one click. You won’t have to worry about the paperwork, and all your accountant needs is your permission.

This also applies to alternative business finance. Let’s say you’d like to apply for a business loan with an alternative lender. The initial application can be made online within a few minutes. However, in order to assess your creditworthiness, the lender will have to check your business bank statements and other trading history data. Until now, business owners had to send across their financial data the old-fashioned way — as a photo or PDF via email.

This takes up a lot of time and makes the otherwise very user-friendly process unnecessarily complicated. Open Banking is aiming to change that by automating this part of the underwriting process. Via the secure API, lenders can access revenue, profit and other cash flow data directly from your business bank account. This will speed up the process and the money could be in your bank account much faster than expected.

This might not sound like a big change, but in practice it will facilitate much faster lending decisions. After all, getting a business loan could be comparable to the five minutes it takes to set up your travel insurance online.

Take control of your data

Fundamentally, the idea behind Open Banking is that the financial data in your bank account is your data, not the bank’s data. Open Banking gives you control over your data, so you can decide how to use it, and choose who should get access to it.

New opportunities for the economy

Overall Open Banking can help smaller companies as it opens up potential for new innovation and removes some of the burdens that weigh small businesses down. The data held by your bank now belongs to you, and it’s yours to use as you wish.

Of course, it’ll take time to develop, but Open Banking could help solve problems faced by all businesses — whether it’s cash flow, automated accounting, tax services, loan applications, or a combination of all of these.

Not only will business owners get far more control over their own data — they’ll also begin to use it to their benefit. It remains to be seen exactly what the future of Open Banking holds, but businesses across the UK can be excited about these new opportunities.

If you’re thinking about raising investment and want to understand your options, get some free guidance from one of our team today on 08081 722350 or drop us an email:

Guest author:

Conrad Ford is founder and CEO of Funding Options, the online marketplace for businesses finance. Funding Options is helping the small walk tall. Funding Options helps businesses find the right funding for their situation — whether they want to grow, they’re fighting for survival, or simply need to pay a tax bill. @FundingOptions