How open banking will make it easier to get a small business loan in 2018...
Last summer we ran an article about how Open Banking was set to revolutionise small business loans in the UK as from early 2018. Now Open Banking is here!
What is Open Banking?
Open Banking affects all of the UK's "Big Nine" banks. Lloyds, Nationwide, Danske and Allied Irish Bank have already begun rolling out Open Banking to current accounts. Barclays, RBS, HSBC and Bank of Ireland will begin to do so in the next six weeks. Santander-owned Cater Allen - which offers business accounts - will roll out within the next year.
But what exactly is Open Banking, and what does it mean for small businesses? Open Banking describes a new set of open platform technologies and standards - usually in the form of secure APIs (Application Programming Interfaces) - that allows different software to communicate. Its main aim is to enable customers to own their financial information and authorise it to be shared securely between different financial institutions.
Image source raconteur.net
Fair Business Loans and Open Banking
However, the concept of Open Banking itself is not new. For example you may already use a service that logs into your account and ‘scrapes’ the data required. At Fair Business Loans we have offered you the ability to share data in this way for several years – see our article about DirectID for more information on this. The arrival of Open Banking will make this more seamless providing standardised access to bank data. Fair Business Loans will continue to embrace technology and data, and will be allowing you to choose to share information from open banking with us to speed up your loan applications.
Customer benefits of Open Banking
Open Banking puts customers firmly back in the driving seat of their financial affairs. They have control over their information and who can access it. Up until now banks have had exclusive visibility of this financial data all to themselves: they know customers’ regular payments, spending patterns and their suppliers and retailers of choice.
But now customers can instruct their banks to share that data with another party - such as an independent app or internet service - and the banks cannot refuse. This will enable customers to use a range of financial services from different providers without the need to constantly share credentials with third parties.
Open Banking therefore has the potential to cut through the monopoly of the major High Street banks and enable more competition in the financial services market. According to Imran Gulamhuseinwala, Trustee of OBIE - The Open Banking Implementation Entity that is overseeing Open Banking: “The goal of the UK’s Open Banking initiative is to allow consumers and small businesses the option to securely and safely make the most of their financial data. In time, Open Banking will give consumers and small businesses more choice, better services and cheaper products.”
Small business benefits of Open Banking
Open Banking is particularly helpful for small business owners. It has the potential to relieve the administrative burden of running a small business by making it possible to manage the finances of that business more efficiently and effectively. Five specific ways it can do this are:
- Payments: Enabling small businesses to use APIs to share banking data securely with trusted third parties - and allowing these third parties to initiate payments on their behalf - will make payments faster and easier for SMEs.
- Products: Improving the range and value of financial products available to small businesses so that it will be easier to find and arrange financial products such as small business loans from a greater variety of different providers.
- Cash flow: The ability to aggregate account information into one place will simplify many aspects of financial management, such as enabling small businesses to move cash between different accounts to avoid going into the red and facing overdraft charges.
- Customer data: Open Banking will help small businesses to obtain reliable customer data, eliminate bureaucracy and make fairer credit decisions which will potentially unlock faster economic growth.
- User experience: Those small businesses who truly grasp the potential of Open Banking and run with it are likely to be viewed as more helpful and customer- friendly.
So, Open Banking is good news for small businesses and is particularly good news for us here in the UK because we are well ahead of the game in the implementation of Open Banking. This means that many UK financial services companies are likely to be creating innovative tools and apps to help small businesses make the most of Open Banking. So watch this space!!
Meanwhile if you need further help or assistance with any aspect of financing your growing business, such as a small business loan, then do get in touch with us at Fair Business Loans to see how we can help you move forward.