Why Open Banking Could Benefit Businesses

The big banks have traditionally been very protective over customer data. While it’s understandable that the banking sector is keen to stay firmly on the right side of the Data Protection Act, some fintech firms have accused the big players of making financial management unnecessarily difficult for their customers. In this article, we look at how ‘open banking’ could benefit businesses.

The Current Challenge

With the current processes, many businesses in the UK need help to retrieve their own financial information due to the security features some high street banks have put in place. Several fintech companies have voiced their dissatisfaction with the challenges businesses face.

Cardeo, a company that leverages ‘open banking’ to assist customers in lowering their credit card debt, estimates that 60% of credit card issuers decline to share elements of customer data. Although regulations force issuers to permit third-party access to data, many banks have reportedly complicated the process of accessing details.

Adam Jackson of Innovate Finance, an independent industry body representing the British fintech industry, said: “Unless we systematically expand open banking, our citizens and small businesses will miss out on opportunities to access and control their financial data to improve financial health, productivity and sustainable growth.”

What is Open Banking?

Since 2018, open banking regulations like ‘PSD2’ have required the largest banks in the UK to enable businesses to share their financial information with authorised service providers. This enables providers to access read-only information such as transaction history and recurring payments.

With the implementation of open banking, providing data to third-party apps or websites becomes more streamlined. Instead of working through mountains of paperwork, fintech firms can directly access the relevant data. This direct access is always contingent on the customer’s consent via their bank.

Open banking has paved the way for various valuable money management websites and apps to launch in the UK market. These platforms often leverage businesses’ financial data to offer services and recommendations tailored to their spending and income patterns. Some apps automatically set aside savings, offer budgeting advice or present a summarised view of your accounts.

What is PSD2?

Payment Services Directive 2 (PSD2) is a 2018 European Union regulation covering payments, financial data and security. It’s a revised and updated version of the initial PSD, which was introduced in 2007, and it applies to the UK as well as all EU member states.

The primary objective of PSD2 is to allow fintech companies to present more advanced and user-friendly options to their users. For the financial sector, the most significant impact of the legislation is the requirement to grant third parties access to their payment services.

What is Being Done?

Open Banking Excellence, a collective of banks and fintech providers, has advocated for more open processes and improved payments. Founder and CEO Helen Child said: “If everyone in open banking laces up their trainers, we will see genuine alternatives to credit cards gain adoption and drive competition in the lending market.”

The Payment Systems Regulator (PSR) is spearheading a working group set up to prepare a strategy for introducing open banking payments. Their goal is to finalise their plans by Autumn 2023. PSR has acknowledged that there is potential for changes in regulations this year. Parliament is currently evaluating the Data Protection Act and Digital Information Bill - legislation that allows regulators to accelerate advancements in open banking.

A Barclays spokesperson recently commented to a reporter for CityAM: “We actively participate in the open banking ecosystem, working with all authorised third-party providers and following the regulatory requirements in order to help customers get the most from their finances.” A handful of other high street banks declined to comment.

Finding a Business Bank Account

Whether you run a startup or part of a well-established business, having a current account is a necessity for all registered companies.

A wide array of business accounts are on offer from a plethora of providers. These range from accounts offering overdrafts, online account management, and app integration to balance text alerts. Having a business-specific account gives you a clear separation between personal and business finances.

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Sam White