1 year ago
AltFi's Open Banking State of the Market Report 2022 shows that there's a notable split between consumers and small businesses using open banking. The report shows that consumers make up 86% of open banking users and small businesses only make up 14% of users. But why is this the case when there are so many benefits to open baking? In this article, we'll explore how small businesses could benefit from open banking.
What is open banking?
Why is open banking beneficial to businesses?
Why aren't small businesses using open banking?
What open bank accounts are available?
Open banking was introduced as a way to make it easier for people and businesses to move and manage their money. It does this by allowing you to connect financial service providers and banks through APIs (Application Programming Interfaces).
The law that allows open banking to exist to the extent that it does today is a revision of the Payment Service Directive (PSD2). This law was introduced by the European Parliament on 25th November 2015 and subsequently became law in the UK in 2018. PSD2 allows banks to share information with third-party providers (TPPs), essentially external organisations. Depending on their status, they can use that information in various ways.
For example, Account Information Service Providers (AISPs) can't initiate payments. However, they can access read-only (uneditable) financial data through data APIs. Conversely, if you give them approval, Payment Initiation Service Providers (PISPs) can make payments on your behalf through payment APIs.
As with any service or tool, whether open banking is beneficial to your business will depend on what you want to do with it. Undeniably, it can remove the barriers that slow down or prevent you from achieving your goals.
This point applies as much to consumers as it does to small businesses. The most obvious benefit of open banking is that it removes the need to log into multiple locations. This means you don't have to deal with different login processes, passwords and user interfaces to get an overview of your finances. You could log into a single location to view everything using a data API from an AISP. This could save both businesses and consumers time. However, when it comes to your business, time is money, so it could save you money too!
Through open banking, you can remove the need for your customers and clients to needlessly enter information when making a payment. Payment APIs can automatically share this information with you. An added benefit of this approach is it reduces the chances that information will be shared with errors, as the payment API is obtaining the information your business needs from the source, where it should have already been verified.
All of this results in a smoother user journey for your clients and customers, as you ask less of them, introduce fewer opportunities for user error, and provide a better user experience.
Because transactions are processed at the source, merchants don't have to worry about card fees with payment APIs.Subsequently, you could save a lot of money over time. You're also less susceptible to chargebacks, which can cause big problems with payment processing rates. As an added benefit, because transactions should settle instantly, there's no delay in payment processing like there can be with debit card payments.
Through data APIs, your business can learn far more about your customers and clients than was possible without open banking, in some instances allowing you to gain a better understanding of financial habits and trends, so you can make tailored recommendations.
You could reduce how long it takes to complete time-consuming onboarding processes. This can include compliance checks, verification and identity checks (anti-money laundering and 'know your customer' etc). Cutting these processes out, could reduce the amount of time you spend on admin. Subsequently, you might not just be able to onboard customers faster, you could onboard them in a much smarter way. This is because you could learn more about your customers in a cost-effective manner.
Most of us are creatures of habit. We have a tendency to live by the old adage of "if it ain't broke, don't fix it". While that may be true, it's possible you're still concerned about the perceived risks of open banking. The most obvious of these concerns is over unauthorised payments or access to data. Accordingly, as with any relatively new form of technology, this concern is a valid one. However, as with your bank account, open banking provides protections against fraud that are very effective.
Open banking transactions require Strong Customer Authentication (SCA). Because of SCA, in some scenarios, using payment APIs could actually reduce the risk of fraud compared to card payments. As less information is being entered in a way that might not be secure, there's a reduced chance of leaking financial information.
With open banking providing so many benefits, even if you don't have immediate plans to take advantage of it, you'll better future-proof your business by embracing it. At BusinessComparsion, we make it easier for you to compare and find the right bank account for your business. See how you could improve your business's approach to banking today: