What Open Banking Means for SMEs

Posted on 6th February 2018 in Cash Flow

Written by Freya Hughes

Open banking is one of the key terms of 2018 already. We hear from Conrad Ford, CEO of Funding Options, to find out more about what it is, and what it means for SMEs.

You may already have heard of Open Banking. In 2016 the Competition and Markets Authority (CMA) issued new regulations allowing challenger banks, financial technology companies, third-party providers and consumer groups to access data from major bank customers.

But don’t be alarmed – that doesn’t mean third parties will randomly dip into your online banking account. Rather, it means they’ll get a chance to access your data with your authorisation, and use it to help you get in control of your finances. The reason is that well-established banks don’t have to compete hard enough, and newer banks or fintech companies find it difficult to enter the market.

Without remedies like Open Banking, your financial data wouldn’t be used to improve services, and therefore, you would miss out on a number of opportunities created by younger businesses that provide financial services.

The UK’s nine largest banks, Bank of Ireland, Barclays, Danske, AIB Group, HSBC Group, Lloyds Banking Group, Nationwide, RBS Group and Santander, now have to provide the new API (application programming interface) standard. But what exactly does that mean for small and medium-sized businesses? Let’s take a look at what Open Banking will bring to businesses across the UK.

Advantages of your financial data

It’s a big opportunity not only for consumers but also for the 5 million small businesses in the UK. My firm, Funding Options, is one of the fintech firms working on new services, tools, and apps that could shape the future of small business banking, and we believe Open Banking could have a profound impact on the business lending market.

Let’s say you would like to apply for a business loan with an alternative lender. Since the financial crunch of 2008, small business find it difficult to access finance through their bank, but due to the Bank Referral Scheme, introduced by the government, business owners can be referred to one of the many non-bank lenders out there who could help you get funds. The application can be made online within minutes. However, when it comes to sending your financial data to the lender, so they can assess your creditworthiness, time gets wasted because of the lack of instant access.

This is why parts of the otherwise very user-friendly process are still handled the old-fashioned way. You have to take photos of your bank statements and somebody in a fintech has to spend their time reading them, which makes the whole underwriting process longer and more inconvenient than it has to be. In some cases, customers even passed on their online banking login details — a huge risk for you and your business. Until now, banks kept this treasure trove of data locked up, which made it difficult for financial technology providers to improve their services fully.

Now, with Open Banking in motion, secure APIs allow you to share your financial data instantly, paving the way for lenders to use information such as revenue, profit, and other cash flow data to your benefit. This will help make much faster lending decisions. Access to the data can eliminate time in the process, so getting a business loan will be comparable to the five minutes it takes to shop for your travel insurance for Majorca, for example.

Open up to new opportunities

Not only will Open Banking back up SMEs, it could also strengthen the UK’s economy as a whole. Nesta’s Open Up Challenge, for example, inspired the creation of apps, tools, and new-generation services that are looking to support SMEs in terms of financial services. In the challenge, ten fintech companies came up with new ideas that could help solve problems faced by SMEs such as cash flow, automated accounting, or tax services. This way business owners will not only embrace a far more controlled approach to their data, they’ll also learn how to use it to their benefit.

In short, Open Banking forces the nine largest banks in the UK to open up data, and relinquish their monopoly position. Therefore, fintechs, challenger banks, third-party providers and consumer groups will gain a share in the market and tackle financial issues for SMEs. At the core, we’re moving from a world where your bank controls the data they have on you to one where it’s your data. And, small business lending is only one of a number of user cases.

It remains to be seen what the future of Open Banking holds, but SMEs can be excited to engage in these new opportunities.


Conrad Ford is Chief Executive of Funding Options, recently described by the Telegraph as “the matchmaking website for small businesses and lenders”. Funding Options has been selected by HM Treasury to help businesses find finance when they’re unsuccessful with the major banks, as part of the Bank Referral Scheme that launched in November 2016. @FundingOptions


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