Open Banking: Aims and Benefits for SMEs

The term Open Banking has been around for a few years, but with more people leaving the corporate world to start their own SME, Open Banking is becoming a hot topic. And understating what Open Banking is and how it can help your SME could put you ahead of the competition. 

What is Open Banking?

Put simply, Open Banking means that all UK-regulated banks have to let you share your financial data with authorised providers offering budgeting apps, or other banks – as long as you give your permission. 

The idea behind Open Banking is that it should bring more competition and innovation to financial services. This in turn, should lead to more and better products to help manage your money, which is imperative in SMEs as initial cash-flow can often be much smaller compared to larger businesses. 

This secure platform allows providers access to user’s financial information and can help customers get better deals on services and products, as it makes it easier to compare the features of various personal and business accounts. 

What are the benefits?

Open Banking allows companies like Nucleus Commercial Finance to give users a holistic view of their finances. This then gives SMEs the tools and information they need to navigate through the challenging business environment.  

Often when it comes to finding funding for SMEs the hardest and most arduous job is the application process in which lenders require information about your finances. Normally they request between 3 to 6 months’ worth of bank statements. With Open Banking , instead of having to manually find the statements, you can grant access to the provider in which your applying for your business loan with, and they can then access and generate the statements they require. This ease and speed allows businesses to operate virtually uninterrupted and reduces the time it takes for lenders to reach a decision about loans. 

How has it helped SMEs stay afloat during crisis?

A recent study by Simply Business found that Covid-19 could cost small business up to £69 billion in total, with one in five SMEs believing they won’t survive another lockdown. As a country renowned for its innovation and support for cultivating forward thinking businesses, Open Banking is pivotal in allowing SMEs to bounce back. 

While the immediate benefits of using Open Banking include reducing the amount of manual work involved in underwriting, during the COVID-19 crisis the benefits of Open Banking have taken on a new significance. Open Banking has proved to be a powerful tool in helping finance providers assess affordability during difficult times, and it can help lenders obtain accurate and up-to-date information regarding the SME’s financial situation. This information then helps them make informed decisions when it comes to further credit and can provide additional insight to help tailor products to meet individual needs.