Despite the challenging business environment of recent years, open banking solutions have emerged as practical tools for businesses of all sizes, offering innovative ways to navigate issues effectively.
What is open banking in simple terms?
Open banking offers a straightforward and secure method for businesses and consumers to optimise their finances via mobile banking apps.
It involves using APIs to share financial data and services with third-party providers. These third parties, often technology or service providers, develop apps or services that utilise this shared data to enhance the banking experience for customers.
This system facilitates more efficient and tailored financial management – such as fast access to business finance – and provides real-time financial data for an up-to-date view of cash flow. It also offers alternative methods for making and receiving payments.
Albeit millions of people and businesses alike are already using open banking solutions, many small business owners and sole traders are still not fully aware of the potential benefits and efficiencies it can bring to their financial management.
Is open banking safe in the UK?
Open banking in the UK is designed with bank-level security measures. It employs rigorously tested software and security systems, adhering to the Open Banking API security profile based on Financial Grade API (FAPI) specifications.
Users are assured that they will never need to share their bank login details or password with anyone other than their own bank or building society, ensuring the safety and confidentiality of their financial information.
What are the benefits of open banking?
Open banking offers several benefits, including access to cost-effective lending options, methods to reduce card costs, innovative payment solutions for customers, and real-time insights into cash flow.
These features can significantly enhance financial management and operational efficiency for businesses.
Faster Funding Applications
Open banking streamlines business funding applications, making the process faster and simpler for business owners. Applications can be completed quickly, sometimes in as little as five minutes.
With the ability to promptly verify eligibility, lenders like Got Capital are often able to make decisions rapidly, sometimes within days or even hours.
This efficiency is a significant advantage for businesses seeking quick financial solutions.
Accuracy of Decision Making
Open banking leads to better informed lenders, enabling them to make accurate decisions regarding risk and affordability.
This results in higher chances of business funding approvals and the ability to offer competitive rates.
Access Finance Fast
With open banking, fast approval of business finance applications can lead to quicker disbursement of business funds.
Some specialist SME lenders, such as Got Capital, are capable of disbursing funds within 24 hours, often with flexible repayment terms.
This includes options for short-term borrowing, with discounts available for early repayments, catering to the immediate financial needs of businesses.
Real-Time Financial Insights
Open banking revolutionises financial management for many businesses struggling with accurate financial forecasting.
By integrating banking with accounting software, open banking provides real-time financial data. This facilitates more accurate forecasting and cash flow management, enhancing decision-making.
Additionally, automated bank feeds from open banking reduce manual data entry, minimising errors and boosting efficiency. This feature is particularly beneficial for maintaining consistent and error-free financial records, crucial for effective collaboration with accountants and finance professionals.
Reduce Late Payments
Open banking can significantly alleviate the issue of late payments for small businesses. By enabling faster settlements than traditional payment methods, it allows businesses quicker access to funds, thereby improving cash flow.
Additionally, integrating a ‘pay now’ option directly in invoice links through accounting software simplifies the payment process for clients, leading to quicker receivables.
This advancement in payment processing can be a game-changer in managing cash flow efficiently.
Offering Customers Alternative Payment Methods
Open banking presents new, cost-effective payment options for businesses. It allows customers to initiate direct bank transfers, bypassing traditional card payments.
Utilising ‘Pay by bank’ links or QR codes not only reduces transaction fees but also offers a secure and convenient payment method. For small businesses, especially those with lower transaction volumes or narrow profit margins, this can lead to significant cost savings.
Additionally, open banking can automate bulk payments like salaries, streamlining the process and improving transaction reconciliation. This is particularly relevant given that a significant number of businesses still manually process employee salaries.
Open banking’s secure connection to business accounts facilitates efficient automation of these processes.
How can open banking help your business?
Open banking is increasingly seen as a valuable tool for small businesses. While it may not entirely replace professional services, the growing use and familiarity with open banking can significantly benefit the UK’s small businesses.
Key advantages include time and cost savings, allowing businesses to concentrate more on their core activities.
Is open banking good or bad?
Open banking is generally seen as beneficial due to its regulated APIs, which allow both banks and external providers to safely access transaction data and initiate payments for customers.
It’s more secure than screen scraping, as it eliminates the need to share passwords and user credentials to access financial data. This makes open banking a safer and more efficient way to manage finances.
What are the risks of open banking?
One of the primary risks associated with open banking is data security. While open banking relies on secure API channels for sharing financial data with third-party providers, as with everything in the digital world, risk of data breaches and security vulnerabilities exist.
Small businesses access unsecured, fast funding from Got Capital. As an alternative lender, Got Capital offers financing solutions specifically designed for and catered to the needs of SMEs.
