How Does Open Banking Work?
In the past – a financial institution (typically a bank) would be responsible for processing and storing financial data about individuals and organisations. Historically this has driven our view of what can be done with our financial information, and who can process it. We had to work with banks to access this and this was a space in which there was both limited competition and innovation.
This was the case until Open Banking was put in place. Open Banking created a series of rules that allows users to share banking details and information using APIs (Application Programming Interfaces). This means you can share your data with third parties knowing that your data will be kept safe.
What this means in practice is that you now have a secure channel to share your banking information with companies other than your bank. Your consent is always needed but now other organisations can use your banking data to build new products and services that are linked and tailored to a specific person and their banking.
What Are The Benefits Of Open Banking To Businesses?
Historically your bank would have a monopoly on your financial information and what it could do with it. Changing banking providers was a difficult process and therefore banks knew that customers would be unlikely to move their accounts to a new provider. This would stifle competition because they didn’t need to do too much to keep you as a customer. This was not good for competition, and it definitely didn’t create innovation.
Now apps and other organisations are able to work with you through an API and build products that are tailored to your specific business needs. This has driven lots of competition which is great for businesses of all sizes.
Speed and Accessibility
In the past, if you wanted to apply for a loan or work with another financial institution you would need to fill out information about your business, your account and other specific information. For instance, you can connect your business bank account in minutes to Tide to apply online for small business loans. As pre-eligibility checks are already carried out, you can compare business loan options at a glance without impacting your credit score. The application process only takes a few minutes.
Access To Improved Tools and Insights
Before Open Banking if you wanted to have insights into your business’s financial performance you would have needed to either stick with what your bank provided, or connect your account to a third party piece of software.
With Open Banking you now have a wide range of providers who can help plan out your business – anywhere from borrowing to cash flow planning. Tide has a great cash flow forecasting tool available with their business bank account. As well as providing recommendations for helping you to stay cash flow positive, it can also help you to access tailored business loans to help you grow your credit score.
Centralisation of Data
By using Open Banking you can have real-time insights into all of your accounts, loans and lines of credit in one place. Before Open Banking you would have had to have separate log-in details for each account and provider. Running a business is hard enough without having all of your financial information in one place – it helps you make decisions quickly and efficiently if you can see everything in one place.
Tap In To The Power of Machine Learning
Every business owner is familiar with the excel spreadsheet – you build a beautiful financial model that takes into account everything that your business does. That is until your business changes, or you need to change a key piece of information. Then you spend that time rebuilding the financial model instead of time running your business.
Using Open Banking means that you can use Machine Learning to create actionable insights for your business. Tide’s Cashflow Insights combines analysis of your account with machine learning models and can give you real-time insights and predictions into what actions you can take in order to keep to keep a healthy cash flow balance.
Open Banking has already brought in increased competition within the banking sector by creating products and services that benefit the consumer. Banks can no longer rely on customer loyalty due to the process of moving being too unwieldy.. They now have fierce competition from both existing financial institutions and fintechs. It is worth trying out some of the services that are available with different business bank accounts – you can combine accounts and see what the benefits are without completely leaving your existing bank. The best of both worlds!