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Open banking for small businesses

The first article in our Opening up about open banking series explained what open banking is and what triggered its development. We looked briefly at how sharing information can benefit individuals and large banks. But more than 99% (around 6 million) of the UK’s businesses are small or medium-sized enterprises (SMEs), meaning they have fewer than 250 employees. How will open banking affect them? We investigate below…

Survival of the fittest SMEs

Successful small businesses have always had to meet a lot of demands. They have to be:

  • customer-focused at all times
  • agile and responsive
  • excellent administrators and record-keepers

Qualities like these have become even more important in this post-pandemic economy. Consumer habits and demands have changed considerably, with a huge increase in contactless and online transactions. SMEs have had to adapt to this new business world and do so quickly.

Some have been able to do this better than others. Even so, according to Simply Business, Covid-19 is going to cost UK SMEs £126.6 billion – double the amount that business owners predicted originally. The report also highlights that financial worries have been one of the biggest headaches for small business owners in recent months.


Open banking, open opportunities  

While open banking is unlikely to be a cure-all for what’s ailing the small business sector, it can certainly offer a helping hand towards creating or maintaining the traits we’ve listed above.


Customer focus is crucial when implementing an Open Banking API such as a transaction enrichment service

Customer focus

Smoother transactions can save small companies a lot of time. If, for example, a company has a reliable and efficient payment process on its website, its employees are likely to spend less time dealing with payment-related queries from customers.

This improves customer focus in two ways: first, the business can devote the time it saves to meeting other customer needs and expectations; and second, its customers enjoy a smoother purchase, leaving them with a better impression of the business. The business might also be able to analyse the transaction data for market research purposes, so gaining valuable customer insights.

To access these open banking-related benefits, the company will have to work with an authorised third-party provider (TPP) specialising in payment services. In turn, the TPP will use microservices to handle the transaction data and obtain account information as needed.





Efficiency is key when dealing with multiple third parties in the Open Banking ecosystem

A small business owner who spots a new opportunity will want to move quickly to take it up. Open banking can offer SMEs wider access to loans and finance products and quicker lending decisions. For an example of how this can work in practice, see part 1 of our Opening up about open banking series.


Easier admin

Many open banking applications aim to help SMEs with complex administration such as accountancy and tax issues. Information sharing under the new open banking legislation makes it possible for authorised TPPs to operate in this sphere. Specialist platforms can save time, money and sometimes sanity for small business owners.

These are only a few examples of how open banking can benefit small businesses. As the concept becomes embedded in the UK financial services industry, further innovations, disruptions and developments are highly likely. Watch this space!