The first business loan using Open Banking data was issued in November 2018 after the launch of the PSD2 legislation. By 2020, third-party providers were regularly using this technology to help people share their banking data in an easy and automated way.
Today, there are around 750,000 small to medium-sized enterprises (SMEs) using Open Banking products. As the technology becomes more widely adopted and easier to use, that number continues to grow. Open Banking is commonly used by lenders and their customers to securely share financial information, making finance applications and approval processes faster and more efficient. In this blog, we explore what Open Banking really is, how it works, and the key benefits and drawbacks it presents for businesses.
What is Open Banking?
Open Banking is a secure technology that allows you to safely share financial information from your bank account with trusted third-party providers without the hassle of downloading or printing bank statements. With your permission, providers are given read only access to view your banking data such as transactions, payments and available balances. This makes it quicker and easier to access financial services without needing to visit your bank or send documents manually.
How does Open Banking work?
Open Banking enables the sharing of financial data from your bank through the use of APIs. API stands for application programming interface. These APIs facilitate the secure exchange of financial information between banks and authorised third-party providers. Unlike traditional banking services, which often operate within a closed environment, Open Banking decentralises financial services. You have to give your permission for a third-party platform to access your account through Open Banking. Once a third-party provider receives the data from your bank, it can use the information to offer you more personalised solutions. The authorisation you provide to access your accounts will generally have a time limit assigned. You will be asked to reestablish your connection every 3 months or so.
Benefits of Open Banking
Personalised and enhanced financial services:
Open Banking enables the creation of tailored financial products and services, designed to meet each individual's unique needs and preferences based on their own data.
Financial literacy and empowerment:
Open Banking can empower businesses with better tools and insights to manage their finances effectively, leading to improved financial literacy and decision-making.
Reduced fraud risk:
Open Banking helps lower the risk of fraud by increasing transparency and making it more difficult for fraudulent activity to go unnoticed.
Faster lending decisions:
Open Banking allows businesses to provide their account history to lenders, speeding up finance application processes and decision-making.
Simplifying processes:
Open Banking saves valuable time by quickly sharing financial data, so businesses no longer need to gather and send their banking information manually.
Considerations of Open Banking
Data privacy concerns:
Some may feel cautious about sharing their banking information. However, it's important to know that providers must meet strict regulatory and security standards to keep your data protected and used responsibly.
Security of your financial information:
Open Banking is built on secure technology and strong authentication measures to protect your financial data. However, like any digital system, there's a small risk of cyber threats, but robust protections and industry wide standards are in place to safeguard your financial data.
How do we use Open Banking?
At Time Finance, we work with trusted Open Banking partners to give our clients access to smarter, more tailored financial solutions. By securely connecting to your banking data, we’re able to offer services that are faster, more accurate, and better suited to your business needs. We can provide businesses with a range of funding options including invoice finance, asset finance, secured loans and asset based lending. Get in touch with our team today to explore how our financing options can help you.