In recent years, the finance industry has become digitized. The development of online banking, financial technologies and other services has led to unprecedented opportunities for convenience and accessibility for customers. The events of 2020 have significantly accelerated the digitization processes. The pandemic is forcing more and more people to utilize digital channels.
Today we are going to review open banking technology. This is a concept that involves combining products from different vendors and allowing third parties to access a user’s banking data with their consent. Let’s try to answer the question in more detail, what is open banking. What is the impact of this trend on small businesses? Explore this topic from all angles with the experts at PaySaxas.
Introduction to open banking
To delve deeper into a topic, you should always learn a clear definition of a concept. That’s what we’ll deal with next. The open banking meaning defines the essence. This is a policy that allows financial institutions to exchange information among themselves and with third-party providers. Information is exchanged through APIs, a set of protocols that define the technical aspects of data exchange. The information exchanged under an open banking policy is usually divided into:
- Public: data available to every user, such as ATM locations, bank branch hours, exchange rates, etc.;
- Private: data related to a specific person or company, such as account balance, international transaction details, etc.
APIs are also necessary for Banking-as-a-Service (BaaS), a key component of open banking. BaaS is an end-to-end process that connects fintech companies and other companies to bank systems directly through APIs.
What is open banking?
In simple words, open banking is a system where banks open up their application programming interfaces. This allows third-party companies to access the financial information needed to develop new apps and services. This ultimately provides account holders with greater financial empowerment.
Today’s market players, like open banking providers, are actively adopting new technologies to improve customers’ lives. This draws attention to the technology and expands financial opportunities for member companies, businesses, and enterprises, as well as ordinary users. The open banking apps are developed daily by providers to win the competition and keep customers happy.
The risks and rewards of open banking for small businesses
| Rewards | Risks |
| Open banking not only allows fintech companies to develop more sophisticated solutions for personal finance management, but it also forces traditional operators to improve their offerings or to cooperate with third-party organizations. Thus, open banking providers promote competition in the banking sector. | Certain banks are finding it difficult to stay up to date with fintech companies and all the industry changes. This suggests that their clients are not eligible for any of the advantages of open banking. Customers then look for other service providers who might give better services. |
| Quick, simple, and direct open banking payments have been made possible via this tool. You can shop now and pay in the easiest way possible. | Since open banking is still relatively new, some consumers and companies are taking their time adjusting. Fintech companies and other interested parties, however, are putting a lot of effort into educating users to help them understand the benefits of open banking. |
| By allowing you to view all of your accounts in one location, open banking helps you gain a clear picture of your finances. Today’s open banking apps assist you with budgeting, finding good bargains, making the proper purchases, and much more. Additionally, you can safely and conveniently view the details of your current account. | Since the majority of services are now provided online, small businesses now interact with their banks and financial service providers less in person. Banks that once had a high degree of client loyalty are losing business because of their amiable staff. |
The effects of open banking on small businesses
Development is always good for business. The new technologies that are involved in open banking contribute to attracting attention and active use in work. Let’s take a look at what other effects this trend is having.
Control over financial data and its benefits
By allowing customers to securely share their financial data with third-party providers, Open Banking UK aims to spur innovation, increase competition, and improve the customer experience in the financial industry. As it continues to gain momentum around the world, we are likely to see more and more operators adopting this technology to offer customers more convenient and secure ways to pay.
Customized financial products and services
Customers can get access to more customized financial services and products with Open Banking. They can benefit from collaborations between fintech service providers and financial institutions to find solutions for loans, insurance, investments, and budget management that are more suited to their needs.
Businesses stand to gain greatly from this, particularly if they can provide their clients with cutting-edge goods like credit, loans, financing, or any other type of service that is typically limited to traditional banking.
Expediting transactions with instant online payments
Payments are an integral part of business. Therefore, companies in the financial market and not only, try to improve this process. Open Banking will be able to guarantee fast transactions through instant online payments. In general, banks should allow third parties to initiate payments on your behalf. This will make it easier, and cheaper, for service providers to process transactions.
Main benefits of open banking for small businesses
These days, open banking has many benefits for consumers in general and specifically for small businesses. Don’t miss the opportunity to be a part of this technology and have a positive experience provided by the open banking providers.
Opportunities presented by open banking for small businesses
- Improved ways of conducting the business
One of the important opportunities is the change and improvement of the way small businesses operate. Such technology makes it easier to switch between banks, credit, insurance, and utility companies. The simplicity and security of open banking also mean less day-to-day administration for small businesses.
- Improved customer service quality
When a business doesn’t spend a lot of time on administrative tasks, it can focus on the most essential thing, namely customers. New technologies speed up the process of interacting with them, increasing the quality and time period of responding to inquiries and receiving goods or services. Businesses won’t have a hard time helping quickly even with open banking loans.
- Numerous services in a more convenient format
These days, making open banking payments is becoming easier thanks to modern capabilities and tools. What’s more, multiple services can be found in one place, with one provider. The client no longer needs to register on different platforms to get this or that help. It is enough to find one contractor and interact with him. This is how open banking makes life easier for both customers and small businesses.
Potential difficulties and challenges for small businesses
Such trends also bring challenges. Don’t forget that Open Banking makes information about its customers’ personal or business accounts more accessible from the outside by opening communication ports. Of course, such an action may cause risks in using the resource.
You should not mess with inauthentic software. Before you decide to connect to a particular software, you should make sure that it has undergone rigorous comprehensive IT due diligence and quarantine testing.
Challenges and how small businesses can navigate them
There are always difficulties at one stage or another, including open banking UK. But it is important to understand that there are ways to solve these issues and problem areas. Let’s take a look at the options that can be applied by small businesses to maximize overcoming problems.
- It is important to ensure that your data is not used for the wrong purposes. Since information is shared and can be used by third parties, you should periodically check the Internet. Fraudsters always expect easy prey.
- It is important to monitor and update your IT infrastructure promptly. Technology is developing so fast that sometimes small businesses can’t keep up with bank implementations. It can also happen the other way around. Therefore, companies need to make sure they keep up with the times.
- As corny as it sounds, small businesses can train employees on how to work with open banking. This is a relatively new trend. Not everyone has yet figured out what it is and how to work with it. In the not-too-distant future, it will already be as commonplace as paying for purchases via mobile phone.
How small businesses can leverage open banking
Progress and new technologies improve the way a small business and a client work and interact with each other. In this case, open banking offers many options. Let’s understand how businesses can leverage this trend in their day-to-day operations.
Open banking and small businesses: a promising collaboration
Rest assured that this bundle will bring a lot of value to customers. A simple example is open banking payments. We are used to seeing a similar scheme: a company issues an invoice for a specified service or product, and the client pays by bank transfer. This often leads to delays, or the buyer may change his mind.
Open Banking today offers the ability for small businesses to use the tool to create a link and send a customer for a quick mobile payment. You will be able to immediately open the invoice, view it, and pay instantly from your device. Entrepreneurs today offer services over the Internet that are paid for by subscriptions.
That is, the client pays for the service and agrees to have the same funds automatically debited every month or at any other frequency. With the high volume of transactions that subscription businesses process, the savings associated with using open banking-powered payments can make a significant difference to the bottom line over time. The sooner the switch, the bigger the benefit.
Looking to the future: Open banking and small businesses
It’s worth noting that today’s cooperation between entrepreneurs and open banking is not surprising. It will soon be the norm. Businesses these days are maximizing their offerings to customers thanks in large part to open banking technology.
Companies and regular users can find many useful financial tools in one place. This integration allows you to increase sales volumes, speed up payment processing, and correctly and correctly run your financial report. Taking out open banking loans today is as convenient and fast as ever. This is good news.
Final Thoughts
We were able to consider the concept of open banking. This is a new trend that is gaining momentum today. Like it was stated before open banking is a system where banks open up their application programming interfaces. This allows third-party companies to access the financial information needed to develop new apps and services.
Small businesses these days are starting to take advantage of such technologies like no one else. Open banking payments have become faster and more accessible. There is no time for delays and mistakes, entrepreneurs want to make money.
Modern open banking apps help with this, making life easier for business owners, accountants, and clients themselves. In any case, you already know more about the open banking topic. Let’s keep following and learn new tendencies together with the PaySaxas team.
