How Open Banking can help SME’s grow and thrive

By Abhinav Desai | 20 November 2020

In September the UK’s Open Banking implementation body (OBIE) announced a significant uptake in the number of Open Banking service uses in the UK, with over two million people now benefiting from Open Banking products. This represents a 100 percent increase in users in just over six months since the start of the global pandemic.

Both consumers and businesses, especially the small to medium enterprise sector (SMEs) which accounts for three fifths of employment in the UK and around half of private sector turnover, have turned to new Open Banking based solutions to better manage their finances during the pandemic. With around 160,000 new users adopting Open Banking tools each month, the three million milestone will likely be achieved in short order.

With now over half-a-billon API calls taking place each month, it is not only the number of Open Banking users that are increasing, but also the frequency with which businesses and consumers access and rely upon new innovative service that Open Banking is able to uniquely provide.

SME lifeline

For many SMEs in particular, the new service propositions enabled by Open Banking have been an invaluable lifeline over recent months. Being able to access a wider range of final service products, including improving their ability to  manage their cash better and obtain funding, has for many struggling SMEs meant the difference between survival and closure in today’s uniquely uncertain and challenging times.

The SME adoption of new Open Banking services has perhaps surprised some commentators, who have largely focused on retail banking and consumer-targeted apps and services. At Pelican, we have long seen the significant potential benefits of Open Banking to the SME market, in the UK and across Europe.

For one, SMEs have greater and typically more sophisticated financial requirements than individual consumers –  including the need to understand and predict cash flow, make faster payments easily and at low cost, aggregate multiple accounts, better integrate accounting and banking systems, and obtain access to both short- and long-term funding and credit.

Virtual CFO?

With more complex requirements, there is far greater opportunity for Open Banking tools to access and leverage siloed data, presenting back to the SME a comprehensive picture of its financial health, predicting future cash flow constraints, improving financial oversight, and suggesting targeted and relevant funding solutions. This data-based understanding can for smaller companies be almost like having a virtual-CFO guiding and advising the business.

So how specifically can Open Banking-based solutions help SMEs? There are several obvious SME challenges that new solutions can address. A digital Open Banking/PSD2 integrated solution can remove many of the repetitive and manual administrative processes that can consume the precious time of senior small business leaders. The ability to monitor an overall financial position, to seamlessly move money between banks and accounts, and between credit and debit balances, can all be done far more efficiently and effectively using integrated Open Banking solutions, enabling the optimum use of working capital, without the investment in time and expertise that would otherwise have been required – investments that many SMEs simply do not have or can afford.

New services

In addition to the ‘single dashboard’ efficiency savings and cash flow insights, Open Banking provides access to a far wider range of funding and loan providers and opportunities. Access to lending options that would typically have been closed using a more traditional bank application approach can be critical for SMEs, with Open Banking’s ability to access and reason over financial data and transaction history enabling a speedy lending response – often in seconds or minutes, as apposed to days or weeks.

As we have seen, Open Banking and PSD2 in Europe offer many unique benefits in helping organisations access funds, streamline operations, and also engage with their customers. Open Banking enables lenders to better and more quickly make informed lending decisions. The credit reference agency Equifax endorses the view that Open Banking data insights have ‘reinvigorating the supply of credit for businesses and individuals’.

So, if you are an SME perhaps it is time that you reviewed your current Open Banking approach. Are you fully capitalising on the new services opportunities now available? And for upcoming businesses, can you benefit from easier and better ways to manage your finances, lower your admin costs, and have greater choice of funding options? As we all move together into the ‘next’ uncertain normal, one thing is clear: the benefits to be had from Open Banking are obvious and measurable.


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