What is Open Banking, and what does it entail?

23 Jun 2022

Open Banking emerged as a set of reforms by the PSD2 in 2018. It allows consumers and companies to share their financial information securely and in a standardised way with authorised parties. But what does Open Banking mean for businesses, exactly?

What is Open Banking, and what does it entail?

Open Banking lets individuals and businesses share their bank and transaction data with third parties, providing them with services and apps that can save them time and money. Financial institutions need the customer's permission to share their data. 

Third-party providers who are part of the Open Banking scheme must be part of the Financial Conduct Authority (FCA). There's no automatic fraud protection available through your bank if the third-party provider isn't FCA regulated. Authorised parties that meet the Open Banking Standards are listed on the Open Banking Directory.

Opting in to Open Banking doesn't come with an additional charge. However, remember that there might be a charge for the regulated app or website that uses Open Banking as another feature. Open Banking is secure – check out our article for more information on the facts and the fiction around Open Banking.

Five common Open Banking myths

Open Banking - what exactly does it 'open'?

Before we dive into the benefits of Open Banking for businesses, let's take a look at some of the data points it "opens up" for third-party providers – and their customers:

1. Account information

 Open Banking gives third-party providers access to account data. This includes the account holder's name, the type of account, the date it was opened, currency and information about transactions, such as amounts and merchants.

2. Product information

Before the rise of digital innovation in the financial sector, customers would typically have to visit their bank to discover what financial products they might be eligible for. With Open Banking, financial institutions can access product information in a standard format, enabling them to present customers with the best options. 

3. Payment information

Open Banking has the power to speed up payments. As long as the account holder provides their consent, customers can make payments through apps and other digital platforms instead of manually transferring funds using online banking. Authorised providers can take payments from consumers and businesses alike.

One of the aims of Open Banking is to drive innovation within the finance industry by providing opportunities for innovation and growth. 

We're no stranger to Open Banking at Funding Options. We use APIs in our Funding Cloud technology to connect with lenders to see our customers' most relevant and competitive funding options. It's about providing businesses with products that suit them based on their accurate, up-to-date financial data. 

Open banking for businesses

Open Banking is an exciting innovation for small-to-medium businesses because it's designed to drive efficiency and productivity and open up routes to funding. Instead of having to rely on finance from traditional sources, a whole new funding market has arrived and is growing. 

Here are some of the things Open Banking has the potential to deliver for SMEs:

  • Access to digital solutions that are tailored to the needs of individual businesses 

  • Software solutions that save time and are secure 

  • Streamlined ways to monitor cash flow and financial reporting, and forecasting

  • The ability to see details of accounts in one place 

  • More transparency around the financial deals available to businesses 

  • Access better terms due to more accurate communication of financial history

  • Faster ways to make and receive payments, increasing efficiency 

Open accounting for businesses

When combined with Open Banking, Open Accounting can provide financial institutions with an insight into the entire economic health of a business. Like Open Banking, it lets trusted third parties see the data in a business's accounting ledger.

As with Open Banking, Open Accounting is designed to safeguard businesses' privacy. Open Accounting makes a business' accounting information – such as Profit and Loss statements, purchase orders, and credit notes – readily available, which can speed up getting a loan or finance facility.

To secure business finance, you can start your journey with Funding Options. Through our award-winning, innovative and data-driven platform, Funding Cloud™, we can offer speed and certainty for SMEs through a real-time, centralised and two-sided marketplace delivering instant decisions and firm offers from lenders. Our technology accurately validates your business profile to match you to the industry's most significant lender network and provide uniquely tailored results.

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Malcolm Fernandes
Malcolm Fernandes

Tech Lead

Malcolm Fernandes is a highly skilled technical lead with over 8 years of experience in the fintech industry. Malcolm is responsible for overseeing the development and deployment of new technical systems. He works closely with teams of engineers and developers to identify and prioritize key projects, and he is skilled at communicating complex technical concepts to non-technical stakeholders.

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