The Open Banking Act: What Does Open Banking Will Have For Companies.
Open banking will soon be available in the UK, which means that banks will collaborate with third-party partners to simplify the process of online banking for both businesses and consumers.
We spoke to Chris Gorst of Nesta to learn more about this new technology for small companies, in addition to what this Open Up Challenge is breaking new ground in the field of fintech in preparation.
The competition is a PS5 million prize fund that will help and encourage open banking, which can create innovative tools, services, and products for UK small-scale firms. It is a mix of grants that are upfront, and, in addition to the cash side, it also provides access to an exclusive data set that allows businesses to create their propositions.
The information will be available once open banking opens for business in the coming year.
What’s the reason why vital the Open Up Challenge is essential?
The issue is helping businesses get ready to deal with the legal complexities of open banking, as various rules apply and are constantly changing. There is a looming January 31, 2018 deadline, and there are a few essential details on how it will operate, and we’ll help businesses in this process.
We want to collaborate with industry and businesses to ensure open banking is an easy transition that will offer various opportunities. We have worked on it for some time.
The application deadline was the last day of May. We had 150 applications, predominantly from the UK. This is a good sign, and we’re hoping to bring the top businesses to participate in this program.
What is open banking in actual words for SMEs?
The two regulators have proposed initiatives that promote open banking. One at the European level, dubbed PSD2 (Payment Services Directive 2.), is EU-broad. The other is specifically targeted at the UK, called the Competition and Markets Authority (CMA), which requires the most prominent UK banks to establish an agreement that their customers are capable of doing a couple of things like 1.) to share their information about their customers with other parties in a secure manner, using a technology known as the application programming interface (API) that powers everything and B) will be the norms which banks have agreed for customers to open their accounts to third-party partners to simplify the payment process with security.
In reality, many companies believe they can provide value to SMEs that are better informed about their than they do about finances. They can also aid them in improving the understanding of their financial transactions.
A way to think about the issue is to examine the challenges small businesses frequently face, with the most common issue being credit. Small businesses will say that even if they have access to credit through their banks, the process is often cumbersome and unclear – but when you have the complete information that a credit decision maker could require at the touch of the button, it can make this process easier and also means there will be more options from the perspective of a creditor.
Smaller businesses aren’t able to understand what’s behind the decision-making process and exactly how it operates; however, if you know to whom you are giving this information and when you can open it up, you will be able to create a variety of opportunities for small-scale businesses.
We’ve seen many organizations thrilled to be capable of accessing transactions directly to build their credit models from those that dominate the market, to increase the variety of the kinds of credit available specifically to businesses that may not have been in a position to obtain credit.
A good example is that a business that has only been in business for a few months has a lesser trading history and may need help to secure funds. However, if it can disclose its information and data to various kinds of creditors, it will aid them in securing this and expanding and building its inventory.
Another concern that is a problem for SMEs is the flow of cash and control of it. It could be the death knell for small-scale companies. The majority of SMEs usually need access to expert financial advice. They may employ an accountant to run the annual financials but not get the most value for their money. But also, the possibility of sharing the financial information you need with a third party can provide a chance for those who provide you with financial assistance. This is available in various ways, including forecasting, credit, or other financial guidance.
Now, SMEs can access analyses and knowledge that they can automatize that they did not have prior. A business with three people has access to certain types of analysis you’d only get in the event of having specialist financial know-how.
The best part about this is that it will make financial analysis accessible. If fintech can address that issue for the micro-business or sole trader in a way that was not feasible, that would be awe-inspiring.