Is your business taking advantage of the Open Banking revolution?
Open Banking has been talked about a lot recently, but what does it actually mean for business owners? In this article, we go into detail about what changes Open Banking brings for startup and scaling entrepreneurial businesses and how to take advantage of the rich opportunities for cost-saving, efficiency and innovation.
Open Banking – an introduction
While much FinTech innovation has been going on in the background for the last 40 years, the introduction of PDS2 - European Commission Payment Services Directive 2 - in January 2018 was hailed by many as the most important payments innovation since the credit card. PSD2 means it is now mandatory for all large banks to pass customer account data to third-party providers if the customer requests it.
The PSD2 thus gives business owners unprecedented control over their company financial data and who can use it. It also empowers bank customers to maximize the value they get from their bank by sharing their account transaction data with, or making payments through, third-party companies or apps in order to increase transparency and ease.
The benefits of Open Banking for businesses
At Finling, we believe that the introduction of Open Banking presents some opportunities for business owners and their finance teams. As well as making financial products more competitive and innovative, Open Banking greatly reduces the time it takes for financial services to be set-up – historically a huge pain point for startup and high growth businesses. When third parties can quickly and securely access your company financial data, payments and loans can be approved and received much more quickly and cashflow is far more manageable.
Since our mission is to make scaling a company smoother, less stressful and more rewarding for entrepreneurs, we embrace Open Banking because of the many ways we can make our own accounting and book-keeping services more efficient, secure or cost-effective.
Thanks to the PDS2 directive, the market is being flooded with new FinTech innovations and apps that interface with bank feeds and account data in order to respond to various customer needs. However, with so many new choices available, it’s challenging for business owners to stay on top of the market. At Finling, we make careful choices to identify the right apps and tools that best suit our client’s requirements.
Here are just some of the ways in which the latest Open Banking innovations benefit business owners.
Time-saving and efficiency
With Open Banking providing direct, live access to bank statements and transactional data, business owners and their finance teams can have full visibility on the accounts at any moment. Clients can monitor cash flow, manage payables, collect payments, or deal with paperwork from their smartphone in a matter of minutes from one system, for example, Xero.
This enables accountants to spend more time on strategic, value-adding activities such as forecasting, cash flow monitoring and speeding up the production of management accounts.
New ways to pay and accept payments quicker
Under PSD2, banks must allow third-parties to initiate payments on your behalf. While this isn’t necessarily brand new, the new regulation will make it much easier and cheaper for other service providers to handle payments. This means you’ll likely be able to open up your business to work with on-traditional or international payment methods efficiently and securely while benefiting from reduced payment processing costs.
Faster business loans and improved cash flow
When your company needs to get a loan or draw on a line of credit, lenders will likely want to see your books. Historically, business owners had to submit pre-prepared reports, which took time to pull together and were often out of date by the time of review. Following the advent of Open Banking, lenders can be given access to all the data they need from your bank, credit card issuer, and accounting system such as Xero. At Finling, we regularly support clients in delivering accurate and timely financial reporting for fundraising, acquisitions or sales. With our knowledge of the latest tools and secure application programming interfaces (APIs), Finling empowers business owners to share their financial data securely and quickly so they can access funds to grow faster.
Safety and security
In many ways, Open Banking actually makes most transactions, integrations and data exchanges safer. The new feeds work within an approved PDS2 compliant security framework.
Before onboarding any new technology or platform into our workflow, be sure you have weighed up the benefits against potential security risks, and always privilege using third-party tools that have proven cyber-security features or certifications. Xero, our preferred accounting software, is registered with the FCA (Financial Conduct Authority ) in the UK as an Authorised Account Information Service Providers. When using third-party products, continue to use strong passwords and multi-factor authentication wherever possible to protect your accounts.
What’s next for Open Banking?
We don’t yet know exactly how open banking will transform financial services, but we imagine that innovative startups will continue to bring newer, better ways of doing things to market, and consumers and business owners will continue to benefit.
At Finling, we’re already focused on how we can continue to best use these technological developments to improve the products and services that we offer to businesses.
Whether a first-time entrepreneur or an established businessperson, you deserve to have a first-class finance team at your fingertips. If you know your current accounting set-up is not harnessing the latest Open Banking innovations to your benefit, we’d be happy to help change things. Take a look at Finling for Entrepreneurs or get in touch.
