The Open Banking Act: What Does Open Banking Will Have For Companies.
Open banking will become a reality in the UK. This means banks will collaborate with third-party partners to simplify the process of online banking for both businesses as well as consumers.
We talked to Chris Gorst of Nesta to learn more about what this new technology will mean for small-scale businesses and how this Open Up Challenge is breaking new ground in the field of fintech in preparation.
The competition is the creation of a PS5 million prize fund that will encourage and reward open banking in creating solutions and tools for UK small-scale firms. It’s a mixture of cash-based grants at the beginning and the financial aspect. It also provides access to a specific data set that allows businesses to create propositions.
This is the type of information that will become available once open banking opens next year.
What is the reason why this Open Up Challenge is essential? The challenge will help businesses prepare to deal with the legal complexities of open banking, as numerous regulations are in place and constantly changing. There is a looming January deadline, and there are some crucial details regarding the process; therefore, we’ll be assisting companies through the process.
We want to collaborate with industry and businesses to help make open banking an easy process that will offer various opportunities. We’ve done this for some time.
The application deadline was the last day of May. We received 150 applications, most of them from the UK. This is very encouraging, and we hope to bring the top businesses to participate in this program.
What is open banking in practical words for SMEs?
The two regulators have proposed initiatives that promote open banking. One is on the European level, dubbed PSD2 (Payment Services Directive 2.), is EU all-encompassing, and is specifically targeted at the UK. The Competition and Markets Authority (CMA) is requiring the most prominent UK banks to come up with a common standard that will allow their customers are capable of doing a couple of things 1.) to share their customer’s data with a third party securely via a software known as Application Programming Interface (API) that powers everything and) is the standard that banks will agree for allowing customers to open their accounts to third-party partners to speed up the payment process with security.
In reality, many companies believe they can provide value to SMEs who are more knowledgeable about financial information and assist them in improving their understanding of their financial transactions.
A way to think about the issue is to examine the issues small businesses face often. The main issue is credit. Small businesses will tell you that even though they can obtain credit through their banks, it can be a hassle and uncertain. However, if you have the complete information that a credit decision maker may require at the touch of an icon, it makes the process much more efficient and means there will be more options in the eyes of credit providers.
Small-sized businesses may not be able to understand what’s behind this decision-making process and exactly how it operates; however, if you know to who 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 several organizations who are thrilled to be capable of accessing transactions directly to build their credit models to those that dominate the market with the hopes of creating more variety in the types of credit that are offered, especially for companies that would not have had the opportunity to obtain credit.
One example is to say that a company that has only been in business for a few months has a less extensive trading history and may have difficulty securing funds; however, if it can provide its data and information to a variety of creditors, it will aid them to secure this and increase its inventory.
Another concern that is a problem for SMEs is the flow of cash and its control of it. It could be the death knell for small-scale firms. Most SMEs are likely to have limited access to financial knowledge and may even employ an accountant to run the annual financials; however, they may need more value for their money. But having the capability to share your financial information with an outside party can provide the possibility of providing financial assistance, and this can be provided in many ways, including forecasting, credit, or financial guidance.
Now, SMEs can access analyses and knowledge that they can automatize that they did not have prior. A business with three people can now access certain types of analysis you could only access in the event of having specific financial expertise.
The most exciting aspect of this is the fact that it is making accessible financial analysis. If fintech can address that issue for micro-businesses or sole traders in a way that was not previously possible, it will be awe-inspiring.