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Open Banking – You’ve Definitely Heard of It, But Do You Know What It Means for You and Your Small Business?

Estimated Read Time: 6 Minutes

JESSICA LAMBERT , 26 January, 2023

So, you’ve no doubt come across the term Open Banking before, which isn’t surprising given that this directive came into full force back in January 2018. But whilst you’ve heard about it, thought about it and perhaps even talked about it, you might not know precisely how it can benefit your small business.

The aim of Open Banking is simple: It’s “the secure way to give providers access to your financial information. It opens the way to new products and services that could help customers and small to medium-sized businesses get a better deal.” – there, you’ve heard it straight from the horse’s mouth.

So, What Is Open Banking?

You’ve read the aim of Open Banking, but what does it mean? Well, for starters, it meant that the UK’s nine biggest banks – called the CMA9 – were forced to release their data to approved third parties through secure Application Programming Interfaces (APIs).

So, names such as HSBC, Santander, Barclays, amongst others, shared the financial information it held on its customers, which in turn makes it easier to compare the features of various personal, as well as business accounts, to find the best deal.

A series of reforms took place a few years ago at the start of 2018, and these reforms changed how banks deal with your financial information. Ultimately, this ensures that all UK-regulated banks let you share your financial data with authorised providers, providing you give your permission, of course.

The ultimate dream is that consumers and businesses are given more choice – this will trigger change in the entire financial services sector, encouraging collaboration and innovation to improve the options available to everyone.

You’ve probably seen business credit card or mortgage comparisons, based on your personal financial history – and that is all made possible thanks to Open Banking. The options available to businesses like yourselves are likely to be far more competitive as a result of this transformation and with Open Banking, you can provide secure access to your bank account information to providers like Nucleus Commercial Finance.

Can You Choose To Opt Out Of Open Banking?

Of course. No one with an account with any UK-regulated bank can be forced to share their information – it’s entirely optional. The onus is on the banks to share your financial information if you request it, but if you do not expressly give permission, then no new provider can access your personal data.

In a world where our data is protected at all costs, it is vital that your financial information is only shared at your say so, which means that each and every provider has to ask for your consent to access your private data – and it’s also important to note that you can withdraw your permission too, at any time if you so wish.

If you decide that you don’t want to share your financial information, you can choose to opt-out of Open Banking entirely and stick to the status quo.

How Can You Start Using Open Banking If You’re Not Already?

Open Banking works using Application Programming Interfaces (APIs), which is a secure way to share information between different pieces of software. You simply grant access to a regulated third-party provider such as Nucleus, and you will be prompted to use your online banking credentials to login to your account. Once you’ve logged into your account, you either approve or reject access to any regulated third-party provider.

For those that are concerned about security, don’t worry! Third-party providers like Nucleus are unable to see your username and password – that’s just for you! Your bank will deal with allowing us access without providing passwords, as providers will only ever request “read-only” access.

What is “read-only” access? Well, it’s exactly what you probably think. It means that regulated external providers are not able to take any drastic action, such as making payments on behalf of yourself or moving money somewhere else. “Read-only” access allows us to view your account information securely and do things to make the process of applying for a business loan easier, speedier, and far less stressful.

Is Open Banking Safe?

Absolutely. As with online banking, your financial information is kept confidential as you will never be asked to provide your login and password for anyone besides your bank. Historically, providers were able to ‘scrape’ any data they needed, but with the introduction of Open Banking, this has now been banned, and a newer, safer approach is utilised.

Whilst there are still some people who have concerns about the security of Open Banking, it’s deemed a safe and reliable way to share your financial information securely, and it certainly beats sending sensitive information in the post!

Your bank is expected to use robust customer authentication methods to secure your account and prevent any worrying breaches… and finally, the final layer of protection is that ANY third-party providers wanting to use Open Banking must first be approved by the Financial Conduct Authority. To double-check whether a third-party provider is FCA regulated, sift through the Open Banking Directory or search through the FCA Register to check what the provider you’re dealing with is regulated to do.

How Can Open Banking Help with Securing Finance for Your Business?

Often, when it comes to finding funding for your business, the hardest part of the process is usually an unnecessary stage altogether. During the application process, lenders will often want to see what the broader picture looks like financially for your business, and they will do this by requesting between 3 to 6 months’ worth of bank statements.

Whether you’re uploading the documents yourself and working alongside a broker to provide this information, it’s a time-consuming task and one that tends to hold the entire process up which can be infuriating when you just want access to working capital.

With Open Banking, none of that needs to happen. You don’t need to start digging through piles of paperwork or start stressing about locating a missing statement from months ago. Instead, you grant access to the provider in which you’re applying for your business loan with and once the funding provider has “read-only” access, they can generate the statements in seconds, making the entire process easier than if it were all to be done manually.

Times are changing in the finance world. Gone are the days where banks hold complete control over the financial side of your life by holding your financial information hostage. The control has been given firmly back to its rightful owner – you. Open Banking means that you can share access to YOUR data securely, to access the very best in financial services, whilst resting easy knowing that your information is safe as your bank has a responsibility to protect you from cybercrime too. Now everyone can sigh with relief and embrace Open Banking with open arms, because things can only ever get better from here.





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