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How open banking will grow SMEs

Antonis Kazoulis
Written by

Last editedMay 20233 min read

Small and Medium Enterprises (SMEs) form the backbone of any economy. They are the driving force of innovation and employment generation, and thus, play a vital role in the economic growth of a nation. However, SMEs often struggle to access the financial resources they need to grow their business. Fortunately, open banking has emerged as a solution to many of the problems that they face.

Firstly, open banking enables SMEs to access a wider range of financial products and services. Traditionally, they had limited access to credit and financial services from traditional banks. Now, they can access a range of financial products and services from a variety of providers. This increased competition has resulted in lower fees, better interest rates, and more customised financial solutions for SMEs.

Secondly, open banking helps SMEs to manage their finances more efficiently. SMEs often struggle with managing their finances, which can lead to cash flow issues and financial instability. Open banking allows them to access real-time financial data, which enables them to make informed decisions about their finances. This means that they can better manage their cash flow, forecast their financial needs, and make more informed decisions about investments and expansions.

Thirdly, open banking encourages SMEs to build better relationships with their customers. SMEs can use the technology to access customer data, such as spending habits, purchase history, and financial data. This information can be used to personalise the customer experience, offer customised financial products and services, and build stronger relationships with customers. This leads to increased customer loyalty, repeat business, and a better reputation for the SME.

How open banking works for SMEs

Open banking has numerous benefits for SMEs. Here are some of the ways they can benefit from open banking.

Enhanced access to credit

SMEs often struggle to access credit from traditional banks due to the stringent credit requirements. However, with open banking, they can share their financial data with third-party providers who can use the data to assess their creditworthiness. This means that SMEs can access credit from a wider range of lenders, which can be especially helpful for startups or businesses with little to no credit history.

A better grasp of finances

Open banking allows SMEs to access a wide range of financial products and services through a single platform. This makes it easier for businesses to manage their finances, as they can view all their accounts, transactions, and financial data in one place. This can help SMEs make better-informed financial decisions and manage their cash flow more effectively.

More competitive pricing

The technology can lead to more competitive pricing for financial products and services. This is because third-party providers can use SMEs' financial data to offer customised financial products that meet their specific needs. This can help them save money on interest rates, fees, and other financial charges.

Improved security

It requires banks and third-party providers to adhere to strict security standards to ensure the safety and privacy of SMEs' financial data. This means that they can rest assured that their financial data is secure and protected from unauthorised access.

Finally, open banking allows SMEs to stay ahead of the competition. As more SMEs adopt the technology, those that do not risk falling behind. Open banking enables them to access financial data and insights that can be used to identify new business opportunities, improve their financial management, and build better relationships with customers. This gives a competitive advantage over those that do not adopt open banking.

Best practices for SMEs adopting open banking

Educate yourself about open banking

Before adopting open banking, it is essential to educate yourself about what it is and how it works. You can start by reading articles, attending webinars, and watching videos that explain the concept in simple terms. It is also advisable to speak to other business owners who have adopted open banking and learn from their experiences. The more you know about open banking, the better equipped you will be to make informed decisions.

Choose a reliable third-party provider

When adopting open banking, you will need to choose a third-party provider that will manage your financial data. It is essential to choose a reliable provider that has a proven track record of providing secure and efficient services. You can start by checking the provider's website, reading customer reviews, and asking for referrals from other SMEs that have used their services.

Review your financial data regularly

Open banking enables you to access a range of financial services and products. However, to make the most of these services, you need to review your financial data regularly. This will help you identify areas where you can cut costs, increase revenue, and improve your cash flow. You can use financial management tools that integrate with your open banking provider to track your expenses, monitor your cash flow, and generate reports.

Prioritise data security

When adopting open banking, data security should be a top priority. You need to ensure that your financial data is protected from unauthorised access, theft, or misuse. You can start by checking if your third-party provider is compliant with data protection regulations such as the General Data Protection Regulation (GDPR) and the Payment Services Directive 2 (PSD2). You should also use strong passwords, two-factor authentication, and encryption to secure your data.

Start small and scale gradually

Adopting open banking can be overwhelming, especially if you are not tech-savvy. Therefore, it is advisable to start small and scale gradually. You can begin by using open banking for basic services such as payment solutions and then gradually expand to more complex services such as loans and credit. This will help you gain confidence and ensure that you are comfortable with the technology before making significant investments.

In conclusion, adopting open banking can be a game-changer for SMEs. It enables businesses to access a range of financial services and products that were previously inaccessible. 

However, to make the most of open banking, SMEs need to educate themselves, choose reliable providers, review their financial data regularly, prioritise data security, and start small and scale gradually. By following these best practices, SMEs can leverage the benefits of open banking and grow their businesses.

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