The concept of open banking has gained huge interest since it entered the public conversation a few years ago. It refers to the opportunities which lie in making banking information more accessible, on both a B2C and B2B basis – whether it is through the ability to access bank statements, payment information, downloadable data and more.
For corporate treasurers who are responsible for ensuring financial success and risk of their employers, the benefits are numerous. They include: better access to company data, faster decisions and better risk profiling – and we have a panel of experts below who offer their insights.
One of the biggest selling points of open banking is the ability to access multiple bank accounts with one platform, often using an application programming interface (API) which can pull in data from multiple sources.
For a corporate treasurer who oversees a large business with multiple arms, this could result in huge time savings and efficiency gains in terms of pulling together transaction and balance data. For multinationals, open banking would allow a treasurer to collate their dollar, euro, sterling, and yen positions all in one place.
Know your customer (KYC)
For KYC issues, open banking presents an opportunity to do fast background checks and create a ‘passport API’ which can send all the information from your bank.
For a corporate treasurer, open banking presents the opportunity to have a detailed look at any potential partners and investors – including their cash position and transaction history – and without having to ask for it and the risk of it being altered in transit.
Faster Credit Decisions
“Open banking offers huge advances to your internal processes, not just your accounting, but also how you transact with new and existing customers,” explains a spokesperson from Pheabs.
Dent says if a customer is applying for a mortgage, personal loan or car loan, open banking allows the service provider to examine the customer’s bank statements and download “immediately”. This enables a much faster, if not immediate, decision process, he says.
Alfie Usher, founder of price comparison service Forces Compare, says open banking has “real scope” in terms of car finance. “You can bring the customer, the dealership and the finance company together on one platform, rather than await responses,” he says.
Usher goes on to add that a customer should get a “faster decision” and be able to “drive away immediately” under an open banking model. “The same could apply for mortgages, pulling in the broker, the lender and customer – and this could speed up a process that is currently very long and drawn out,” he says.
Why is open banking taking so long to adopt?
Despite open banking’s huge potential and obvious benefits, the process of implementing it across the financial sector has been slow and businesses, as a result, are yet to see its full impact.
“One of the main issues for open banking is that there are huge requirements to be compliant,” says Dan Kettle, commercial director of Octagon Capital. “Only 2 percent of EU banks are PSD2 compliant, and most companies struggle to meet each 50% of the basic PSD2 requirements – there is a real barrier to getting up and running with open banking.”
Kettle adds that when banks are trying to download millions, or even billions, of data points from customers, ensuring compliance with existing regulation remains a challenge.
Fintechs are more likely to reap benefits of open banking
Evidence suggests fintech companies, often start-ups combining finance and tech, can get a much bigger head start than traditional banks.
For David Beard, founder of Lending Expert, says fintech companies like Tide and Curve have focused on developing “convenient products” which are usually smartphone first since the 2008 financial crisis.
“Fintechs can focus on open banking very early and quickly incorporate it into their business proposition,” he says. “In comparison, banks have been trying to recover from the crisis, with traditional bricks and mortar storefronts and innovation has not often been a priority.”
Looking to the future of open banking, Beard says fintechs and start-ups are more likely to utilise the benefits over traditional high street banks.