Open up: What open banking is going to mean for businesses

With Open Banking coming into effect in January 2018, Chris Gorst of Nesta talks us through what the change will mean for businesses alongside the Open Up Challenge.

As of January 2018, open banking will be implemented in the UK, meaning banks will be working alongside third party partners to streamline online banking for businesses and consumers.

We spoke with Chris Gorst of Nesta to find out what this change means for small businesses and how the Open Up Challenge is breaking new fintech ground in preparation.

The challenge is a £5 million prize fund to support and reward the use of open banking to create valuable new tools and services for UK small businesses. Its a combination of upfront grants, and in addition to the money side, they offer access to a unique data set for businesses to build their propositions.

Its the kind of data that will becoming available when open banking opens up next year.

Why is the Open Up Challenge important?

The challenge helps businesses get prepared for the legal complexities of open banking because there are various regulations that come into play and it is constantly evolving. There is this looming January 2018 deadline and there are still some important details about how it will work and so we will support businesses through that process.

We want to work alongside businesses and industries to make open banking an easy transition that can provide all different kinds of opportunities and we have been working on this for a while.

Applications closed at the end of May and we had 150 applications, mostly from the UK, which is positive and we are hoping to get the best businesses into this process.

What does open banking mean in real terms for SMEs?

There are two regulatory initiatives for open banking – one at the European level called PSD2 (Payment Services Directive 2) is EU wide and the specifically for the UK the Competition and Markets Authority (CMA) is requiring the largest UK banks to agree a standard whereby their customers will be able to do a few things; A) to share the customer data with third parties securely, through tech called application programming interface (API), which powers it all, and B) will be the standards that banks agree on to allow customers to open up their accounts to third party partners to streamline the payment processes in a secure way.

In practice that means that there are a lot of organisations out there that think they can provide value back to SMEs who know more finances and can help them improve the knowledge of their transactions.

One way to look at it is to look at what small businesses grapple with regularly, the major one being credit. SMEs will tell you that even if they can access credit from their banks the process can be cumbersome and uncertain – if you can provide direct access to all the info that a credit decider might need at the click of a button, it makes that process more efficient and it means that there can be more diversity from a credit provider perspective.

Small businesses don’t particularly get to see what goes into that decision process and how it works precisely but if you can see to whom you are providing this data and once you open it up you can create many more opportunities for small businesses.

We have come across a number of organisations that are excited about being able to access transactions directly so they can build different credit models from those who are dominating the market in the hope of creating more diversity in the types of credit offered, particularly to businesses that might not otherwise have been able to secure credit.

An example of this is lets say a business who has only been trading for a year or so has less trading history and might struggle to secure finances but if it can expose its data and its information to different kinds of creditor is may make it easier for them to secure that and grow and build up its inventory.

Cashflow solution?

Another issue for SMEs is cashflow and management of that. It can very easily be a killer of small businesses. Most SMEs will typically have little access to financial expertise – they may have an accountant who does the books once a year but might not be getting the best value – but again the ability to share your relevant financial information with a third party will give a possibility of those parties giving you financial support and that can be given in a number of ways like forecasting, credit of financial advice.

Suddenly SMEs have access to analysis and expertise that can be automated that they didn’t have before. A three person business now can have access to some of the analysis that you would only have if you had dedicated financial expertise.

The exciting thing about this is democratising access to financial analysis and if fintech can solve that problem for the sole-trader or micro business in a way that wasn’t possible before then that will be incredible.

Owen Gough

Owen Gough

Owen Gough is a reporter for He has a background in small business marketing strategies and is responsible for writing content on subjects ranging from small business finance to technology...

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