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Open banking is one of those phrases that we’ve all probably heard mentioned in passed, whether it’s on the news or via one of our friends. But few people outside of financial circles really understand what it means. There’s a common misconception that it’s something a lot more complicated and exclusive than it actually is. Chances are most people reading this have used open banking at some point in the recent past and they weren’t even aware of it.
Open Banking came into full force back in 2018 and now as we enter 2021 the growth is significant. As stated by its instigators, the aim of open banking is to create a “secure way to give providers access to your financial information.” On the surface, this might sound quite sinister, but it’s actually incredibly helpful, particularly for small businesses.
What is open banking?
At its very foundation, open banking refers to banks allowing a third party commercial finance firm to access banking data to create applications that allow users to access all of their accounts from one centralized source. It’s why you can now open up your Halifax or Nationwide online banking app and be asked if you want to consolidate all of your accounts into that app, regardless of who else you bank with.
It works using secure APIs (application programming interfaces) to share your information and allows you to opt-in or op-out whenever you choose. The third-party can’t see your information, it’s just sharing it. Read-only in the most absolute terms. The ultimate aim is to give consumers more transparency, flexibility and choice. If you’ve ever done a mortgage comparison online or checked your credit score then you’ve benefited from open banking. But has it really grown much, if at all, in the last three years?
The growth of open banking
In 2020 alone more than four million payments were made with open banking, up from just 320,000 in 2018. That’s a pretty staggering increase. Granted there were many more online transactions being made last year due to the pandemic, but it’s still significant growth and that’s only good news for businesses.
The business opportunities of open banking
The real benefits come down to funding. When a business would traditionally take out a loan from a bank it would first need to jump through dozens of hoops to make it happen. With open banking in place, all of that paperwork and legal matters get taken care of behind the scenes, giving businesses access to capital faster.
What open banking means for individuals and small businesses is gaining back control. You’re being given access to your data and you can access it however you see fit. It’s a brave new world out there and things are only going to get better as open banking makes its way firmly and securely into the mainstream in the months and years to come.
