Who’s Afraid of Open Banking? Answering five questions about how technology has changed the game for corporate finance

Open banking plays a crucial role in the financial industry, but few companies are aware of how it works and the benefits it offers them.

Often Swoop’s work begins when the bank says “no”: A company realized it needed to borrow money for a project, to pay a bill or to buy a property, went to its bank and rejected the funds .

Even if everyone in the bank agrees that it’s a good use of the money, a good customer and a solid business, sometimes those reasons alone aren’t enough to get the money into your business account.

Enter swoop: we have access to the entire corporate finance market. How many lenders is that? The number is constantly growing, but at the time of writing it is more than a thousand. It used to be seven. No wonder companies need a helping hand to navigate this complex and diverse world.

What has changed?

In a word, digitization. The UK financial services industry is one of the most innovative in the world and has invested heavily in the digitization of the sector over the past decade. Whether your traditional main bank (Lloyds, NatWest, etc.) offered an app for your mobile, or you signed up with a digital-first disruptor bank (Starling, Monzo, etc.), chances are you’re used to it online -Make payments, check your balance online and do those banking transactions that you used to do in the branch via your computer.

Open banking relies on banks storing their data on computers and securely sharing the information with each other.

What is open banking?

Open banking is the process of sharing banking information and data, such as B. account type, transactions made, standing orders and direct debits, with other companies. This information feeds into your online banking experience, presenting you with the things you need while hiding products that are irrelevant or for which you are not qualified. Open Banking proactively tailors its offering to your profile and makes recommendations to you as a customer, while helping providers to develop new services that are more relevant to your needs.

If you use accounting software, you are already using Open Banking, as these platforms use your business bank account details.

Why is it important for SMEs?

The benefits of open banking for SMEs are that lenders can increasingly offer products that meet the needs of these customers. For example, the Merchant Cash Advance (MCA) is a relatively new product that addresses the needs of businesses with strong seasonal fluctuations: the lender puts a fixed price on the loan amount, and repayments are made as a percentage of your credit card receipts. The more trades you make, the faster you’ll pay off.

The other reason why SMEs need open banking is that lenders can make better decisions and find solutions. Rather than manually trawling through hundreds of lenders and thousands of products, APIs (the means by which two computers talk to each other) can find the most appropriate existing product for your needs. Just because your regular bank doesn’t lend you money doesn’t mean there isn’t another lender hungry for your business.

Can Open Banking be trusted?

Open Banking is regulated by the FSA. This means companies must follow strict rules and strict standards to keep your data safe.

With Open Banking you share the minimum data required for the product or service you want to use, through a secure and encrypted digital process; the consent to this can be revoked at any time.

The final layer of protection is that your bank or building society is obligated to return your money in the event of an unauthorized payment should anything go wrong. You are also protected by data protection laws and the Financial Ombudsman Service.

What are the advantages of Open Banking?

Through open banking, an institution may be able to see that you are spending a large amount on rent, energy, or foreign exchange. You can then find offers that can save the customer money, e.g. B. a commercial mortgage, a cheaper energy tariff or a better foreign exchange deal.

In the future, lenders could offer more innovative products that are better tailored to the needs of businesses than traditional unsecured business loans.

If your bank is quick to say yes, congratulations, you’ve struck gold. But beware: there are hundreds of other lenders out there, and if you don’t think you got lucky with the best deal the first time, it may be worth your while to shop around.

Swoop uses open banking to help SMEs access finance through grants, loans and equity. The company also finds better deals for customers on a range of must-have products and services.

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