Open Banking – what is it?
How Business lending uses Open Banking…
Traditionally, Business Finance applications for products such as loans were extremely time consuming, requiring lots of paperwork and documentation. Nowadays, the modern approach is Open Banking, the process is becoming much faster and more efficient.
Instead of manually inputting financial information, Open Banking allows lenders to access a business’s financial data through secure API’s (Application Programming Interface). This streamlines the application process, reducing the time it takes to process a Business Finance application.
What is Open Banking?
Since 2018, Open Banking rules have meant the UK’s largest Banks have to let you share your financial data with authorised providers, granting them read-only access to things like your spending transactions and regular payments. Open Banking is a secure way to share information held by your bank with third party providers to:
• Get access to personalised financial offers
• Make payments
• Get a payment card issued by a third party (i.e. not your bank)
Open Banking provides businesses with greater transparency when it comes to the lending process. By accessing their financial data, businesses can see exactly how their financial information is being used to make lending decisions. This transparency helps build trust between lenders and borrowers, which is essential for a healthy lending relationship.
Can everyone use Open Banking?
Open Banking was introduced to make it easier for individuals and businesses to shop around for financial products. Most Banks participate in the scheme, but you will need to have an online or mobile bank account to take part.
What information is shared?
Consent for Open Banking is driven by you. You control who can see your information and what information you are willing to share. Most lenders request only the most basic access which is the transactions on your account(s). The information they see goes back over a 12-month period and shows credits and debits, dates, balances and references. This is shared as a snapshot, which the lender can store in line with their Privacy Policy and GDPR regulations, whilst they process your application.
To be clear, they can see the information but not access your actual online account, and at no point do they have visibility of any password or security details.
Why does a lender need this information?
Being a responsible lender means checking the suitability and affordability of any potential business finance application. This can be done by looking at banking data. Traditionally, this has been done by requesting 3-6 months of Bank Statements. Open Banking gives a slightly wider picture, 12 months, allowing the lender to look beyond any seasonality/cyclicality effects on your company cashflow. It also takes away the need for you to scan and send information via less secure means such as PDFs and Emails.
Does it cost anything?
No, there is no charge for Open Banking.
Can you still apply for Business Finance if you refuse to give Open Banking consent?
Our lenders in no way wish to disadvantage any clients from making a Business Finance application. If your bank does not offer Open Banking, and you do not have an online bank account or simply decide that Open Banking is not for you, then you can provide paper Bank Statements as an alternative.
Conclusion
Open banking technology is transforming business lending by making the lending process faster, more efficient, and more accessible. It offers numerous benefits to lenders, borrowers, and the economy as a whole, including more accurate risk assessment, personalised lending products, and increased competition.
As the Financial Services industry continues to evolve, Open Banking technology will play an increasingly important role in shaping the future of business lending. By embracing this technology, lenders and borrowers can take advantage of the many benefits it offers and drive business growth and development.
For more information about Business Finance applications and Open Banking speak to a member of our team: 01204 398816
Information correct on date of publication
