What is open banking?
Open Banking allows you to share your financial data with third parties and financial authorities. It’s a way of giving consumers and businesses more personalised financial services in a safe and secure way.
Traditionally, banking in the UK has been dominated by five big banks, which together control 80% of the country’s retail banking market. An investigation into banking services concluded that there was a need to improve competition in retail banking and financial services. So, the Competition and Markets Authority brought in Open Banking to encourage more competition and give people more choice over financial products.
The Open Banking standard means that big banks have to make it easy for customers to safely and securely share their data with third parties.
Being able to share your bank account data with third-party providers is not a new thing, but open banking means you’re protected when you do, as long as the provider is Account Information Service Provider (AISP) authorised, a status that Xero is proud to have achieved.
Open Banking aims to give people more control over their finances and open the market for new financial products and services from smaller financial providers.
How will open banking affect small businesses?
For small businesses, asking for a loan from the bank can be a tough process and until now, the main banks haven’t had to compete very hard for customers, making it difficult for newer banks or financial tech companies to enter the market.
Open Banking will open up a range of new products – from lines of credit to individual invoice loans – helping customers find the solution that best meets their needs. And authorising third parties to access your accounts means they’ll be able to see data like cash flow and regular payments, all of which will help them make faster decisions about lending to you.
The merging of accounting and banking makes doing business easier. And with the ability to share all of your financial data safely and securely, you’ll no longer need to be in the same room as your accountant or bookkeeper to check the state of your business.
Accounting software like Xero also lets you connect with your accountant easier, whether they’re in the same room as you or on the other side of the world.
Open Banking offers small and medium-sized businesses the opportunities only previously available to large businesses. By taking advantage, business owners will be able to grow and run their businesses more effectively.Find out more