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These value-added services are provided by fintechs that obtain permission from their small and midsize clients to access their business bank accounts using open banking application programming interfaces. This means business owners don’t need to manually enter their banking details or upload spreadsheets into their accounting systems, reducing costs and errors.
Open banking implementation by businesses is still at an early stage, but there are plenty of use cases, according to Enrico Camerinelli, senior analyst at Aite Group. These include processing payments from bank accounts, opening bank accounts, obtaining real-time and historic transaction history, enriched data for business intelligence and FX pricing.
The U.K. neobank Tide provides open-banking-based services to 300,000 small and midsize enterprises, or SMEs, through its app.
“The biggest immediate benefit of open banking to Tide’s customers to date has been financial management,” said Deane Barton, Tide’s vice president of payments. “Our business customers can pull their Tide account data into their accounting software platforms, and open banking has made this process much simpler for them.”
Tide uses open banking APIs from London-based Ozone. Using Tide’s open banking APIs, customers can pull their transaction data into accounting platforms such as Intuit, FreeAgent and Quickfile. In addition, third-party fintechs can access Tide customers’ accounts on a permission basis via open banking-based account aggregators including Plaid, Yapily and TrueLayer that have integrated with Tide's APIs.
Monese, a U.K.-based neobank providing digital checking accounts and money transfer services to gig economy workers, the self-employed and European expatriates, also uses Ozone’s open banking APIs.
“We target customers who aren’t well served by mainstream banks,” said Sarah Holt, Monese’s head of partnerships. “Open banking can solve many problems for the underserved. For example, if your income isn’t stable month to month, open banking can give you better visibility of your finances and help you budget more effectively.”
Clear Books, a U.K. company that provides an accounting platform to small and midsize businesses, uses technology from Plaid, which is based in San Francisco. This enables SMEs to have their bank transactions automatically fed into Clear Books’ accounting software so they can allocate funds to invoices, mark their bills as paid and more easily reconcile their bank statements.
“This removes the burden of administration, so they can free up their time to manage their business," said David Carr, Clear Books' chief financial officer.
Previously, Clear Books used screen scraping to import customers’ transactions from their external bank accounts. After integrating with Plaid in March 2020, Clear Books saw a 51% year-on-year increase in the number of customers opting to connect their bank accounts so they could use automatic bank feeds.
“The benefits of open banking versus screen scraping include higher security, greater reliability and better-quality data in bank feeds,” said Carr.
Loan underwriting is another area that is being transformed by open-banking-enabled fintechs.
Despite SMEs’ major role in the U.K. economy, the obstacles they face in financial services are often ignored, said Dave Hoare, chief technology officer Codat, a business data aggregator based in the U.K.
“Fifty-seven percent of all SME credit applications are either abandoned because they are just too hard, or ultimately rejected,” he said.
Codat, which enables SMEs to share their accounting data with lenders via open banking technology, has partnered with Plaid to improve the loan application process.
Together, Codat and Plaid enable SMEs to share a wide range of financial data with lenders during the application process so they can more quickly gain access to the capital they need. The data includes bank transactions provided by Plaid as well as POS and e-commerce data provided by Codat. In addition, Codat’s API provides lenders with automated access to multiple accounting packages for profit and loss statements, invoices and balance-sheet data.
Codat obtains POS and e-commerce data through its integrations with payment processors such as Zettle, Stripe and Square, said Hoare.
The combined data enables loan underwriters to have a more complete and verifiable understanding of business customers, beyond what is available from credit rating agencies. Since this data is available on an ongoing basis, lenders can monitor cash flow and intervene where necessary.
“Open banking technology enables lenders to develop a deeper understanding of their customers’ needs and ever-changing situations,” Hoare said. “Ongoing access to accurate, real-time data from multiple sources means Codat’s customers, who span a wide range of financial service firms and fintechs, can lend to SMEs with confidence.”
The business lender MarketFinance has provided over £2.6 billion in loans to U.K. businesses since 2011. It needed up-to-date accounting data from its SME customers to accurately assess exactly how much credit to offer. So it had to integrate with as many of the accounting systems that were used by its clients as possible.
Rather than trying to build individual integrations with the different accounting platforms, MarketFinance connects to these systems with a single API from Codat.
“We can access the data that we need in order to make a funding decision within days,” said Jonathan Allan, MarketFinance’s chief marketing officer. “This also means that our customers don’t have to spend time each month manually uploading accounts.”
