News

While the news is littered with predictions and guestimates of how Brexit will impact UK business, there is a quiet revolution taking place that might well be a game-changer for British SMEs.

Ironically, this revolution is driven by European legislation and relates to the finance and banking sector. Called PSD2 (Payments Service Directive 2) it is set to shake up the way both consumers and businesses pay and get paid by increasing pan-European competition in the payments industry. ‘Open Banking’ is a direct result of PSD2 and for the first time, most small businesses will be able to share their banking data securely with trusted third parties via APIs (Application Programming Interfaces)that allows providers, other than their bank, to make payments from their account. Put simply; data is king and collaboration and sharing of information and services,the likes of which we have never seen before, will become the norm.

With European countries obliged to incorporate the new rules into national law by 13 January 2018, there is a scramble amongst fintech companies, financial institutions and banks to take advantage of the legislation; or in the case of some, bury their head in the sand or push back against the new requirements.

So why is this so important for small and medium sized businesses in the UK? There are four main reasons why Open Banking should be on the radar of all business owners:

1.New APIs will make payments faster and easier for SMEs because they are designed around the needs of today’s businesses – rather than an existing legacy banking system.

Account aggregation will see third parties compiling information into a single place to make money management easier such as cash flow credit and supplier management.

New data sharing will see an overhaul of the credit ratings system and availability of information that could potentially help businesses recruit new overseas clients, negotiate better supplier terms as well as access new streams of capital.

Lenders and banks who grasp Open Banking as an opportunity could become more ‘business and SME friendly’.

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