The significant changes in the way customers and businesses participate in the banking ecosystem are incoming. The emergence of artificial intelligence (AI) and machine learning (ML) in financial technology (FinTech) caused the opportunity to improve financial management systems for businesses. Advancements in technology made banking operations simpler, allowing business owners to focus on their other responsibilities and operations.
Open Banking: good or evil?
Any changes to an industry raise resistance. But speaking about open banking one major benefit outweighs all the hesitations. It is the customer experience. Banks want to serve their customers well. By opening up their models to work with third-party providers (TPPs), they can ensure their customers with noticeable positive improvements in the way they manage their finances.
To survive in the competitive run and prosper, small and medium businesses (SMBs) require top-notch customer service. It includes allowing customers to pay for products and services effortlessly.
While managing finances, owners of small businesses have always bear in mind some things to stay afloat:
- track their business performance
- ensure the necessary cash amount to manage current expenses
- make wise spending decisions
- keep detailed records
- simplify the process of paying taxes
Maintaining financial health is always a goal of a business owner. The right financial tools and the adoption of innovative technology are needed to improve return on investment (ROI) and keep customers happy.
It’s common for small businesses to use external services to manage their finances. Various financial services are available for SMBs, like accounting, consulting, and loan management.
Running an SMB requires more than just showing up and selling products to a customer. Understanding that fact helps SMB owners decide if open banking is the right choice for their business.
Open Banking: benefits for SMBs
There are benefits for individual consumers and SMBs When individual consumers and SMBs choose to exploit an open banking system, they obtain certain benefits out of it. Individuals get wider access to the data they need any time when they need it.
Read my article about Open banking for Consumer Lending.
SMBs, in their turn, are benefited from the following advantages in comparison with cooperating with traditional banking.
- Faster and easier access to loans through open banking. Only 27.9% of loan applications made by SMBs were approved by big banks in 2019. It’s less likely these days for SMBs to timely receive the money they need to improve their operations and flourish. Open banking allows lenders to review SMB’s books, find the data they need and determine their eligibility to receive loans. This saves business owners and lending institutions lots of time and effort.
- Simplification of business processes allows financial institutions that have access to SMB’s financial data to manage these processes more easily. Business owners don’t have to focus on accounting, managing payroll, and auditing, but spend time on their employees, serving customers face-to-face, focusing on marketing efforts, and improving their products or services.
- Automation of manual tasks through making financial data available to financial service providers, so that integrated systems are able to work more efficiently.
Open Banking: privacy
It’s in the nature of banking that the security of consumer information is regarded with utmost importance. By opening up accessibility, financial institutions make the question of online security the concern of conversation.
Financial data leaks are always a concern for financial institutions and TPPs. They are constantly looking for new ways to reduce the risk of cybersecurity breaches. It’s already required by legislation that all parties take measures to protect consumers so they can contribute to a thriving open banking ecosystem.
Banks and TPPs alike must take all necessary measures to protect their customers from losing their assets. It’s essential to provide consumers with educational resources if they are interested in participating in open banking. Transparency is key.
Managing Business Finances Open Banking: business finance management
They say, “Don’t fix what is not broken.” This may seem true for the banking industry right now. But it’s becoming a thing from the past to transfer and handle money through the bank or the branches they maintain. Innovation in technology is allowing for seamless money transfers, secure online payments, and automation of business processes.
Though the methods of traditional banking are not entirely outdated, it’s extremely unwise to deny the importance of FinTech.