Open finance and SMEs
Updated: Dec 21, 2020
In our previous post we discussed a number of pain-points that SMEs may face in their day-to-day business. One of these points related to Access to Finance and how difficult and time-consuming it can be. In this post we aim to introduce our readers to what the future holds in this domain by having a look at what the EU is currently assessing in relation to ‘open finance’ and how this could ultimately alleviate a number of pain-points for SMEs. What is meant by ‘open finance’? Open finance is a term used to describe an extension of the open banking data-sharing principles that enabled third parties to access customer data held by banks. In Europe, open banking was introduced by the second Payment Services Directive (“PSD2”) but in other parts of the world, similar developments have taken place albeit in slightly different shapes. How does it work? Tech-savvy SMEs have likely already interacted with a variety of companies that use the infrastructure introduced by open banking to alleviate administrative burden in areas such as accounting. It does so by securely accessing bank account details, such as payment data, and feeds it into a specialised software which, in the end, means that companies can efficiently organise their books into the required format. Future developments As a result of the seeing the possibilities brought about by the PSD2, many industry advocates have argued for an extension of the ‘open’ principles into other areas - not only payment account data. Such areas are, as an example, utility service providers, online marketplaces, real estate and other investments where useful information about a company´s activities may be found. In practice, this would something like this chart, which is put together by the Bank of England in their Open data for SME Finance report:
Conclusion We are firm believers that expanding the ‘open’ principles as far as possible will improve services for SMEs by giving third parties an opportunity to understand the full scope of your business. By doing so, available services will become more accurate and, importantly, a lot more relevant to your business. At Yoba, we welcome the efforts introduced by the EU as well as the UK and their understanding of the wealth of opportunities that open finance can bring along. As a data-driven company we are looking forward to further developments that will allow us to understand SMEs and, by extension, how to service them in the best possible way.