Insight & Analysis

Growing numbers of corporates eyeing benefits of open banking

Financial graphs

Open banking began life in 2018 stuck in the slow lane, with awareness of its benefits muted among corporates. A year on though, momentum looks to be picking up, as more and more firms eye its time and money saving potential.

A year into open banking and after a slow start for the initiative, corporates look to be slowly coming around to its potential, with a survey finding that three-quarters of UK businesses expect to benefit from the initiative by 2020.

The study, carried out by Centtrip, the international payments, treasury management and foreign-exchange specialist, also found that nine in ten senior decision makers in medium or large companies have now heard of open banking. Of these, two fifths (38%) say they are already benefitting from the initiative. Nearly 60% have yet to tap into its potential.

Of those corporates aware of open banking, 70% think that sharing their data with third parties sounds risky. Still, 64% of businesses agree that open banking could save them time managing their finances.

The UK open banking regulation came into force in January 2018, with nine banks initially mandated to open up their data to third parties. The nine banks – Barclays, Lloyds, Santander, Danske, HSBC, RBS, Bank of Ireland, Nationwide and AIBG – are required to adopt an “open standard” that enables approved third parties such as fintechs to easily tap into their data to create new products and services. The nine banks account for 85% of all UK personal and small business current accounts. The overall objective of the initiative is to introduce greater competition across the financial services sector.

The Centtrip survey, based on interviews with over 500 decision makers from medium-size and large companies, says the top perceived benefits of open banking for corporates are:

  • Managing money and accounts (43%).

  • Sending and receiving payments (42%).

  • Reviewing the business’ expenditure (34%).

  • Exchanging currencies (32%).

  • Costs previously incurred from high street banks and other legacy providers (31%).

  • Reconciliation and reporting (30%).

The study notes that although a considerable amount of development has taken place behind the scenes to make open banking available for wider use, 8% of UK businesses still have no idea what it is. More broadly, a general lack of understanding of its benefits means 59% of respondents are not yet reaping its rewards.

The survey has also uncovered an open banking ‘age divide’, with only 28% of respondents aged 55 and over saying they had a firm grasp of it, compared to 85% of those aged between 18 and 34.

A great initiative

Brian Jamieson, CEO and co-founder of Centtrip, said: “Open banking has huge potential to change the way financial data is shared and managed. A year on from its launch, we are just starting to understand its benefits and the way it may reshape the financial sector. Even so, many business leaders have yet to reap its rewards and realise its potential to revolutionise the way businesses approach and manage their financial information.”

Jamieson says many challenges lie ahead in terms of how banks will connect with corporates, including his own firm. “What we definitely know is that bank customers will be able to give third parties access not only to their transactional data but also account features, such as those associated with making a payment.

“Banks themselves will have to look at their standardisation/authentication protocols. For example, if I make a payment with one bank, I will go through its authentication process. If I use a third party to make a payment from my bank, does it mean I will have to go through two authentication processes? What will it look like? These are the issues that banks are considering themselves.”

While there are challenges, Jamieson is convinced open banking is a “great initiative” that is still very much in its infancy: “It is important firms and consumers generally understand that this is a journey we are on with open banking, especially when it comes to its practical applications.”

He says there is “clear evidence” that corporates are embracing what fintechs have to bring to this space. “Fintechs can complement customers’ legacy banking by helping to streamline services and bring greater levels of transparency, fairness, control and accessibility. They are more relevant than ever as they offer products and services that are in line with companies’ needs rather than expecting them to operate within outdated practices and use preset products.”

As for the legacy banks themselves, Jamieson believes they are continuing to have a hard time replacing their ageing systems, which again augurs well for the more nimble, agile fintechs. “Open banking by definition requires new thinking and new technology. Rather than trying to adapt their legacy systems to the open banking environment, it makes more sense than ever for the banks to embrace fintechs and their technology.”

Fintechs on front foot

According to David Beardmore, commercial director of The Open Data Institute, which played an instrumental role in creating the technical framework that underpins the initiative, there is an “absolutely thriving, burgeoning” fintech sector around open banking that is growing at an exponential rate. “There are about 50 fintechs out there already accredited by regulators to operate in this open banking space and behind them there are more than 150 looking to secure the same privilege. That all amounts to an awful lot of creativity, resource and enterprise being expended on open banking.”

Like Jamieson, Beardmore also believes open banking will be a big boon for corporates, especially SMEs, and urges firms to explore its potential, especially in areas such as near real-time management of cash, payments and multiple accounts: “Firms absolutely need to take notice of open banking and all it can offer - it would be an absolute folly for them to ignore or believe it is irrelevant to their business models or financial operations.”

While firms may currently be wary of sharing their data with parties other than their banks, Beardmore believes that will change with time and growing confidence in third-party providers.

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