Is Open Banking open for Business?

Hugh Scantlebury, Founder and CEO at Aqilla


Open banking timeline

  • October 2015: UK launch of open banking.
  • August 2016: UK’s nine biggest banks are told by the Competition and Markets Authority to give direct data access to licensed third parties.
  • January 2018: Open banking regulations come into effect in the UK.
  • December 2022: A record 68 million+ UK open banking payments are processed in 12 months.
  • July 2023: Seven million+ UK customers, including 750,000 SMEs, routinely use open banking.


Some history and context

Since its launch, open banking has transformed access to banking and financial services —especially in the context of credit rating improvement facilities, savings and investment and personal finance management.

To date, UK banks have placed much of their emphasis on the consumer market. But open banking has the potential to help the business community — particularly SMEs and sole traders — by speeding up lending decisions and reducing the cost of borrowing.

Open banking could also accelerate payment processes, especially cross-border transactions, ultimately creating more efficient and robust supply chains. This would have the knock-on effect of helping companies improve cash flow and develop greater economic resiliency.

Hugh Scantlebury

That’s all well and good, but is open banking safe? The answer is absolutely yes! It uses Strong Customer Authentication (SCA) and a set of tough UK laws to ensure providers only access data needed to deliver their service. Open banking also uses minimal privilege access, identity access management, single sign-on and advanced user authentication — and in most cases, biometrics. And, like all IT security and identification software, open banking’s infrastructure is continuously evolving to keep ahead of cyber criminals and other bad actors attempting to access customer data.


A slow start for the business community

But, despite the advantages it could offer businesses, open banking still has some way to go before it reaches its full potential. Much of this is down to the UK’s banks as they don’t seem in a hurry to market open banking services to the business community.

But it’s also partly because of business leaders themselves — particularly those at the helm of larger and more established companies. Many are still sceptical of the framework, which means they aren’t taking up the available services as quickly as expected. Consequently, their banks aren’t under pressure to offer open business-focused open banking services. It’s a vicious circle — and, in my view, one that needs to be broken in order to make open banking fully accessible and beneficial to businesses of all sizes.

This section of business leaders also tends to have accounts with established high street banks, who have until recently been much slower than challenger like Starling and Monzo banks to embrace any open banking offerings — and remain sceptical of these new banks too.

Many of these newer banks have come to the fore in the tech-driven market created by consumer-focused open banking. Unlike traditional banks, they haven’t had to adapt their IT systems and process to embrace open banking. This has made it much easier for them to support the API technology that underpins open banking.

All these factors seem to be playing into the hands of newer, more agile businesses — particularly SMEs, sole traders and newly formed companies. This group of business leaders often prefer the more informal, app-based banking offered by challenger banks. As such, they could well steal a march on larger firms whose systems aren’t as ready or able to adapt to open banking and its underlying philosophy.

It might explain why, despite apathy from established banks and larger companies, business adoption of open banking services is actually higher than consumer take-up, with a 16% market penetration rate for businesses versus 11% for consumers. The same data suggests that where businesses do take up open banking services, they currently tend to focus on data-driven Account Information Services (AIS). This allows them to see multiple accounts in one place and gain real-time cash flow and forecasting insights.


Payment initiation services

While businesses have quickly adopted Account Information Services (AIS), consumers have focused more on Payment Initiation Services (PIS). They’re easier to navigate than BACS payments and direct debits, and customers don’t need to enter their sort codes or account numbers manually.

Payment initiation services have, until recently, focused on P2P payments within the consumer sector — things like splitting restaurant bills or taxi rides between friends or helping them budget by creating ‘spaces’ to set aside money for bills and savings.  But so far, they haven’t been viable for businesses, and they struggle when companies need to pay more than a handful of suppliers.

This, however, is likely to change very soon with the introduction of automatic and conditional payments, which could manage company outgoings across supply chains and even pay employees. For this reason, business banking payment initiation services could be one of the most significant future growth areas for open banking in the years ahead.


Looking to the future

I’m confident that more B2B-focused open banking offerings will be launched in the UK. We don’t need to look further than the increased use of Making Tax Digital (MTD) as proof. Although the project has run over budget, it has never-the-less successfully ensured all the UK’s VAT-registered companies are now filing digital VAT returns.

Many do this via data-sharing connections linking their bank account and HMRC — or through third-party accounting and finance software providers. I believe that if corporate finance and accounting teams have had a positive experience with this, they’ll be far more likely to try different open banking applications — and they’ll probably go on to select finance and accounting software with open banking integration if they’re not already using it.

It’s also encouraging to see credit score companies such as Experian using the open banking interface to help consumers improve their credit scores. Experian does this by using the open banking interface to connect directly to customer bank accounts and get more granular access to their transactions. The app can then assess how quickly and reliably loans, mortgages, credit cards, mobile phone bills, and utility bills are paid — boosting consumer credit ratings far faster than was previously possible. Although not available yet for the business community, a similar open banking service would be a huge benefit to businesses, especially SMEs.


In Summary

When people discuss open banking, they often talk about democratisation to describe the benefits. And it’s true of consumer banking. But the same potential exists for business banking customers too. As discussed, I think this revolution will start with SMEs and sole traders and then expand to larger organisations as the system builds capacity to scale.

The continued evolution of finance and accounting software, such as Aqilla, will also play an important role in widening the appeal of open banking to the business community. As a starting point, integrating open banking capabilities into accounting and finance software provides businesses with the capability to access their bank account statements directly within the application. This should make reconciliations, and other finance function processes much more straightforward and efficient. But there are also far-reaching possibilities for open banking integrations that support advanced ERP management and supply chain payments.

Longer term, I also think that AI and Machine Learning will play an increasing role in delivering open banking for businesses — primarily in providing the speed, automation and analytical capabilities needed to scale the infrastructure and associated apps to process the number of transactions required by larger corporates and multinationals.


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