5 key facts businesses need to know about Open Banking

Open Banking is here and is about to transform competition in the banking and funding arenas.

Since 13 January 2018 nine of the largest banks in the UK are governed by the new regulations introduced by the Competition and Markets Authority (CMA).

But what exactly is Open Banking, and how does it affect businesses across the UK? Here are five key facts you need to know about Open Banking:

1. What is Open Banking, and how did it come about?

In 2016, the Competition and Markets Authority (CMA) found out that high street banks don’t have to compete hard enough for customers. This monopoly position makes it difficult for third party providers to access the market, and offer their financial services to SMEs and consumers.

In order to retain competition, the CMA introduced Open Banking, which forces the nine largest banks in the UK to open up data they hold on their customers.

This is not to allow third parties to randomly dip into your online banking account — it’s to provide you with useful new-generation services that could help you understand and solve financial problems in your day-to-day running of your business.

With a £5 Million prize fund Nesta’s Open Up Challenge inspired the creation of apps, tools, and new-generation services that are likely to have a positive impact on SMEs now and in the future.

Ten teams were selected by an independent jury panel, and each team received a £100,000 cash award to develop products and services that will offer data-driven approaches to solve problems faced by small businesses.

These products, combined with access to the financial data, can help small businesses get access to funding, financial advice, and more transparency on their financial status quo.

It’s not the first time remedies have been issued to support SMEs in the UK. In 2016, the Bank Referral Scheme was introduced to support small business lending, referring customers who have been unsuccessful with their bank to alternative lenders.

Simply put, Open Banking allows you to grant permission to challenger banks, financial technology companies, third party providers and consumer groups to access to the financial data your bank holds on you. These organisations can then study the data to devise and offer you financial services that high street banks can’t.

2. How does Open Banking work?

Under the new regulations, the following 9 banks now have to to open up the data they hold on their customers;

  • Bank of Ireland,
  • Barclays,
  • Danske,
  • AIB Group,
  • HSBC Group,
  • Lloyds Banking Group,
  • Nationwide,
  • RBS Group and
  • Santander

Via a secure API (application programming interface), third parties can instantly access bank statements, revenue, profit and other cash flow details, without needing to wait for PDFs or photos of such.

This will speed up and simplify funding applications. For example, it will put an end to the perennial absurdity where businesses seeking finance have to scan their paper bank statements, only for the data to be manually re-entered into the underwriting systems of modern online lenders.

Instant access via API will make the process more efficient. You’ll have to give authorisation by logging in with your online banking account details, and your bank will then grant access to the selected and approved fintechs.

3. Why do we need Open Banking?

Open Banking is a first step to give you more control over your data, and more importantly, your finances.

By giving approved third parties access to your financial data, they can offer you more options to understand it, to benefit from it, and to tackle financial issues faster and easier. Until now, banks have kept this data for their own use.

Whether it’s cash flow forecasting, online tax services, or automated accounting, there are already a number of new-generation apps and tools, but with Open Banking these services will finally be even more accessible, giving more and more fintechs and challenger banks a share in the market.

It still remains to be seen what the future of Open Banking holds, and how SMEs will engage, but the new regulations are likely to support UK businesses in the long run — and therefore strengthen the UK’s economy as a whole.

4. How does Open Banking affect small businesses?

To put it simply, the new regulations will make things faster and easier for small businesses.

Let’s say you want to apply for a business loan with an alternative lender. The application can be made online within minutes, but when it comes to the assessment of your business’s creditworthiness, things are still moving more slowly than they have to.

The lack of instant access to your data forces lenders to still assess your eligibility and financial information such as revenue, profit, or liabilities the old-fashioned way which makes the whole underwriting process longer and more inconvenient than it should be.

Accessing your data directly via Open Banking can eliminate time in the process, so getting a business loan, for example, will be a much quicker and less painful process.

5. Is Open Banking secure?

The collaboration between major banks and new providers of financial services is comparable to online banking. It is at least as secure as your usual online banking access. So, if you’re already doing online banking, then Open Banking won’t be much different to your login procedure with your bank.

However, there will always be scammers who will try to get into your online banking account, so you should always remember that you’ll never have to share your login details with any other than your bank.

If you’re using one of the selected fintech companies of Open Banking, they’ll refer you to your bank’s website to log into your banking account.

Further, the law requires providers to use the strongest security standards, and API is know to be a safe and secure method of moving data between applications. It’s also important to mention that the Financial Service Authority (FSA) has to select and approve which companies will be using the service.

That said, your financial data is a very sensitive matter, so it’s always good to be alert. If you think something went wrong in the process, or a payment wasn’t right, you should be able to get help or a refund from your bank.


Open Banking is an approach by major banks and new providers to work together. So far, the popular view was that major banks are not doing enough things with the data they have and new alternative finance providers are doing amazing things with data.

It’s a characterisation of the market that doesn’t ring true. Actually, banks are more data-driven in their lending decisions than alternative finance providers — now, established banks and alternative providers are pulling together.

At the core, we’re moving from a world where your bank controls the data they have on you to one where it’s your data.

About the author

This guide has been written exclusively for ByteStart by Conrad Ford, Chief Executive of Funding Options, which was recently described by the Telegraph as “the matchmaking website for small businesses and lenders”.

Last updated: 20th June, 2022

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