Could open banking power the enterprise growth local economies need?

Hamish Thomas

EY EMEIA Payments Leader and UK Advisory Banking Technology Leader

Transformation leader in payments and open banking. Passionate about technology’s potential to create opportunity and manage risk. Optimistic runner. Film enthusiast.

Anita Kimber

EY – United Kingdom Digital and Innovation Partner

Digital and innovation leader. Open banking champion. Passionate about facilitating better customer experiences through innovation and creativity. Dedicated to building a better working world.

9 minute read 6 Mar 2019

Open banking is disrupting the relationship between SMEs and banks – and creating new partnerships for growth.

Delve deep into our economies and it’s clear that it’s the smaller businesses we have never heard of that drive growth and wealth.

In OECD countries, small and medium sized businesses (SMEs) account for around 99 per cent of all firms (pdf), providing the main source of employment and contributing between 50% and 60% to value creation.

SMEs aren’t just important employers, many of them are the same FinTech firms that are powering innovation. Increasingly, large corporations jostle with each other to partner with many of these agile entrepreneurial upstarts, because doing so can give them access to the insights, products, technologies and disruptive expertise that they need to bolster their competitiveness in markets.

Helping SMEs maximize their ability to generate positive economic and societal change will take more than just the interest and support of larger firms. Central to SME growth is finance – which is why the banking and financial services sector now has an unmissable opportunity to help transform SMEs with the rise of open banking.

Open banking is a whole new way of building intimate, transparent, and versatile relationships between banks and their customers – and that includes SMEs. But what exactly is it?

It’s all about opening up data. In 2018 the UK Competition and Markets Authority (CMA) mandated that financial service providers must enable SME customers to switch more easily between business bank accounts. The revised Payment Services Directive (PSD2) meanwhile requires banks to allow the secure exchange of customer information with third parties.

In other countries similar changes are taking place; German regulators, such as the Berlin Group, are setting standards for the application programming interfaces (APIs) that will allow third parties access to banking data, while other countries such as China have far fewer barriers or mandates in place in the first place.

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Chapter 1

Finding the value in transaction data

Open banking has liberated the data generated by every aspect of daily business to support SME growth.

The disruptive force behind open banking is the idea that financial information is much more than just a collation of numbers – it’s a rich set of data that highlights preferences, spending patterns and cash flow that, properly leveraged, can open a whole new relationship between bank and customer.

While that information is essential for business owners to assess profitability, what if they could work the numbers even harder? What if they could use them to access tools and software that could radically simplify financial processes and lead to smarter decisions around money?

This is the essence of open banking – a model that is characterized by simpler, secure data-sharing and transparency, with third parties taking the pain out of comparing alternative products, from loans to utilities, and finding better deals.

Ultimately, it’s a hyper-personalized approach to banking that is more dynamic and flexible.

How open banking can offer a lifeline to SMEs

Access to finance is one of the main hurdles to small business growth. Getting a loan to develop your business has, in the past, been a cumbersome process. Open banking has the power to cut through the red tape to create competitive financing offerings for SMEs.

SME challenges


of start-ups fail within three years.

By securely connecting bank accounts and book keeping operations onto single platforms, banks can eliminate data entry, automate reconciliation, and provide multiple payment options to customers, allowing SME customers to easily request working capital loans and pay suppliers directly from the same platform.

Sharing data with third-party comparison services means SMEs’ spending and cashflow patterns can be automatically analyzed to suggest the best deal for loans and other forms of financing, broadening the pool of potential lenders available.

Democratizing lending in this way allows faster and fairer financing, enabling SMEs to be more responsive when new business opportunities arise.

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Chapter 2

A passport to growth

The flexibility and insights open banking promises should help overcome most SME concerns.

“SMEs have historically been a neglected segment. Open banking provides an opportunity to address this by enabling better understanding of the needs of businesses, and focusing on making it easier for them to achieve their goals, rather than just providing financial products,” says EY Open Banking Leader, Hamish Thomas.

While open banking offers a more dynamic way to handle finances, sharing highly sensitive data with third parties will be viewed by some SMEs as a risk.

Robust regulation of open banking is a given in some parts of the world, while a more organic approach is being taken in others. The customer is ultimately in control of who sees their data and how they handle it.

The pay-off for skeptical business owners will be jettisoning the administrative headache of onboarding with lots of separate providers. And if circumstances change – relocation, expansion, new staff, or a switch from one finance provider to another – avoiding more time-consuming paperwork.

Digital passporting enables access to a firm’s most up to date information through a single secure portal from which multiple service providers such as financial institutions, telcos, government departments or utilities can be given permission, wholly controlled by the business, to access the key information they require to better support that business’s needs. This means companies need only input and update information once, keeping admin simple and convenient. SMEs can also link accounts and products from the various providers they use to gain an outlook of their international finances in a single view.

This is especially important for SMEs, who are chronically underserved by current banking models – in the UK in 2015, just 18% of SMEs applied for financing from their banks, despite making up 47% of the private sector. In emerging economies, 40% of “unbanked” SMEs are not able to gain financing.

A key reason for this underservicing of SME customers is the challenge banks face in performing KYC (know your customer) and the due diligence measures around them. SME operations are often opaque, complex, and low scale. This makes them difficult for banks to understand, and therefore of limited value as customers.

Better digital passporting measures, therefore, could simplify multiple steps of the onboarding process, and make SMEs generally more attractive customers for banks.

Why frictionless finance pays SMEs

Choosing which banks and financial service providers to share their data with means SMEs remain in control while looking for better deals. But open banking can also free up resources. Automating tax, payroll and back-office systems can liberate SMEs to focus on development.

Open banking means SMEs can open their back office to accounting and cashflow management tools, freeing them up to focus on value-adding tasks.

In the UK, which introduced open banking principles in early 2018, SMEs can now connect with software that is compatible with the UK government’s Making Tax Digital (MTD) scheme. The scheme – which has been going through implementation since October 2018, and will likely conclude in October 2019 ­– aims to make tax administration more effective, while saving businesses time. The data needed for tax purposes is seamlessly shared with government databases, reducing back-office effort.

Some firms are already complying with the Value-Added Tax element of the scheme, ahead of 2019 when it becomes mandatory. This element requires them to keep digital records of transactions and file tax returns via MTD-compatible software – a much more efficient method than traditional tax return systems.

The benefits of ‘frictionless finance’ for SMEs include making payments faster and easier, being able to see and monitor expenditure, automation of cashflow forecasting and – not least – gleaning insights from transactional data. Together, these benefits can help both identify new business opportunities and accelerate growth by allowing firms to react more quickly when those opportunities emerge.

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Chapter 3

The need for the right partnerships

In this developing market, banks SMEs and FinTechs have a chance to collaborate to generate growth.

Open banking and digital passporting are innovations at the start of their journey, with SMEs at the centre of business ecosystems that connect suppliers, customers and regulators.

Both established and FinTech SMEs launching new products and services will facilitate new collaborations and partnerships within these ecosystems: 94% of UK FinTechs (pdf) see open banking as major area of opportunity while 81% are actively getting ready for the changes. Account and data aggregation is currently top of the list for FinTech developers. Conversely, failure to put these products out there, or to engage with open banking ecosystem could result in financial institutions of all stripes being overtaken by more agile players.

For banks not partnered with FinTech innovators, product development expertise will be high on the agenda as the financial services market becomes superfluid. Questions around the best ways to use data accessed through open banking while protecting sensitive and personal information and how to stay a step ahead of the market are among the areas to be actively explored.

However financial services providers acquire innovative technological expertise, SME customer adoption may still be a barrier to overcome: 16% of FinTechs (pdf) identify customer adoption as a key challenge to realizing the benefits of open banking, while 9% cite the need for further industry standards.

Whether between banks and FinTechs or SMEs and their banks, partnerships will undoubtedly be an intrinsic part of the emerging, superfluid open banking ecosystem – one which puts an empowered, informed customer right at the center.


SMEs are one of the key focal points of an emerging superfluid open banking market, where partnerships with banks and FinTechs are starting to create a new ecosystem for growth.

About this article

Hamish Thomas

EY EMEIA Payments Leader and UK Advisory Banking Technology Leader

Transformation leader in payments and open banking. Passionate about technology’s potential to create opportunity and manage risk. Optimistic runner. Film enthusiast.

Anita Kimber

EY – United Kingdom Digital and Innovation Partner

Digital and innovation leader. Open banking champion. Passionate about facilitating better customer experiences through innovation and creativity. Dedicated to building a better working world.