In today’s ever-changing financial world, open banking is proving to be transformative, especially for small and medium-sized businesses (SMBs). By tapping into the benefits of open banking, SMBs can fuel their growth, boost efficiency, and reach new markets, while improving the overall customer experience.
In this blog post, we’ll dive into three ways open banking helps SMBs thrive in Europe.
#1 Better cashflow management
Open banking provides small and medium-sized businesses with enhanced visibility and control over their financial operations, which is crucial for effective cashflow management. By integrating financial data from various bank accounts and financial institutions into a single, cohesive dashboard, businesses gain a comprehensive overview of their financial health. This integration allows SMBs to track incoming and outgoing cash flows in real-time, identify trends, and forecast future cash positions with greater accuracy.
Moreover, open banking enables businesses to automate various financial processes such as invoicing, payment collections, and reconciliations. Automation reduces manual errors and significantly speeds up financial operations, ensuring that payments are processed on time and reducing the risk of late fees or missed payments. This streamlined approach not only saves time but also enhances the reliability and predictability of cash flows, allowing SMBs to make more informed financial decisions.
In addition to better visibility and automation, open banking facilitates more efficient fund transfers. SMBs can leverage open banking APIs to initiate payments directly from their bank accounts, bypassing traditional intermediaries and reducing transaction costs. This capability is particularly beneficial for managing payroll, supplier payments, and other recurring expenses, optimizing cash outflows and maintaining a steady liquidity position.
Explore how Visma Dinero built a virtual CFO with open banking
#2 More inclusive access to credit
Open banking can be transformative for SMB lenders through enhanced access to SMB-permissioned financial data that sheds light on account transaction data and credit card receipts.
In turn, enhanced access allows enhanced analytics. Enriched data on inflows, outflows, non-sufficient funds and account balances allows financial institutions to assess risk more comprehensively. In particular, credit card data unveils a deeper understanding of vendor payment details for predictive analysis of credit risk exposure.
In essence, open banking not only provides a more complete financial picture of borrowers but also empowers lenders to make more informed decisions. Some advantages of open banking for SMB lending include:
- Enhanced risk management by supplementing credit bureau information with SMB-permissioned data on cashflow management and deposit-account balances.
- Confident approvals of loan and card applications from no-file and thin-file customers as well as “on margin” customers that may lack the minimum requirements for a traditional credit score.
- Reduced costs by streamlining document collection and increasing automation for loan underwriting.
- Smoother application processes to reduce customer drop-off rates.
See how Algoan uses open banking to drive change in the credit industry
#3 Expands customer base and revenue streams
Open banking can also help SMBs to expand their customer base and revenue streams, as they can leverage the data and payment capabilities of open banking to offer value-added services to their customers, such as loyalty programs, discounts, and rewards.
With the detailed insights provided by open banking, businesses can implement effective loyalty programs and introduce personalized discounts and rewards that attract and retain customers. By gaining access to consumer-permissioned financial data, small and medium-sized businesses can better understand their customers’ spending behaviors and preferences. This understanding allows for more targeted promotions and product recommendations, increasing the likelihood of customer engagement.
Additionally, integrating open banking solutions can streamline the payment process, offering customers a seamless and efficient checkout experience, which can further boost sales and customer satisfaction.
Want to know more about how open banking can help your business grow? Head over to our open banking use cases in Europe or reach out to one of our open banking experts.
