With open banking technologies making their way beyond the world of consumer finance and into the business banking market, new use cases are emerging from the legislation that opens up bank account data and offers FinTechs opportunities for new functionalities via deeper data integrations.
As innovators explore new way to wield open banking to improve financial products and services for small- to medium-sized businesses (SMBs) and corporates, a new reality for the banking landscape emerges: Open banking is still in its early stages of adoption.
According to Salt Edge Vice President Vasile Valcov, the ability for companies large and small to access their bank account data in real-time is an important advancement in the ability for chief financial officers and treasurers to more effectively manage money. But that’s not where the opportunities of open banking end.
He spoke with PYMNTS about the rising challenge of organizations operating across borders with multiple bank accounts, as well as the potential use cases for open banking that are on their way to gaining widespread traction.
Bringing Order To Bank Data
For SMBs operating with just one bank account, the ability to wield open banking and access that account data in real-time is a value-add. But increasingly, according to Valcov, even SMBs are working with multiple bank accounts.
“Considering the dynamics on the market, more and more businesses from various industries use several bank accounts,” he said, noting that this is often to ensure that they have access to competitive financing rates. While this can make financing more affordable, it also adds friction to money management.
“Managing multiple bank accounts manually adds complexity when CFOs need to have an accurate overview of their financial situation, with up-to-date account balances, and manage cash flows,” he added.
Increasingly, FinTechs that operate a range of platforms, including enterprise resource planning (ERP) and accounting portals, are looking to unlock data across multiple bank accounts for their SMB customers. Salt Edge operates a technology that can help these platforms do so.
Demand for the ability to consolidate bank account data is on the rise, particularly among businesses that operate in multiple countries. For larger corporates, said Valcov, this pain point is particularly acute considering some firms have tens or even hundreds of bank accounts across different countries and continents.
“It takes weeks until a CFO receives an overview of the account balances across the organization,” he said.
And while these larger entities may have the resources to secure an open banking license and facilitate data integration themselves, integrating with multiple banks is challenging thanks to the wide variety of ways that each financial institution (FI) implements a range of application programming interface (API) standards. As such, collaborating with a third-party open banking technology provider can offer a more efficient means for FinTechs and corporates to embrace the opportunities of unlocking bank account data.
Emerging Use Cases
Today, there are two ways that open banking can have an impact on business finances, according to Valcov. The first, direct way is through unlocking bank account data to integrate into back-office platforms for real-time views into cash positions and the opportunity to wield that data for cash flow forecasting and other analysis.
The second, indirect way is through the ability for financiers to use that same data to underwrite loans, a particularly valuable impact for SMBs in need of affordable capital. Together, these two use cases for open banking can be applied broadly with solutions surrounding ERPs, expense management, invoice financing and more.
But opportunities to stretch open banking even further are quickly emerging. According to Valcov, some of the largest surround open banking’s lesser-known function, payments initiation, which enables end users to initiate a bank account-to-account transfer from directly within the interface of a third-party app.
While only a limited number of jurisdictions around the globe have open banking regulatory frameworks, more markets are embracing the opportunities that exist within unlocking bank account information. Not only are there opportunities for FinTechs to explore new use cases of the framework, but, as Valcov said, there are opportunities for regulators to adopt such regulations in new markets — not only to help consumers, but to enhance financial management for corporates, too.
“Knowing the real financial situation that a company has … in real-time is currently a big challenge,” he said. “And this is what open banking can solve in the long term when it becomes mainstream — not only in the EU, but in other countries as well.”