Open banking is a regulatory initiative that allows banks to securely share access to bank account data with third-party financial providers. The aim is to improve competition within the banking industry and provide consumers with more choices. Participants include UK banks and building societies, including the UK’s 9 biggest banks, such as HSBC, Barclays, Santander, and Lloyds.
Secure Sharing of Data with Open Banking
Open banking allows consumers to share their account data securely with third-party providers. The bank account owner grants permission for the sharing of their account data, and third-party providers cannot make any changes to the financial information without authorisation. By law, third-party providers that use this type of banking are FCA regulated, providing an added layer of security.
Improve Competition Within the Banking Industry
Open banking allows smaller, third-party financial providers to compete with traditional banks. By allowing third parties access to consumer and business transaction data, they can offer competitive products. This has the potential to reduce the dominance of traditional banks and provide consumers with a more diverse range of financial products.
Why Would a Lender Use Open Banking?
Lenders such as Nucleus Commercial Finance and Funding Circle use open banking as it allows them to assess the financial position of a business far more efficiently. Decisions can be made quicker, risk bands can be assessed more accurately, and loan terms can be offered that are better tailored to the needs of the business.
Should You Be Concerned?
No, there is nothing to be concerned about. This method is fully secure, and the lender only has access to see your ins and outs. The lender has no access to edit anything. The information they receive is confidential and strictly regulated. Automation is a good thing. As a result, there is much less risk of data loss when it is a single, secure, regulated link than in sharing bank statements through multiple parties.
At Funding Bay, we have a number of financing solutions for your business. Get in touch today to learn more.
