‘Open banking’ could see the small and medium-sized enterprise (SME) sector grow by £12 billion in just one year, a report has revealed.
The finding forms part of the Open Banking Implementation Entity’s (OBIE) new research into the benefits of open banking for small businesses and consumers.
The concept comes after a 2016 Competition and Markets Authority (CMA) report into the UK’s retail banking market. It found that older, larger banks do not have to “compete hard enough” for customers’ business, meaning they did little to innovate their services.
In its recommendations, a key change included ‘open banking’, which would empower SMEs to share their current account information securely with other banking providers.
As a result, the OBIE was formed, backed by the UK’s nine largest banks and building societies and governed by the CMA. Its role is to guide challenger banks, financial technology companies and other consumer groups into the market by connecting them with potential customers.
Delivering an update on the new system, the OBIE revealed in June that SMEs could generate an extra £12 billion in the first year of open banking. This is through small businesses gaining access to better deals and financial services previously only available to large businesses which will enable their money to “work harder”.
“Many of the most valuable open banking-enabled propositions are not yet available to consumers, and there are a range of barriers which prevent these services coming to market today,” said the OBIE.
“Open banking could make a fundamental difference to the financial health of people and small businesses in the UK, and has shown some encouraging early signs. But the industry needs help to realise the full potential of open banking.”
Mark Chidley, independent SME representative at OBIE, added that UK SMEs have “suffered for too long from a lack of innovation, a lack of choice and a lack of tools to make them more effective.”
“We want to see UK small business owners becoming more productive and successful. Open banking-enabled products can take the drudgery and guesswork out of running a business.”