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How the emergence of open banking could help your small business

Posted by Neha De

April 29, 2022

The customer always comes first, especially in the banking domain. A great customer experience adds not only credibility to the bank, it also helps develop a lifetime of customer loyalty. As banks around the world are looking to enhance their customer experience and connect, an innovative strategy is what is needed. And this is where open banking can play a significant role.

Open banking and its benefits

Open banking can be defined as a collaborative system of banking where banking data is shared through APIs between two or more autonomous parties for delivering enhanced capabilities to the marketplace. 

In simple terms, open banking refers to a payment method that allows instant transactions between two bank accounts where customers have full control over their payments and allow banks to share their personal information with third parties. These third parties are mostly fintech companies, online businesses and messaging apps. As soon as these third parties get access to users’ data, they are able to initiate transactions or analyze information.

Here are six benefits of open banking for small- and medium-business owners: 

1. Reduced costs

Using open banking, SMBs can lower their merchant service fees as they no longer need as many card readers and POS terminals. What makes this possible is a reduction in fraud cases and a lack of charges from the acquirer, namely, Mastercard and Visa.

Also, open banking can serve large payments at a much lower fee than usual card-based payments.

2. Seamless and efficient business processes

Keeping up with the demands of running a small or medium business can be challenging for a business owner, especially auditing, payroll management, accounting and other such financial functions. This is where open banking can help small business owners, as it clears the way for access to financial data by financial institutions.

By delegating these tasks to a third party, small business owners can focus their time and energy on overseeing sales and marketing efforts, improving relationships with staff members and enhancing their offerings.

3. Zero chargebacks

Direct bank payments offer significant benefits to SMBs that accept debit and credit cards. Reversals of payment, or chargebacks, are requests by customers to reverse card-based payments, and there is no such thing as a chargeback with open banking.

4. Automating manual tasks

Access to data is essential for digital automation. Financial service providers can access data more effortlessly when integrated systems are in place.

5. Convenient access to loans

SMBs often require loans to improve their business processes and streamline their marketing efforts, and open banking offers a good solution for them.

Due to its simplistic model, open banking allows them to swiftly determine their eligibility for loans without manually submitting financial statements and other documents. As a result, both lending institutions and business owners can save time, resources and effort.

6. Improved customer experience

Open banking promises a better customer experience. As opposed to online banking, which requires a card reader and your login details to authorize and secure payments, mobile banking uses biometrics (such as a face ID or a fingerprint) to secure and authorize transactions.

Mobile banking apps allow users to approve open banking payments without any effort. They use two-factor authentication along with a device identifier and the user’s pin, face ID or fingerprint.


There is no doubt that open banking will benefit users and foster innovations and new areas of competition between banks and non-banks, but it is also likely to introduce a completely new financial services ecosystem where the banks' roles are likely to shift significantly. 

Additionally, open banking raises issues of data privacy and regulation, which may help explain why global markets have adopted diverse approaches to governance, leading to disparate levels of progress. However, regardless of region, the momentum toward the open banking model is clear, as it will require banks and fintech companies alike to prepare themselves for success and anticipate the likely customer impacts. 


Neha De
Neha De

Neha De is a writer and editor with more than 13 years of experience. She has worked on a variety of genres and platforms, including books, magazine articles, blog posts and website copy. She is passionate about producing clear and concise content that is engaging and informative. In her spare time, Neha enjoys dancing, running and spending time with her family.

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