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The UK's Open Banking regulation came into effect at the beginning of 2018 to boost competition in the country and create a level playing field between legacy players and startups in the finance industry, by requiring banks to open up customer-permitted data to third parties.
A new report from Intuit QuickBooks explores how 509 senior decision-makers at small- and medium-sized businesses (SMBs) feel about Open Banking and the current financial services landscape.
Here are the key insights from the report:
1) Less than one-third of SMBs in the UK see the banking system as modern or competitive.
Additionally, just 30% reported that they feel confident about keeping up with their business finances in the current banking system, while only 46% said they have a clear picture of their business finances. That said, 55% of respondents to a separate study from Adaptive cited by QuickBooks reported that they would be willing to pay for services that would free up time to focus on their core business, indicating an opportunity for fintechs to step in.
2) A significant share of SMBs don't feel appropriately served by financial institutions.
Forty-six percent of respondents have experienced a lack of access to finance, which has held back their business from growing. This further illustrates that current lending options for SMBs aren't sufficient to fulfill their finance needs, giving fintechs an opening to bridge this gap with more suitable services.
3) Most UK SMBs (60%) are aware of Open Banking, though fewer are convinced of its efficacy.
Fifty-one percent of respondents said that they trust Open Banking a great deal or a fair amount to use within their businesses. Trust was higher among younger demographics, with 78% of respondents between 18 and 34 saying that they trust the regulation, likely as this group has grown up in a tech-enabled society and may be more receptive to using new technologies enabled by Open Banking. Given SMBs' general familiarity with and trust in Open Banking, fintechs looking to operate Open Banking-enabled services should have a large addressable market to target.
The findings suggest that fintechs wanting to leverage Open Banking data for SMBs should focus on money management tools and finance options. Because there is an evident appetite among SMBs for tools to help manage their finances, fintechs should develop tools that utilize Open Banking data to assist with functions like expenses, invoices, payroll, and taxes. Additionally, fintechs could make more financing options available for SMBs, including options that leverage alternative data to make a lending decision. And to make the most of Open Banking data and excel in the SMB open banking space, fintechs should consider combining finance management and lending offerings within one platform, which could boost user convenience and loyalty.
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