How open banking can help boost business savings
Making money on deposit work harder
Challenge >>
Although many businesses are constrained by costs and lack of finance, there are still a large number of firms which have savings – sometimes substantial – in accounts which earn little or no interest. A 2022 survey from United Trust Bank calculated that they could be missing out on around £990 million of interest each year by keeping £103.5 billion of company funds in low-paying business savings accounts.
Solution >>
Part of open banking’s original remit was to open up competition in the UK current account market for both consumers and small businesses. By allowing challengers to enter the market and offer more tailored banking services – including those dedicated exclusively to business banking – many firms have reaped the rewards of faster switching.
The arrival of Variable Recurring Payments (VRPs) for sweeping – a pioneering payment instruction that lets customers safely connect authorised payments providers to their bank account to make payments on their behalf – offers compelling opportunities to boost business savings.
Businesses could set up an instruction to monitor their business current account, and every time the balance goes over a certain amount, that money could be swept into a business savings account.
With interest rates increasing, this could deliver a welcome boost to business finances, with minimum effort, as well as help businesses to pay their corporation tax and/or VAT by setting it aside at the point of invoice collection.
Conclusion
Clearly open banking can’t provide a panacea for all business problems, but it can offer simple, fast, and practical remedies that address many of the common challenges faced by firms.
Earlier this year, business and fintech leaders joined forces to call on the government to help address the SME funding gap by building on the success of open banking and backing the country’s small businesses through improved data sharing initiatives to create an SME Funding Passport.
As well as bank account data, this would comprise a digital file containing essential real-time information such as cash flow – consented, standardised and shareable – necessary to underwrite business borrowing. This could speed up the lending process and give businesses a wider choice of competitively-priced loans from established and challenger banks and providers.
Similar initiatives from organisations such as Be the Business and Mastercard also highlight the wider economic benefits delivered by digitalisation – including open banking – on business productivity and payments innovation. This includes the opportunity to open up access to credit for underserved groups such as female and ethnic minority business owners.
The Digital Data Protection and Digital Information Bill is making its way through Parliament aiming to use similar initiatives - ‘smart data’ – to open up competition in the telecoms, energy and water sectors in the same way as open banking. We hope the technology will bring a brighter future for many of Britain’s businesses and help create a world-leading open data economy.
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