How open banking empowers SMEs
Mita Srinivasan
10X Technology

How open banking empowers SMEs

Open Banking facilitates secure data sharing, encouraging the development of new products and services. PK Shrivastava, Executive Director of Tarabut Gateway discusses how Open Banking, the mechanism for connecting banks, FinTechs and businesses through secure API, cloud-based data-sharing to innovate financial products, can help increase the range of options for SMEs

Open Banking facilitates secure data sharing between banks, FinTechs and other providers which encourages the development of new products and services. Banks hold vast amounts of data about existing customers, which when enriched can provide keen insights into areas where members may benefit from different services or products. Traditionally banks have stored much of this information but only scratched the surface of innovation.

There are many different kinds of data about SMEs which can be valuable for innovators. This might include transactional data, regular payment patterns such as salaries, supplier payments, loans, and income. This information can provide stronger guidance on the overall state of SME financial activity in a region and help create personalization of products and services for these businesses. By connecting via Open Banking APIs, there are a range of possibilities to innovate offerings for SMEs.

Open Banking supporting SMEs

Dubai Chamber of Commerce identified that for SMEs, navigating funding from banks is a significant challenge, with lenders risk averse towards start-ups. Many banks request atleast three years of track record before businesses qualify for loan funding. Through Open Banking, banks can expedite the assessment and qualification requirements, and suitably address the needs of the SME community. For small businesses and startups, Open Banking provides useful ways to help, such as innovation of financial productivity tools, optimization of cash flow, better access to financial products and services, and affordable ways to manage payments and finances. Open Banking payments could help businesses avoid start-up costs incurred by setting up with payment networks and POS machines. Processing via Open Banking also enhances the security of payments and can help expedite settlement periods. It means for the small business, they can just get on with what they do best, rather than dealing with overly complex payment mechanisms.

Access to transaction data also enables banks and financial institutions to provide services at the precise moment that a business requires them, eliminating background noise and providing something truly valuable. According to KPMG, SMEs are beginning to grasp the power of Open Banking with 39 per cent of Asia Pacific start-ups saying they already participate in ecosystems that use Open Banking.

How can regional SMEs identify Open Banking?

Open Banking is still in the nascent stages in the MENA region, but regulators are bringing in enhanced policies and frameworks to guide its evolution. As the regulatory approach develops, approved providers can be listed. For example, in Bahrain there is a public directory of approved banks and third-party Open Banking service providers.

As Open Banking implementation intensifies over the coming months and years, the options available to SMEs will grow. Open Banking requires explicit consent before any data sharing or action takes place – so SMEs will easily understand if they are part of any Open Banking interactions.

Aligning visions for Open Banking

By deploying Open Banking to align with the Middle East’s national agendas and individual Central Bank policies, the financial ecosystem can drive greater options for SMEs and end consumers alike. Open Banking APIs and technology opens the door, but it requires the longstanding members of the financial ecosystem to walk through it and embrace the opportunities it presents. Once they do, a new world of banking and financial services for SMEs awaits.

About the author

PK Shrivastava has 25 years’ experience in the technology industry and leads the execution of Tarabut Gateway’s overall strategy. Prior to joining MENA’s leading Open Banking platform, PK founded and successfully ran a banking software services and product company for over a decade, which he helped scale up from a small to a medium enterprise.