Open banking can be a very nebulous concept for many small business owners. When you’re trying to focus on running your business, who has time to learn about how banks and fintechs can leverage customer-permissioned data? Just the thought will make many reach for a cup of coffee; however, as the federal government continues to make progress on a Canadian open banking framework. This will become an absolutely essential enabler that can help streamline the financial side of your business, saving you time and money.
So what is open banking? Open banking, sometimes also known as consumer-directed banking, is a secure way for you to share your financial data with financial technology companies. When you use a fintech app with open banking, your bank securely shares your financial data with the app on your behalf using a secure online channel. You don’t need to provide your online banking username and password to access the apps products and services, and critically, it allows the user to decide how fintech apps can use their banking data. This allows fintechs to leverage that data to create a whole new set of products and services to better serve your business, and in a secure and seamless fashion.
Markets like the UK, where open banking is already in place, have seen outsized benefits. In June 2022 over 370,000 Xero small business customers had an active open banking bank feed in the UK, and research from the UK Open Banking Implementation Entity shows that within small businesses adopters of open banking enabled cloud accountancy services:
- 84% were able to manage their business more efficiently
- 79% had a more reliable, secure back-up of their financial data, and
- 79% were making better business decisions
The financial insights granted through consumer-driven finance have the potential to not only transform the way small businesses operate today, but future-proof their operations against future instability. For example, it can provide small business owners with completely accurate and up to date insights on their accounts receivable and payable, which is frustratingly difficult to get today, allowing for proper planning and decision making.
One of the most prevalent and impactful use cases is with access to credit for newcomer owned businesses. This is particularly the case in the current tough trading environment where the combination of only modest economic growth and ongoing above-average inflation is squeezing small business cash flow. Small business owners need liquidity and credit to grow in this environment, but newcomer business owners often don’t have access to traditional credit avenues given their out-of-country credit history. Open banking can help alleviate this by providing alternative credit providers access to a broader spectrum of the business owner’s financial information, allowing them to provide new credit products and services. With instability in the market continuing, this can be a massive support for small business owners.
Prior to joining Xero in late 2021, Michael was the Senior Director of the Scale-Up Institute Toronto at the Toronto Region Board of Trade. He led the launch of the the small business accelerator, and ran a number of high impact programs focused on small business growth and digitization. In his time leading the organization, the Scale-Up Institute Toronto supported over 2,000 small businesses across Ontario, securing significant private and public sector investment, and winning the 2020 Ontario Chamber of Commerce Chair’s Award for Innovative Programming.
Michael also has over ten years of experience in both the federal and provincial governments, focusing on innovation and scale-up policy, trade agreement negotiation, and the automotive sector. He actively participates in the small business research community as well, acting as an expert advisor on a number of research councils. He has recently taken on the position of Vice Chair for the Scugog Township Economic Development Advisory Committee.
