# Move Aside Brexit; Open Banking is the One to Watch Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2017-11-03 Category: BANKING Category URL: https://financedigest.com/category/banking Meta Title: Open Banking Revolution: How SMEs Can Benefit from PSD2 Meta Description: Discover how PSD2 and Open Banking are changing the finance industry and revolutionising the way businesses access credit and manage finances. Join the URL: https://financedigest.com/move-aside-brexit-open-banking-is-the-one-to-watchhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/fd031117-2-1736843310594-compressed.jpg) **_Alessio Balduini,_** _CEO Credit Data Research_ ![Alessio Balduini](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/fd031117-1-200x300-1736843310678-compressed.png) Alessio Balduini While the news is littered with predictions and guestimates of how Brexit will impact UK business, there is a quiet revolution taking place that might well be a game-changer for British SMEs. Ironically, this revolution is driven by [European legislation and relates to the finance and banking](https://www.financedigest.com/u-s-european-banks-could-lose-over-5-billion-from-risky-buyout-loans.html "U.S., European banks could lose over billion from risky buyout loans") sector. Called PSD2 ( [Payments Service Directive 2) it is set to shake up the way both consumers and businesses pay and get paid by increasing pan-European competition in the payments industry](https://www.financedigest.com/will-central-bank-digital-currencies-deliver-a-more-democratic-payment-industry.html "Will Central Bank Digital Currencies deliver a more democratic payment industry?"). ‘Open Banking’ is a direct result of PSD2 and for the first time, most [small businesses](https://www.financedigest.com/best-small-business-loans-speaks-to-fundbox.html "Best Small Business Loans Speaks to Fundbox") will be able to share their banking data securely with trusted third parties via APIs (Application Programming Interfaces)that allows providers, other than their bank, to make payments from their account. Put simply; [data is king and collaboration and sharing](https://www.financedigest.com/how-data-sharing-can-give-brands-confidence.html "How data sharing can give brands confidence") of information and services,the likes of which we have never seen before, will become the norm. With European countries obliged to incorporate the new rules into national law by 13 January 2018, there is a scramble amongst fintech companies, financial institutions and banks to take advantage of the legislation; or in the case of some, bury their head in the sand or push back against the new requirements. So why is this so important for [small and medium sized businesses](https://www.financedigest.com/top-benefits-of-invoice-discounting-for-small-businesses.html "Top Benefits of Invoice Discounting for Small Businesses") in the UK? There are four main reasons why [Open Banking](https://www.financedigest.com/what-does-2022-hold-for-open-banking-some-predictions-from-the-ecosystem.html "What does 2022 hold for open banking? Some predictions from the ecosystem") should be on the radar of all business owners: 1.New APIs will make payments faster and easier for [SMEs because they are designed around the needs](https://www.financedigest.com/hung-out-to-dry-smes-need-further-support-to-stay-afloat.html "Hung Out to Dry: SMEs need further support to stay afloat") of today’s businesses – rather than an existing legacy banking system. 2. Account aggregation will see third parties compiling information into a single place to make money management easier such as cash flow credit and supplier management. 3. New [data sharing will see an overhaul of the credit ratings](https://www.financedigest.com/global-shares-slide-dollar-gains-as-rates-rise-on-strong-data.html "Global shares slide, dollar gains as rates rise on strong data") system and availability of information that could potentially help businesses recruit new overseas clients, negotiate better supplier terms as well as access new streams of capital. 4. Lenders and banks who grasp Open Banking as an opportunity could become more ‘business and SME friendly’. The good news for the UK is that it is [well ahead](https://www.financedigest.com/cricket-injured-buttler-progressing-well-ahead-of-t20-world-cup.html "Cricket-Injured Buttler ‘progressing well’ ahead of T20 World Cup") of the game in the implementation of Open Banking compared to its European peers.Already recognised as leaders in fintech, innovative UK [companies are fizzing with creativity and energy](https://www.financedigest.com/luc-remont-proposed-as-new-boss-of-french-energy-company-edf.html "Luc Remont proposed as new boss of French energy company EDF") in a bid to create the go-to tools and apps of the future to help small and medium sized businesses make the most of Open Banking. Many of these new innovations have been stimulated by a recent Nesta-ledinitiative called the Open Up Challenge. Selected by the CMA as one of a package of remedies aimed at shaking up banking, the Open Up Challenge is supporting 20 teams, including Credit Data Research, to develop game-changing solutions to some of the greatest challenges that SMEs [currently face](https://www.financedigest.com/peel-off-face-mask-market-2022-outlook-current-and-future-industry-landscape-analysis-2029.html "Peel off Face Mask Market 2022 Outlook, Current and Future Industry Landscape Analysis 2029"). In this current environment, we believe one of the main problems SMEs encounter is the ability to access credit and negotiate better commercial terms by being able to demonstrate their creditworthiness. [Existing credit scoring is no longer](https://www.financedigest.com/chinese-findings-on-mars-suggest-water-existed-for-longer-on-planets-surface.html "Chinese findings on Mars suggest water existed for longer on planet’s surface") fit for purpose as data utilises submitted accounts that are inherently 15-18 months old. In addition, SME [credit scoring typically doesn’t speak the language of the rating agencies and banks](https://www.financedigest.com/audit-finds-holes-in-ecbs-management-of-bank-credit-risk.html "Audit finds holes in ECB’s management of bank credit risk"), meaning a lender’s SME loan portfolio cannot be securitised and used to unlock further capital. Currently, only 2% of the €400bn securitised transactions in [Europe were backed by SME collateral compared to 62% consumer](https://www.financedigest.com/unilever-downbeat-on-europe-china-consumer-sentiment.html "Unilever downbeat on Europe, China consumer sentiment"). [\[1\]](#_ftn1) At Credit Data Research, we are [addressing this challenge](https://www.financedigest.com/rising-to-the-challenge-addressing-the-difficulties-of-pillar-2-reporting.html "Rising to the challenge: Addressing the difficulties of pillar 2 reporting") with an innovative tool that will not only help SMEs access capital and enter new markets, but will also provide lenders and banks with a new and effective rating API. Called the ‘Credit Passport’, it takes advantage of [Open](https://www.financedigest.com/open-finance-and-smart-ecosystems-wont-wait-for-banks.html "Open Finance and Smart Ecosystems Won’t Wait for Banks") Banking by combining newly available banking data and financial scoring, using Moody’s Analytics, to generate a Basel II compliant credit rating for SMEs with real-time behavioural banking data at its core. The Credit Passport is a significant development for those UK businesses that want to access new markets, seek out new clients or recruit new suppliers as they are now able to provide a real-time data report that [follows banking](https://www.financedigest.com/uk-watchdog-contacts-banks-following-huge-withdrawal-of-mortgage-deals-ft.html "UK watchdog contacts banks following huge withdrawal of mortgage deals -FT") regulatory standards. We have already found that SMEs, as well as using the Passport to improve their [internal credit](https://www.financedigest.com/credit-squeeze-biggest-threat-to-economic-outlook-fidelity-international-says.html "Credit squeeze ‘biggest threat’ to economic outlook, Fidelity International says") culture, have also started presenting it to suppliers to get better commercial conditions. The Credit Passport has helped to liberate SMEs still caught in the down-draft of the 2007/8 crisis when they experienced a drastic reduction in their access to credit, and financial intermediaries suffered losses on their SME lending portfolios. Since then, existing risk assessment systems have reinforced rather than help to solve this situation. For the first time, Open Banking provides us with real-time access to credit information and third-party access to granular banking data. In turn, this enables us to create a [credit score](https://www.financedigest.com/benefits-of-a-good-credit-score.html "credit score") that is in real time rather than utilising out-of-date datasets. The Credit Passport can be accessed by the SME and combines their company’s data with bank account transaction data and credit registry data and then uses technology from Moody’s Analytics to generate a genuinely useful and [insightful report](https://www.financedigest.com/acetate-salt-market-size-trends-share-insights-report-2026.html "Acetate Salt Market Size, Trends, Share, Insights Report 2026"). The information contained within the Credit Passport helps entrepreneurs to make and action really [important business](https://www.financedigest.com/importance-of-transparency-and-connections-in-business.html "Importance of Transparency and Connections in Business") decisions- from being able to demonstrate how reliable they are when entering new markets to knowing whether or not they should engage with a potential partner or supplier. This is a win-win scenario for both [SMEs](https://www.financedigest.com/forecast-based-financing-for-smes.html "Forecast-based financing for SMEs") and the financial community. Banks and lenders gain better visibility and [risk transparency that can subsequently fuel a greater](https://www.financedigest.com/brexit-the-risks-to-the-city-and-fintech-have-never-been-greater.html "BREXIT: THE RISKS TO THE CITY AND FINTECH HAVE NEVER BEEN GREATER") propensity to lend to SMEs. If this plays out as we predict, then we could [see greater liquidity develop in the market](https://www.financedigest.com/the-next-upcoming-years-to-see-the-dental-lasers-market-develop-on-an-organic-note.html "The Next Upcoming Years To See The Dental Lasers Market Develop On An Organic Note") and a growing confidence in SME securities as a stronger and more viable investment option. While countries and organisations are still grappling with the concept of PSD2 and the inevitability of Open Banking in January 2018, we are [pushing ahead](https://www.financedigest.com/kosovo-pushes-ahead-with-car-licensing-rule-resisted-by-serbs.html "Kosovo pushes ahead with car licensing rule resisted by Serbs") with the Credit Passport model. Initially tested in Italy, the [largest and most complex SME market in Europe](https://www.financedigest.com/portugal-set-to-start-up-europes-largest-floating-solar-park.html "Portugal set to start up Europe’s largest floating solar park"), the Credit Passport is fast becoming a pan-European product with subsequent expansion into the UK, Germany, France and Spain. It has been heralded as a great success by its users – a significant reason why Nesta awarded Credit [Data Research a sought-after place in the Open Up Challenge](https://www.financedigest.com/meeting-the-data-challenge-in-financial-services.html "Meeting the data challenge in financial services"). Besides cash prizes and expert support, an additional advantage of the Open Up Challenge is that all 20 teams are provided with access to anonymised SME banking transactions. This has provided participants with the opportunity to further [test their systems](https://www.financedigest.com/interoperability-of-data-to-accelerate-the-ventilator-test-systems-market.html "Interoperability of data to accelerate the Ventilator Test Systems Market") and products, something that attracted us to the Challenge. What’s clear is that trust and credibility are going to be significant in the coming years as fintech groups, [banks and lenders fight](https://www.financedigest.com/canadian-banks-fighting-brokers-back-for-customers.html "Canadian Banks Fighting Brokers Back For Customers") it out in a bid to be the favourite of the SME sector. For organisations such as Credit Data Research, co-branding with Moody’s and the Nesta accolade will provide greater visibility and credibility, so expect to [see more strategic tie-ups and partnerships in the near future](https://www.financedigest.com/hyperkalaemia-treatment-market-sale-will-apprehended-to-see-impressive-growth-in-near-future.html "Hyperkalaemia Treatment Market Sale Will Apprehended To See Impressive Growth In Near Future"). While Theresa May negotiates our divorce from the EU, we will watch the birth of a new banking era with interest as the brave and the innovative [battle it out to win](https://www.financedigest.com/lindt-wins-chocolate-bunny-battle-in-swiss-court.html "Lindt wins chocolate bunny battle in Swiss court") the confidence of the millions of SMEs in both the UK and Europe. [\[1\]](#_ftnref1) https://www.afme.eu/globalassets/downloads/data/securitisation/2014/afme-stn-securitisation-june2014.pdf --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---