Open Banking For SMEs: Explanation, Benefits, and Guide


SME businesses are a driving force in the world economy. With so many transactions taking place behind closed doors, it's easy to forget that there are people on both sides of every transaction. In order to be successful, SMEs need to provide goods and services for their customers as quickly as possible without compromising quality or accuracy. The easiest way to do this is through the use of open banking for payments.

Open banking for payments is an innovative way for businesses to trade goods and services without the need for traditional means like paper checks or bank transfers. In this article, we will explore the ways in which open banking has revolutionised the way people pay each other. 

We'll explain what the technology is, how it works, and how it can benefit SMEs!

What Is Open Banking?

Open banking is a term used to describe a set of financial services that are provided by banks and other financial institutions through APIs. API stands for application programming interface, which is a set of software instructions that allow two applications to communicate with each other.

In the context of open banking, APIs allow third-party developers to build applications that can access a customer's financial data. This data includes transaction history, account balances, and payment information. Open banking APIs also allow customers to authorise third-party applications to initiate payments on their behalf.

How Does Open Banking Work?

Open banking relies on the use of APIs to allow third-party applications to access financial data or initiate transfers. When a customer wants to use a third-party application, they must first grant the app permission to access their financial data or make a payment. Once the app has been granted permission, it can then make requests for specific data sets from the customer's bank or other financial institution.

The customer's bank will then provide the requested data to the app through an API. The data is typically delivered in a JSON format—one of the standard formats for transmitting data between applications.

What Are the Benefits of Open Banking?

Open banking provides a number of benefits for both customers and businesses. For customers, open banking gives them more control over their financial data. They can choose which applications have access to their data and can revoke access at any time. Open banking also makes it easier for customers to switch between banks or financial institutions.

For businesses, open banking provides a way to offer new and innovative services to their customers. By using APIs to access customer financial data and initiate transfers, businesses can develop apps that offer a variety of services, such as peer-to-peer payments, money transfers, and bill payments. Open banking also makes it easier for businesses to comply with regulations, such as the European Union's Payment Services Directive (PSD2).

What Are the Risks of Open Banking?

Open banking comes with a number of risks for both customers and businesses. For customers, the biggest risk is that their financial data could be accessed by unauthorised third-party applications. This could lead to fraud or identity theft. To mitigate this risk, it's important for customers to only grant access to trusted applications.

For businesses, the biggest risk is that they could be held liable for any unauthorised access to customer data. This is why it's important for businesses to have strong security measures in place, such as two-factor authentication and encryption.

How Can Open Banking Benefit SMEs?

Open banking can benefit SMEs in a number of ways. While we could go on for hours about the benefits, we're going to summarise the main ones for you:

1) Cost-Effectiveness

Open banking can help businesses save on transaction fees. When compared to traditional methods like wire transfers, open banking can be up to 90% cheaper.

At Fena, we're proud of our low transaction fees. We don't believe in charging our customers hidden fees, which is why we have a flat transaction fee of 0.3% for all payments. With standard payment processing, you're looking at transaction fees between 1% and 5%!

2) Processing Speed

Open banking can help businesses speed up the payment process. Payments made through open banking APIs are typically processed in real-time, which means that businesses can get paid faster.

When a payment is processed through Fena, you'll see the funds hit your account instantly. This is a marked improvement over the processing speeds you get with traditional card rails (between 2-7 days). 

3) Payment Flexibility

Open banking offers businesses a number of different payment options. Businesses can choose to make one-time payments or recurring payments, and they can also specify the amount and frequency of payments. This flexibility can help businesses better manage their cash flow.

In addition, businesses also have more flexibility when it comes to payment methods. Thanks to open banking, SMEs can accept payments in a wide variety of ways, including:

  • QR Code Payments: Customers can scan a QR code to make a payment. This is a popular payment method in Asia and is gaining traction in Europe and the United States.

  • Link Payments: Customers can click on a link to make a payment. This is a convenient payment method for customers who are making online purchases.

4) Customer Satisfaction

Open banking can help businesses improve customer satisfaction. By using open banking APIs, businesses can develop apps that offer a variety of convenient features, such as the ability to make instant payments or track spending in real-time. This can make it easier for businesses to keep their customers happy and loyal.

In addition, customers also appreciate a wide range of options when it comes to making payments. Studies regularly show that customers are more likely to make a purchase when the seller offers a wide range of payment methods. That means SMEs are more attractive when they embrace open banking payment solutions.

5) Increased Sales

Open banking can help businesses increase sales. When customers can make payments in a wide variety of ways, businesses are more likely to make a sale. In addition, businesses that offer convenient features, such as instant payments or the ability to track spending in real-time, are also more likely to increase sales.

6) Security

Open banking is a secure way for businesses to make and receive payments. All data transmitted through open banking APIs is encrypted, which makes it difficult for hackers to access, and card details aren’t shared so the risks of fraud are reduced.

When businesses have access to customer financial data, they can better monitor spending and flag suspicious activity. This can help businesses prevent fraud before it hurts their customers and reputation.

7) Operational Efficiency

Open banking can help businesses save time and resources. By using payment APIs, businesses can automate tasks such as invoicing and payments. This can free up staff to focus on other tasks, such as sales and marketing.

All of this contributes to lean businesses who have the resources and capabilities to navigate difficult industries with ease.

8) Regulatory Compliance

Open banking can help businesses comply with regulations. For example, the European Union's PSD2 regulation requires businesses to provide customers with certain information about their transactions. By using open banking APIs, businesses can easily and quickly generate the required reports.

This makes the process of meeting industry requirements and complying with regulations much simpler—especially for SMEs.

9) Improved Decision-making

Open banking can help businesses make better decisions. When businesses have access to customer financial data, they can better understand customer behaviour and trends. This information can be used to make informed decisions about product development, marketing campaigns, and business strategy.

10) A Level Playing Field

Open banking gives businesses of all sizes the same access to customer financial data. This level playing field can help small businesses compete with larger businesses.

How To Get Started With Open Banking Payments Using Fena

If you're a business owner, there are a few things you need to do to get started with open banking payments.

Step One: Register With Fena

To get started, you’ll need to register for a Fena account. Don’t worry—the sign-up process is quick and painless! All you’ll need is some basic information about you and your business, including:

  • Name

  • Contact Details

  • Company Name

  • Company Number

  • Company Address

  • Copy of your ID

Step Two: Connect Your Bank

Once you have your Fena account set up, it’s time to connect your bank! Fena allows you to connect with most banks by entering your account name, account number, and sort code.

Step Three: Choose a Payment Method (or Methods)

Once you’ve connected your bank, you’re ready to choose the payment methods you’d like to use with your small business. We covered these in greater depth above, but to summarise, they are:

  • QR Code Payments

  • Link Payments

Step Four: Advertise Payment Methods to Your Customers

The final step is to let your customers know that you’re now accepting open banking payments! The best way to do this is by displaying the relevant payment method (or methods) on your invoices, website, and/or marketing materials.

If you’re using QR code payments, make sure to display the QR code in a prominent location where customers can easily scan it. For link payments, simply provide the link to your customers via email, text message, or another method of communication.

Final Thoughts

Ready to get started with open banking payments for your business? Register for a Fena account today! With our easy-to-use platform, you can start streamlining your selling process and save money on transaction fees.