Open banking trends are opening up a new era of innovative fintech B2B solutions. Although open banking-enabled tools allow access to financial information without compromising sensitive data, businesses have yet to fully make use of them.
On the consumer side, open banking has ushered in the rise of popular financial apps like Venmo, Mint, and Plaid. Plaid’s network of over 6,000 fintech apps provides convenient services like digital banking, currency exchange, and payments.
Similarly, open banking unlocks more options for business customers. The technology drives improvement in services to make real-time payments, underwrite or access credit, improve cash flows, and more. As apps using open banking develop further, businesses receive uniquely targeted and specialized services.
What is Open Banking?
Open banking provides easy and secure access to financial information without requiring widespread sharing of sensitive information like passwords. Before open banking, enterprises and their banks had nearly exclusive access to private data. Working with third-party providers to underwrite or access loans required painstaking individualized sharing of physical or electronic documentation, such as bank statements.
Government regulations, market forces, and the digitization of financial infrastructure have accelerated open banking trends. According to McKinsey, financial data sharing directly benefits micro-, small, and medium-sized enterprise customers by offering increased access to financial services, greater convenience, and improved product options. After Stripe introduced Stripe Financial Connections to help businesses verify bank accounts, check balances, and confirm account ownership, businesses reduced payout failures by 75% and accessed 55% larger loan offers.
Overall, fintech solutions have sped up the digitalization of B2B payments and processes, further encouraging the development of open banking. Economies that embrace financial data sharing could see GDP gains of 1-5% by 2030.
Platforms like Finicity have transformed the B2B market by offering access to over 95% of U.S. financial institutions such as Wells Fargo, Fidelity, Chase, and CitiBank. By layering on intelligence and deep learning, the platform delivers sophisticated insights like scoring, verifications, and cash flow.
Real-time connections to customer data now make it possible for enterprises to extend trade credit since they can determine the creditworthiness of customers with open banking. In the process, businesses achieve faster and more accurate credit underwriting.
How Open Banking Works to Help Determine Creditworthiness of a Customer
The open banking market is growing at 24.4% and is expected to reach $43.15 billion by 2026. While payment processing accounts for a significant portion of the market, companies also have the opportunity to use open banking for credit and lending decisions. Improved access to alternative data enables SME buyers with thin credit files or no formal records to access loans.
With customer consent, underwriters can assess creditworthiness through easily accessible data points, such as:
- Customer bank balances
- Outstanding balance and payment history of existing loans, including defaults
- Transaction details over a specific period
- Cash inflows and outflows
- Account and credit history with a financial institution
3 Open Banking Trends and Why They Matter Now
Open banking helps businesses leverage banking data to provide better services. In the near future, this technology will lead to more innovative ways to reduce costs and create more options to manage and access payments and credit.
#1 Trend: Open Banking Enables Variable Recurring Payments to Avoid Overdrafts and Late Fees
Variable Recurring Payments (VRP) allows you to pool funds from connected company bank accounts to pay authorized providers. VRP is a payment technology that relies on sweeping automatic transfers between your accounts to move surplus funds around so you can:
- Avoid declined payments due to insufficient funds
- Cover loan payments
- Settle an overdraft
VRP lets you limit funds available for settling for sweeping for each of your company’s bank accounts. With this payment technology, customers can manage accounts from several providers in real-time.
Automatic repayments cut borrowing costs and enable faster and more secure payment processing. Along with other payment automation technologies, VRP technology allows B2B companies to reduce transaction costs and get paid faster.
#2 Trend: Large Enterprise Sellers Use Open Banking to Underwrite Smaller Business Buyers
Open banking brings financial inclusion by providing credit and loans to people and businesses that won’t qualify for a loan from traditional banks. Enterprise sellers use open banking to underwrite smaller business buyers that would not be eligible for trade credit because of their thin or lacking credit history.
Digital financial tools use open banking to check customer creditworthiness by focusing on aspects such as:
- History of payments
- Overall cash flow
- Spending patterns
Extending net terms to smaller business buyers could lead to higher sales and greater customer loyalty for a B2B company. Meanwhile, small business buyers can access customized trade credit and other financial services by sharing their data.
#3 Trend: Businesses Use Open Banking For Accounts Receivable Management
Open banking enables the consolidation of all financial accounts into an easy-to-manage accounts receivable platform, providing a real-time snapshot of collections. Full visibility over finances is critical for running a business. Integrating existing back-office systems with an A/R platform also allows enterprise merchants to effectively manage collections, payments, bank transfers, and other financial transactions.
For B2B companies extending trade credit, for instance, a platform that integrates payment automation, credit solutions, and accounts receivable management speeds up processes. The end result is increased collection efficiency, boosted productivity, and improved cash flow management.
B2B Open Banking Unlocks Powerful Solutions
Open financial data appeals to businesses looking for ease, optionality, and flexibility in managing finances. Improved products from B2B open banking-enabled solutions provide businesses with new ways to create value
Open banking trends in 2023 will bring further globalization and the adoption of efficient and powerful software. Businesses that keep tabs on trends in banking can take advantage of fintech tools to remain relevant and competitive throughout this financial revolution.
Contact Apruve today to see how open finance empowers your enterprise to extend B2B net terms quickly, access faster and more affordable working capital, and automate accounts receivables management.