SMEs are benefiting from Open Banking and Cloud-based services, report reveals

By Puja Sharma

• Open banking is delivering significant benefits to small businesses
• One-in-ten digitally enabled consumers now using open banking
• Consumer adoption of open banking enabled tools beginning to catch up with SMEs

 The Open Banking Implementation Entity (OBIE) had published its latest report showing the continued growth of open banking-enabled services across the UK.

The bi-annual report assesses the progress of open banking adoption in the UK and its impact on both consumers and small businesses. The latest figures show that there are more than six million regular users of open banking-enabled services in the UK.

Focus on cloud accounting:

A new element of research undertaken in this third report focuses on how small businesses are utilizing cloud accounting. Cloud accounting allows any business to manage basic accounting tasks including managing cash flow or issuing invoices through cloud-based software. Open banking plays a key role as it gives companies the ability to connect their bank account to their chosen accounting service.

Although cloud accounting services pre-date open banking, it is notable that 75% of users started using the service no more than three years ago, with 36% having adopted it within the past year. Open banking started to be incorporated into cloud accounting in April 2019, as one of the earliest propositions. 11% of respondents claim they would stop using their cloud accounting package and 50% would look for an alternative if they lost the ability to incorporate real-time transactions.

Open banking is a valued feature among adopters :

As part of the research, OBIE segmented businesses based on the number of employees to understand the penetration of cloud accounting services. While the research is not representative of the broader UK SME population, it did interestingly pick up the difference among respondents, where among sole traders just over one-fifth (22%) use cloud accounting services compared to almost four-fifths (78%) for those with 5-9 employees.

The data very clearly demonstrates that small businesses find that cloud accounting is playing a key role in giving insights into business performance and making small businesses more efficient and profitable. OBIE estimate that 10 – 11% of digitally-enabled consumers and small businesses used open banking during March 2022. This figure has increased from 6 – 7% in March 2021

Business penetration (11%) is slightly higher than consumer use (10%), but the gap between the two has closed significantly since 2021. Many small businesses were early adopters of open banking technology, particularly cloud accounting, but consumer offerings are now catching up.

In the six months to March 2022, there were 21.1m open banking payments, compared to 6.1m in the same period the prior year. Month-on-month growth is running at around 10%.  The fully regulated market remains dominated by propositions addressing improved financial decision-making (36%), expanded payment choice (21%), and better borrowing (18%). However, with the implementation of variable recurring payments (VRPs) for sweeping later in 2022, it is hoped it will encourage the growth of more savings services using open banking.

Looking at the products available on the market, the data shows that most providers are targeting consumers (43%), whereas 29% focus exclusively on small businesses only consumers, while 25% provide for both.

Charlotte Crosswell, Chair and Trustee, Open Banking Implementation Entity (OBIE) said, “Our role at OBIE is to make sure we create an open banking system that is safe, secure, and easy for consumers and businesses to use. The Impact Report helps inform us and the industry about the evolution of the products and how it is being used.

“Cloud accounting software has been around for a few years, but it’s interesting to see the positive feedback from businesses, small and large. Open banking is making the service more effective and helping businesses keep on top of admin and managing cash flow. There’s certainly more work to be done to encourage sole traders and smaller businesses to adopt it, but it is encouraging to see the value it is adding.”

Key findings

• Given pressures on cash flow, an overwhelming majority (77%) of respondents report that they now have more immediate and accurate insights into their financial position at any given time as a result of using these services.
• It is clear that cloud accounting led to small businesses feeling more efficient, with 84% agreeing.
• Over 70% saw benefits in the management of late payments, a key issue that many small businesses find hard to track.
• Some small businesses suggest that cloud accounting services are saving them money: 59% said they had delivered internal savings and 64% external cost savings.
• 44% of all small businesses reported that their use of the accounting software means that they longer need external accountancy support.