Open banking - scary or safe?

You might have heard the term ‘open banking’ before, but a bit murky on what it is.

You might be using it already

Believe it or not, you might have used open banking without even knowing it, for example if you use POLi for paying for something online. Maybe you use it in your business, with the bank feeds into Xero or other accounting software.

Many lenders are using open banking to speed up loan processing. When you get sent a link to click that then asks for your internet banking login and password, you’re entering the world of open banking.

Scary or safe?

For some, entering your online banking credentials to a site that’s not your bank is quite nerve-wracking. Questions come up about what data the lender will see, and where the data is going, and whether the lender you are applying for business finance with, will have ongoing access to your bank accounts.

In this blog post, we explain what open banking is, how it benefits you and your business loan application, and answer some frequently asked questions.

What is open banking?

Open banking is technology infrastructure. The technology is provided by the banks to approved companies, to allow transfer of your transaction data at your request, via an API (application programming interface). An API is basically the code that lets two unrelated systems talk to each other.

The technology is standardised, safe and secure. Any organisation that wants to use these API’s can use them (with the bank’s permission) and know that what they are using is going to be safe for customers.

The key thing with open banking is that you, the customer, give express permission for your banking data to be shared with a third party.

Why use open banking?

Our lives are becoming increasingly digitised. Banks and other institutions hold a lot of information that we’ve given through our actions (eg deposits, payments, transfers). This information is of interest to lenders.

Open banking allows you to say who can access that data. Obviously, banks can’t provide your banking data activity to a finance company without your express consent. By using an open banking portal with the banks’ API, you give this consent with a few keystrokes and clicks of your mouse.

Summary of benefits

• You don’t need to download and send bank statements – quicker to get your loan application underway.

• Increased security –

  • You’re not saving bank statements onto your PC or device.

  • You don’t need to use email to send bank statements.

• Faster processing of your loan application, as the transactions are analysed automatically.

• You provide transaction data right up to today’s date, whereas your most recent bank statement might be a month old.

• Your lender can be certain that you are providing accurate information.

Your questions, answered

Here are some frequently asked questions about connecting your bank statements for your finance company.

Aren’t I breaching my agreement with my bank by sharing my login and password?

No, that’s not the case. If an open banking platform gives you the opportunity to log in using your online banking details, it means that your bank has provided the necessary technology to share your banking transactions. This is the key point: the technology is provided by your bank.

Am I giving the lender access to my bank accounts?

Also no. What happens is that the bank provides a one-time download of transactions to the lender. In some cases, the software will categorise and analyse the transactions and give the lender a summary.

My online banking has my personal accounts as well as my business accounts – do lenders look at my personal banking information?

Generally, lenders are not interested in your personal banking information, unless they need to see proof of personal income. The upside of providing business and personal banking data is that payments to your bank accounts from your business accounts can be cross-checked.

My business banks with more than one bank – do I need another link?

Usually, you can reuse the link that your lender has sent you to connect your other banks. The lender will know who the data is from and which bank it has come from, as that information is part of the data download.

Many of the lenders that we work with will have open banking facilities. Sometimes we will send out the link, and other times it may be automatically sent out from a portal in which we’ve loaded your information to start your loan application.

We think that open banking is a good thing, and we see the benefit with quick turnaround of loan applications with our partner lenders.

Scary or safe? We’re confident it’s safe.

Thinking about finance? Check out what kinds of loans we can help you with here.

Ready to apply? Drop us a line and we’ll be in touch real quick.

7 habits to make you irresistible to business lenders

Running a business is tough, and the small business owner wears many hats: sales, finance, marketing, HR, operations, client service … it’s exhausting! Sales, operations and client/customer service usually take precedence, because it’s all about making money, right?  But taking a little bit of time every day – it could be as little as 15 minutes – to put your Finance Manager hat on, can make a big difference when it comes to applying for all kinds of business finance. The idea is to be an irresistible prospect for lenders. When your financial house is in order, business lenders see a lower risk and are more likely to offer you those coveted lower interest rates. Plus, adopting good habits can save you and your business time and money in the long run. Here are seven daily or weekly finance-related habits that will not only make you more attractive to banks, lenders and financiers but also keep your business thriving.

1. Sweep GST on invoice payments received to a savings account

Every time you receive a payment, make it a habit to sweep the GST portion into a separate account. This simple step ensures that you're always prepared for GST time, avoiding any last-minute scrambles. Plus, it keeps your main account balance accurate, giving you a clearer picture of your cash flow.

2. Reconcile your bank statements regularly

Don't let bank reconciliations pile up. Make it a daily task, or at the very least, do it once a week. Regular reconciliations help you spot discrepancies early, meaning they are quicker and easier to fix because you don’t need to think back too far to figure out what’s gone wrong. It also ensures that your balance sheet is up to date. Lenders love seeing a business that can whip up accurate financial statements in the blink of an eye.

3. Adjust direct debits to match customer payments

Timing is everything, especially when it comes to cash flow. Adjust your direct debits so they coincide with incoming customer payments. This way, you'll always have the funds available to cover your expenses, avoiding overdraft fees and showing lenders that you manage your cash flow smartly.

4. Pay GST and PAYE when you submit your returns

Don't procrastinate on your taxes. Get into the habit of paying your taxes at the same time you file your tax returns – Inland Revenue gives you the option to do this when you file your GST and PAYE returns. If you’ve followed point 1 above, then this should be a piece of cake. This practice not only keeps you compliant but also avoids the accumulation of debt that can make your business look risky to lenders. And if you do get behind on your taxes, contact IRD to make a payment arrangement, they’re always happy to help (they’re not so bad, after all!). Lenders don’t mind so much when you are behind on your tax payments if you have a payment arrangement in place. They will treat it like any other business borrowing when assessing your loan application.

5. Maintain an emergency fund

Set aside a portion of your earnings into an emergency fund. This fund acts as a financial safety net, helping you weather unexpected expenses or downturns. This shows lenders that you're prepared for the unexpected and capable of managing risks.

6. Monitor your accounts receivable

Keep a close eye on your debtors. Nobody likes to do this, but you need to follow up on overdue invoices promptly. If you can withstand the cost, you could offer incentives for early payments. Effective management of your receivables improves cash flow and demonstrates to lenders that you’re proactive in managing your income streams. (Or if you have an invoice finance facility, your lender will do this for you – cash and accounts receivable help - bonus!).

7. Automate where possible

Leverage technology to automate routine financial tasks. Whether it's invoicing, payroll, or expense tracking, automation saves time and reduces the risk of human error.

Adopting these habits will not only make your business more attractive to lenders but also streamline your financial management, saving you time and money. Don’t we all want to spend less on accounting fees? By showing that you're proactive and responsible with your finances, you'll be in a stronger position to secure favourable business loan terms. Remember, the key to a thriving business is not just in making money but in managing it wisely. So, get started on these habits today, and watch your business flourish!

Then when your need to buy a vehicle or equipment, or business is growing and you need to finance that growth through a secured or unsecured loan, or invoice finance, we can help you get the finance you need … quickly and efficiently if you’ve implemented some of our suggestions!