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.