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How Will Open Banking Help SMEs In India

Open banking is introducing a whole new way of doing business for small and medium-sized businesses, much in the same way that neobanks ushered in the personal finance revolution. While open banking is often associated with fintech firms, the access, agility and financial transparency it enables is having an impact on businesses across the board.

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The small and medium enterprises are the lifeblood of our country. We have seen and experienced exponential growth in the last year during the pandemic. In fact, SMEs have left the agriculture sector far behind in being the largest employer. In such a scenario, it becomes imperative for banks and NBFCs to serve the sector in the best possible ways – ‘open banking’, being one of the best ways. Open banking provides third-party access to current account data and allows them to initiate payments on behalf of SMEs—altering the way small businesses bank, and the way they make and receive payments. 

The system is extremely reliable and here’s the reason why: 

Business Account Partnership- The open banking system offers SMEs in India a prosperous facility to mingle the business with automated accounting systems. This feature lessens the accounting burden on the business’s shoulders.  

Automated SME Functions- All financial processes go digital whenever a business partners with the open banking system. The automated financial system, especially in a small business can surprisingly increase the time frame for businesses to focus on their marketing and product development strategies. 

Digital Accounts- The best part about digital accounts is that they can be accessed within a few clicks. It just takes a few seconds to keep all your financial systems in front of your eyes for your knowledge.  

Open banking is introducing a whole new way of doing business for small and medium-sized businesses, much in the same way that neobanks ushered in the personal finance revolution. While open banking is often associated with fintech firms, the access, agility and financial transparency it enables is having an impact on businesses across the board. The system is helping SMEs to perform a variety of financial operations, including, managing cash flows (collecting and making payments). It also promotes automated daybook keeping. The open banking system allows businesses to become integrated with application programming interfaces.  

SMEs, in their turn, are benefiting from the following in comparison with cooperating with traditional banking.

Open banking allows for faster and easier access to loans. In 2019, big banks approved a mere 27.9 per cent of loan applications to small business loans. SMEs were less likely to obtain funds in a timely manner, making it more difficult for them to expand and enhance their operations. However, with open banking lenders can now examine the small business's books, locate the data they require and evaluate whether the business is eligible for a loan. This saves time and effort for both business owners and financial institutions. 

Financial institutions with access to SME's financial data can manage the business operations more efficiently and in a simplified manner. This eliminates the need for business owners to focus on accounting, auditing, and managing payroll. Instead, they can spend time on their employees, serving customers face-to-face, focusing on marketing efforts, and improving their products or services. 

Integrated systems can perform more efficiently by automating manual operations by making financial data available to the service providers. 

The traditional banking system has been serving SMEs poorly. On the other hand, the open banking system has boosted them. Using the company’s financial data makes open banking function on their behalf and the banks also receive equal benefits. The banks act as a gatekeeper and allow access to customer data to third-party open banking system providers. In return, the novel and automated open banking system fills that void and provides true financial position data to businesses. 

Above all, the open banking system aids businesses to predict and analyse their financial health and cash in-outflows. This data-based automated feature functions as a virtual command for SMEs to reduce repetitive manual administrative processes. The SMEs in India are receiving a tremendous boost with the advent of fintech's open banking system that helps them reduce unnecessary business costs with enhanced financial management.  

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Open banking smes india

Rohit Arora.

The author is Co-founder & CEO, Biz2Credit

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