How can Open Banking help SMBs navigate the cost-of-living crisis? 

Published On : 07/20/2022

By Dawn Beeby, Sales Director, Nuapay 

2022 has been a challenging year for us all. The cost-of-living crisis, coupled with ongoing supply chain disruption, has left businesses facing an uncertain and unpredictable future as they try to remain resilient. 

According to Barclays, more than three-quarters of small and medium-sized companies are worried about the long-term impact the rising cost of living, soaring energy bills and record inflation will have on their business. Further, almost half are reportedly pessimistic about the outlook for the wider UK economy, while two-fifths believe that the current business environment is unstable.

Many SMEs have reacted with agility, plotting a course to navigate them out of troubled water. Many have taken the tough decision to raise prices, while others have sought to end third party contracts and scale back growth plans.

While these steps are vital, they do little more than preserve cash flow for businesses. The measures outlined above do not mutually benefit the consumer, which could hamper loyalty once normality eventually resumes.

To emerge from the crisis stronger, small and medium-sized companies must opt for tools and solutions that not only help them to save money in the short term across operations, but build genuine connections with new and returning customers. This is key to creating long-term stability. 

The importance of the payments journey itself cannot be overlooked here, but more critically, emerging technologies such as open banking.

Consumers are already changing how they pay

Since the cost of living has risen, almost half of all consumers have changed their payment habits, with many opting for methods that enable them to track spending more accurately.

Even habits which were adopted relatively recently are changing. ​​The past two years have seen the meteoric rise of Buy Now Pay Later (BNPL) services, with people having more money in their back pockets to spend on goods and services. However, with almost one in 10 people having recently used BNPL schemes to cover essentials, the Financial Conduct Authority has urged caution. While consumers can be enticed by the offer of no fees and low interest rates, BNPL services ultimately lack regulation in how they are promoted.

Enter open banking

In times of crisis, with consumers drawing back the purse strings, open banking offers a safer and more secure alternative way to pay that does not encourage overspending. By adopting open banking based payments, consumers can pay by bank transfer, sending funds directly from their bank account to the merchant. It is fast and secure, all with no cards and no data entry. Every time a payment is made consumers will view their bank balance, unlike traditional payment methods. In turn, this gives them more oversight of their finances. For this reason, it is likely to become a preferred payment option for consumers over the coming years – businesses which offer it will reap the rewards.

Benefits extend to businesses, too

For small-and-medium sized businesses, open banking enables an improved cash flow. Merchants receive payments in real-time, and therefore provide immediate access to funds. Refunds can also be credited back to customers in real-time, improving the customer experience further.

Our own research found that, for merchants, consolidated reporting was one of the greatest perceived benefits of open banking – an answer perhaps driven by the current economic climate. It’s notable that respondents did not list ‘reduction in fees’ in the top three benefits, indicating that they value open banking as a superior payment method, rather than simply being cheaper.

Even away from payments, open banking can become a force for good, improving affordability for those who are vulnerable and helping them to break debt cycles. At its very core, open banking aims to offer tailored financial support to meet the needs of individuals.

In a year set to be defined by tight margins, open banking can make a considerable difference for consumers and merchants alike. By refining the payments experience, merchants can improve customer conversion and loyalty throughout what’s set to be a challenging time for us all.

Ultimately, ​​open banking can help us to improve the financial resilience of a nation in need. The onus is now on retailers, regulators and charities to educate consumers on the benefits it brings. Crucially, this must be achieved faster than the initial rollout stage – our ability to navigate the highest rates of inflation in a generation depend on it.

Uma Rajagopal

Uma Rajagopal has been managing the posting of content for multiple platforms since 2021, including Global Banking & Finance Review, Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune. Her role ensures that content is published accurately and efficiently across these diverse publications.