Expert View

What do PSD2 and open banking mean for the SME?

25 September 2019

Card machine

We asked banking expert and Suresite Group chief operations officer Mosart Khanim to decode PSD2 and open banking for SMEs

When open banking launched in January 2018, more than two thirds of SMEs were predicted to sign up by 2022. However, take up has been slow. A 2018 survey by YouGov found that 75 percent of people in the UK hadn’t heard of the technology. When the concept was explained to them, over three quarters said they wouldn’t trust sharing their financial data with anyone other than their bank. Only 6 percent said they would not be concerned about giving third party organisations detailed access to their financial transactions.

But according to PwC, £7.2 billion of revenue will be created by open banking by 2022. So what is it, and how will it benefit SMEs?


The new Payment Services Directive, known as PSD2, came into force in January 2018. It was introduced by the European Commission in a bid to improve the existing rules for electronic payments. It was the first update to electronic payments regulations since 2009.

The rules include strict security requirements for electronic payments and the protection of consumers’ financial data to guarantee safe authentication and reduce fraud risk. They also set out procedures concerning transparency of the conditions of payment services and the rights and obligations of users and payment service providers.

Additional measures place a cap on the fees banks can charge for card-based transactions, with the aim of reducing merchant costs.

The UK’s version of PSD2 is known as open banking.

What is open banking?

Banks hold a huge amount of data about their customers. They keep track of how much they spend, who they spend it with, when they spend it, how much they borrow, what they borrow for and how quickly they pay it back. Or not, as the case may be.

The open banking regulations mean that banks (currently limited to Allied Irish Bank, Bank of Ireland, Barclays, Danske, HSBC, Lloyds, Nationwide RBS and Santander) now have to make this data available to accredited third party financial services providers. This data can then be used by these companies to create financial services products.

There are already a wide range of products available from simple online interfaces which display all financial accounts in one place such as Money Dashboard to apps which automatically monitor spending habits and set aside what’s deemed to be an affordable amount to save each week such as Plum.

Open banking also opens up the payment services market. Currently, the only way to make a non-cash payment is through a third-party provider such as WorldPay, Global Payments or PayPal. As well as charging transaction fees, it can take days for businesses to receive payments. Open banking unlocks the market to financial services providers to develop systems that allow consumers to pay direct from their bank account to the SME, meaning instant settlement and reduced fees.

For all products, account holders must give explicit consent to share their data.

What does open banking mean for SMEs?

There are two main areas that will affect SMEs: customer payments and access to financing.

With more small businesses than ever accepting card payments, the savings on fees alone has the potential to be significant, along with the positive impact on cash flow.

However, the current biggest benefit to SMEs is access to financing. Businesses are increasingly using online tools to manage operations, linking financial information such as invoicing and payments received with their bank accounts.

Open banking allows SMEs to share this data – previously held only by their own banks – with third party financial service providers. It allows them to constantly monitor and compare the best products available to them, while giving the provider access to their detailed financial transactions so they can assess risk based on actual, up-to-date income and expenditure.

This level of access to data can also have a positive impact on struggling businesses. Not all open banking services are based on selling financial products: they can be used analyse where struggling businesses are going wrong, and allow assessors and advisers to offer finely-tuned advice.

Is open banking safe?

Data has been under the spotlight in recent years, the most infamous case being the Cambridge Analytica scandal which landed Facebook with a $5 billion fine for data breaches. Despite high-profile breaches, a year on from the YouGov survey, a global financial services consumer study by Accenture found that consumers increasingly want a fully personalised finance offering shaped by analysis of their spending habits and are willing to share data to achieve it.

At an EU level, there are strict security requirements for the protection of consumers’ financial data contained within PSD2. In the UK, the open banking organisation insists is at least as safe as online banking, with rigorously tested software and security systems. Only apps and websites regulated by the FCA or European equivalent can use the system, and providers must be approved by the Financial Services Authority (FSA).

And, unlike some existing third-party financial services, users will never need to share their bank login details with anyone other than their own bank or building society. Users must give consent for any third party providers to access data, and it can be revoked at any time. All data is stored under the new strict GDPR regulations and consumers are protected by the Financial Ombudsman Service. Banks also offer extra protection, refunding any fraudulent payments.

Take up remains slow, but interest is growing: there are a further 100 financial services organisations waiting to enroll as authorised providers.

The grip of the big banks on small business may not yet be over – but knowledge is power, and at the very least, open banking gives SMEs knowledge of what’s available to them and the power to share data that was previously out of bounds to anyone but their bank.

Talk to us about flexible card payment processing for your business – including next day settlement – on 01772 790 901 or email

Share this story

All stories

Keep up to date

For the latest news, industry updates and events, sign up to our newsletter.
  • By registering, you confirm that you agree to the storing and processing of your personal data by Suresite as described in the Privacy Statement.