How Open Banking can transform Business Financial Management

29 / 07 / 2022

Small and medium enterprises can be faced with numerous challenges when it comes to handling their financial management. In this blog, we zoom on some of these challenges and explain how Open Banking can help them to transform their financial management, improve insights and reduce costs.

A young woman with a smartphone in the subway of Paris


All businesses, regardless of size, are dealing with financial management topics: from issuing sales invoices and receiving customer payments, paying company expenses and finally recording the transactions in accounting ledgers and reconciling between bank accounts and recorded transactions.

Depending on the maturity, size and complexity of the company, the tasks are performed by internal or external team members using various software applications. Typically, small and medium enterprises (SMEs) will use:

-        back-office systems that are specifically designed for the business sector (e.g. an application to manage doctor invoices or book hair salon treatments or ecommerce back-office);

-        accounting software managing the ledgers, creating accounting entries, handling company expenses (e.g. supplier invoices, payroll, and tax payments), importing bank statements, performing reconciliation etcetera;

-        banking portals to view the company’s bank account balance, issue payments to suppliers and employees, download bank statements, apply for financing / search for investment instruments.

Each company has at least one bank account to receive and send payments. Some companies need to manage multiple bank accounts (e.g. in case they conduct business in multiple currencies or need to separate clients’ and company’s funds). Often the bank accounts will be managed by different banks even in different countries. As a result, the SMEs are forced to work with multiple banking portals and different access principles to gather the information, download the bank statements and issue payments.

There are a few issues with the way most companies work:

1)     There is a lot of manual work, which leads to increasing operational costs and errors.

2)     As information is scattered across multiple systems, SMEs do not have an accurate view of the company's financial situation and therefore cannot access financing solutions in a timely manner. This in turn can lead to late supplier payments, which will affect the relation with their suppliers.


How Open Banking can help with Business Financial Management

Luckily, these issues can be solved by using the capabilities of Open Banking within banks’ portals or in the accounting software. One major driver for Open Banking in Europe is the PSD2 directive, which came into force in 2019 and made it mandatory for all European banks to open their system to licensed entities (such as Worldline) to retrieve the account data and to initiate payments. These new API based functionalities exist for all consumer and corporate accounts.

Open Banking embedded in accounting software

With the explicit consent of the account holder, accounting software providers will be able to access bank account data like the balance and all transactions of the SME for at least the last three months in an automated way. The necessary consent of the account holder will be granted via a strong customer authentication (SCA) and is valid for 180 days (about 6 months). Based on the consent the bank will share the bank data with the licensed third-party provider and the accounting software provider. The accounting software provider is then able to download the bank data and upload it to the accounting software without any additional effort by the accountant. As a result, no data will be missed, even if the accountant is on holiday. Furthermore, the accounting system will be able to analyse and categorise the bank data. This information can be used to consult the accountant regarding upcoming accounting activities or perform reconciliation, so that the accountant only must review the unreconciled transactions or confirm the accounting entry, leading in more efficiency and fewer errors.

Supplier payments handling can also be simplified significantly with Open Banking – once invoices are approved, the accounting software can automatically create a bulk payment containing several invoice payment instructions and send it to the bank of the SME through a licensed third-party provider. The accountant will then authorise the bank to process the bulk of payments in one step without leaving the accounting software. 

Integrating Open Banking in the Accounts Payable processing has multiple benefits – there is no need to enter supplier or invoice details manually in the banking portal, hence reducing errors and fraud risk. In addition, invoice details will be automatically embedded in the payment instruction, allowing automated reconciliation of bank transactions with supplier invoices. Furthermore, by grouping multiple payments into one bulk, only one payment authorisation is required, making the payment authorisation process more efficient. In case SME bank has implemented SCA exemption, the payment will be processed without the need for manual authorisation, hence allowing full payment automation and straight through processing. No invoice payment deadlines or bank cut-off times will be missed!


Open banking embedded in banks’ corporate offering

Besides the mandatory PSD2 obligations, banks could also benefit from Open Banking by providing their SME clients with an aggregated view of their bank accounts, even if they are not managed by the same bank. Like the accounting software use case, the accountant of the SME will grant the bank access to the other bank accounts. Every time the accountant logs in to the banking portal, the bank will retrieve the updated account information from the other bank(s) and present the full financial picture to the SME and even provide an analysis of the company’s income and expenses. Multi-banking aggregation can also be combined with payment initiation, allowing SME to move funds between company’s accounts, depending on the company needs (aka cash pooling). In partnership with third-party providers banks can extend the offering to SMEs to include cash forecast projection based on analysis of historical banking data and/or company’s current activity (e.g. expected customer payments or supplier invoices that will need to be paid soon). Based on the SME’s total balances and the forecast, the bank may offer additional banking products such as loans or investment instruments.

By combining multi-banking aggregation, ability to move funds, cash forecasting, financing solutions and investment instruments, banks can provide a complete cash management solution to their business customers. A cash management solution as part of the banking portal allows SME to have an accurate picture and act on it without any additional effort, which increases customer satisfaction and loyalty, and allows the bank to cross-sell its products and access credit scoring of the SME more accurately.


How Worldline can help

Worldline created an integration layer on top of the different banks’ PSD2 APIs by unifying the different API formats and flows (one API to all banks). With one integration, accounting software providers and banks will be able to access more than 3.500 banks across 21 European countries. The Worldline API provides standardised account information in real -time and allows to initiate single and bulk payments, including Instant SEPA payments. Banks can also benefit from a cash management solution designed especially for SME clients and fully integrated into Worldline’s banking offering.


Olga Wasniowski

Product Manager, Worldline