Spotlight on Open banking and SME: Rebuilding trust among SMEs using open banking

Sara Costantini
Sara Costantini, managing director, Crif Decision Solutions

In October 2015, the European Parliament adopted a revised Payment Services Directive, known as PSD2, with the aims of promoting the development and use of online and mobile payments through open banking. In the UK the directive came into force on 13 January 2018 using standards and systems created by Open Banking Limited, a non-profit created especially for the task.

In essence, the directive meant that banks lost the exclusive ownership of their customers’ payments data. Organisations, with regulator permission, could access the information and see the buying habits of the account holders. This insight, which is potentially available to insurers, provides them the ability to give the customer, whether they are personal or commercial, a truly individual and tailored experience to include proactively anticipating their insurance needs, accurately assessing their risk and designing cover that fits their requirements. And yet, so far, surprisingly only a small number of insurers have recognized and seized the opportunity.

This missed opportunity is demonstrated by the results of a recent survey conducted by Post, in association with Crif Decision Solutions, which highlights an incredible lack of knowledge about open banking data and the benefits it could potentially bring to insurance companies, specifically when targeting SMEs. 


Indeed, of the commercial insurance brokers, managing general agents and insurers surveyed only 16.9% were very familiar with open banking, 35.1% had simply ‘heard of it’ and the rest were not familiar at all. Almost three quarters (73.8%) added they had no plans to integrate open banking data into their systems and processes within the next 12 months, with only 6,2% live and 3.1% currently implementing the change.

The Coronavirus pandemic and disputes over business interruption

claims have undermined trust between SME customers, brokers, insurers and MGAs. Many SME businesses have faced financial challenges resulting in price sensitivity and a demand to only buy specifically what is required. Insurance providers and brokers recognise the need to re-engage with SME customers, to really understand their business status, evolving insurance requirements and emerging risks and to operate dynamically and proactively in order to demonstrate value and create a sustainable, long-term relationship. Open banking data can help to rebuild trust through the use of real time data to deliver the best customer experience and a highly tailored solution. 

When asked about the potential obstacles that needed to be overcome to improve awareness and implementation of open banking data, survey respondents highlighted data consent and lack of trust in insurance companies and brokers as major factors. These obstacles can be overcome when the customer understands the value exchange and benefits they gain by allowing access to their banking data. Google and Amazon are prime examples of organisations that know vast amounts about the customers that use their services, capturing data that enables them to tailor the customer’s online experience. Users of their services tolerate the data capture in exchange for the perceived benefits they gain. 

Rising to the challenge

Many banks have already risen to the challenge, seeing the opportunities that open banking has created via access to vast amounts of high-quality customer data. They have developed new business models that connect people and processes with platforms full of application programming interfaces, allowing them to manage user interactions inside and outside their organisation. As a result they are reaching a wider range of customers by extending their distribution channels across third party platforms and they are launching new data-driven services which go beyond their traditional offerings.

Access to open banking data can similarly deliver benefits to everyone in the SME insurance ecosystem. SMEs are encountering powerful digital experiences that they expect their insurers to match; this requires access to rich data sources. Data has become a critical resource and insurers need to be able to capitalise on their internal data sets to realise their value. 

New types of SMEs and forms of operating models are emerging as a result of the pandemic while the recovery and sustainability of some existing types of SME businesses still requires fully understanding. The ability to engage, assess, advise on risk and price accurately is even more vital. Interestingly, when asked about perceived benefits of open banking data, survey respondents ranked faster and enhanced risk assessment, accurate pricing, SME / micro-commercial customer profiling and data enrichment, plus early identification of under insurance as the top benefits. 

The solution ‘fit’ is undeniable and yet the opportunity remains in the main, untapped. Open banking forced banks to find new ways to engage with their customers and partners. Insurance providers and brokers have been gifted the option of a route to gain deeper understanding and design new ways to connect, add value and reignite trust.

There are new solutions, available through organisations that are AISP certified, that can leverage access to and share open banking data and SME customer profiles. The process is regulated and subject to SME consent achieved through a tangible value exchange. In providing consent an SME can unlock numerous benefits, for example, the ability to obtain, track and make their credit score publically available as required, access to insights to maintain and improve their financial stability, tools to track any potential liquidity shortfall and the option to receive notifications of lending products tailored to their credit profile. These benefits are incredibly valuable, supporting business resilience and helping SMEs to navigate the current fluid operating environment. 

This PDS2 compliant, innovative approach to SME insurance can give insurance providers and brokers augmented knowledge of their customers via dynamic, accurate and insightful current account transactional data and credit scores, supporting customer profiling. This fresh, current data provides a deeper understanding of the SME’s behaviours, improves the speed and accuracy of risk assessment at point of quote, supports accurate pricing, helps to identify potential underinsurance and highlights potential fraud indicators.

Benefits of access

When asked what key performance indicators should be used to measure the benefits of access to open banking data, survey respondents saw customer loyalty, retention, satisfaction and engagement as high ranking indicators. Open banking data allows the customer experience to be prioritised, shifted to highly individual and business centric, thereby encouraging the creation of an embedded, long term relationship. Post-sale cover personalisation and tailored cross-selling becomes possible along with the ability to deliver improved claims management linked to specific customer knowledge. 

Future-proofing of insurance businesses can also be supported by interrogating the collective banking data of the customers in an SME portfolio of business. Analysis of this combined data set can help to inform business thinking and strategic decisions including new product development, risk scoring and underwriting rules. The potential to create services that are more targeted to the needs of SME clients, add a new dimension of value to insurance propositions, and grow market share with profitable business is unlimited.

The business case for creating competitive advantage by using open banking data is strong. So too is the need for further market education with 41.5% of survey respondents citing inadequate knowledge of open data sharing as an obstacle to embracing the open banking model.

This underlines the potential opportunities available for those enlightened enough to begin the journey - and at least seek advice and insight about how insurance providers and brokers might take advantage. And that early movers are likely to be rewarded with the biggest rewards.

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