Open finance for SMEs and real-time financial data

The importance of real-time financial data for small businesses

If you look at fintech news nowadays, it seems that APIs, Open Banking and embedded finance are solving the great majority of the issues for small businesses from tracking cash flow, to seamlessly connecting financial data and getting access to finance.

However, if you dig deeper into the day-to-day financial experience of the average small business the disconnects become obvious.

Most small businesses rely on external accountants to manage tax reporting and year-end financials. The day-to-day financial management is still managed in-house and spread across multiple applications, as classic cloud accounting systems are inadequate, complex, and difficult to use by the business owner and their team. After all, they were built for accountants and they are mostly used by accountants.

The impact? Most business owners do not have a real-time cash flow view of their business since financial data sits in multiple systems and only gets fully reconciled a few times a year at most into the accountant’s preferred system. Which, incidentally, is rarely shared with the business owner as accountants do like data protected from neophytes.

How Fiskl built modern accounting for the business owner

Classic cloud accounting systems were built in the days before automation when you had to reconcile paper to digital entries, digital entries to bank accounts and then finally reconcile banking entries with accounting. This tedious, time-consuming and error-prone process is no longer necessary.

Fiskl’s modern API-driven accounting introduces automation and removes most of the steps in this process, by syncing the customer’s banking, payments transaction information, auto-categorizing it, reconciling it and displaying everything directly in accounting.

Not only does Fiskl save time on admin steps, it also simplifies and demystifies accounting. From doing away with debit and credit terminology, intelligently detecting when a transaction is an internal transfer and managing FX automatically, you no longer need an accountant to make a simple account adjustment.

Fiskl puts the power back into the hands of the business owner, so they can truly be on top of their finances. Fiskl Accounting is also fully available on mobile, along with all other platform features.

Additionally, Fiskl’s innovative ledger architecture sets the stage for bringing API-ed data directly into accounting from any other ledgers, such as wallets/payments, e-commerce, blockchain etc.

The importance of real-time financial data for financial institutions

Enter financing: the business owner now needs working capital and thus is looking for lending options.

On one side the business owner needs to submit a variety of unstandardised pieces of financial documentation for review. Most of the time, all they have are last year’s accounts which provide a historical snapshot that is at least 6 months old. This static data does not capture the dynamic nature of the business and there is no way to determine its accuracy.

On the other side, the financial company must now perform a full risk assessment in what amounts to old balance sheet data, rather than real-time cash flow data, in order to make a lending decision. Bank transaction data alone is not sufficient for risk assessment, and bringing in data via single API companies that connect accounting, CRMs, Analytics and other systems might seem like a good idea, up until deeper data drilling brings forth the conclusion that small businesses do not keep up to date records in the various systems and thus the data is not really useful.

What financial institutions need in order to help small businesses is ongoing access to real-time, reconciled financial data to constantly monitor and anticipate working capital needs, while reducing the time and admin of loan onboarding and decreasing default risk.

With Fiskl financial lenders and banks have access to a business’s client and vendor lists, as well as insight on hundreds of data points and how their profits are changing in real-time.

Loan underwriting decisions are based on specific parameters, and when a business hits enough of those parameters, the lender may decide to send the business an offer in a push rather than pull scenario. Loan pre-approval can be also automated based on predefined criteria rather than the lender manually reviewing an application from the small business.

Fiskl offers permission-based access to the customer’s financial data via custom API reporting and custom dashboards set to each partner’s preferred financial parameters.

The process of lending for both the small business and the lending company truly becomes seamless when API data is exchanged bi-directionally.

Having the right data is key to making the right lending decisions, and modern lending technology can help predict a small business’s future financial health with its detailed analytics and proprietary financial health scoring. By analysing all aspects of a small business’s financials and real-time accounting data, including top revenue months, clients and vendors, profit and loss statements, and balance sheets, we achieve a better assessment of a small business’s viability that ultimately works to reduce the risk associated with small-business lending.

The importance of API-ed data and automated decisions

While some banks may worry direct connections could lead to a “data overload,” the opposite is often true. For small-business underwriting specialists that spend their careers reviewing small-business data, it often takes hours of manual effort slogging through statements and spreadsheets — including supporting documentation. Segmented data from APIs give underwriters the ability to look only at specific data points, which is invaluable and can save time.

For many business owners, phishing attempts and scams abound, and those are prevalent also during the emailing of statements for example. By offering a secure data connection option via APIs, banks can reassure current small-business clients, gain interest from potential clients and capture market share.

SME focused lending banks have much to gain from a fully digitized experience with APIs that give access to real-time data. Automated, data-driven lending decisions lend themselves to be fairer and free of bias, helping reduce some of the historic barriers.

While businesses may rightfully have some hesitation to share their data, API based finance seeks to outweigh the risk with the promise of growing a business in today’s fast-paced environment.

Access to capital is key to helping small businesses grow and flourish, and real-time finance via API-enabled solutions can make this happen.