Nesta announced the Open Up Challenge in February in a global search for organisations which would use new open banking APIs to transform the way SMEs discover, access and use financial services.
The scheme is being funded by Barclays, Lloyds Banking, Santander, HSBC, and Royal Bank of Scotland.
The 20 teams, who were picked by an independent judging panel, each receive a £50,000 grant, technical and business support and exclusive access to the Open Up Data Sandbox, containing millions of anonymised transaction data sets.
The move is in line with the recent release of the Government-approved API specifications for account and transaction information and payments initiation, which will go live in January 2018.
Each of the teams has an opportunity to win a share of a further £3.5m if successful during the Challenge. They will compete for a final prize pot of £2m in September 2018.
Participants include both established fintechs and start-ups, including banking app Bud Financial, digital-only business bank Tide and business lender Growth Street.
Chris Gorst, challenge prize lead at Nesta, said: “We now have 20 teams who we firmly believe can build next generation services that will transform small business banking. By supporting these teams with financial rewards, expert support and access to the Open Up Data Sandbox, we hope to play a part in revolutionising a sector that has been slow to exploit new technology and respond to customer needs.”