The Brave New World of Open Banking

Friday, September 28, 2018

Welcome to an era where everything we once knew about the handling of data has changed. In one corner we have GDPR, which gives the individual more control over the security and privacy of their data, and in the other corner we have Open Banking, which allows individuals to easily share their banking information and give others greater freedom to access their finances. This is a brave new world for data, set to impact on both practitioners and their clients.

Open Banking came into play in January 2018 courtesy of the Competition and Markets Authority, underpinned by the Second Payment Services Directive (PSD2). Intended to promote far more competition in the banking sector and disrupt the stagnant status-quo, it requires banks to make data and payment infrastructures more open, allowing individuals and businesses to share their banking information with third-party apps and tools.

New products and new possibilities

There are many ramifications of Open Banking for the banking sector, for businesses, and of course for the accountants supporting them. One of the most significant effects is on the products and services that can now enter the market, and the exciting possibilities they may offer. The big banks have healthy competition and that can only equate to more choice for businesses, better service, and improved value.

With the business customers’ authority, third parties can now access crucial bank data and work with it. It means software developers, Fintech firms and smaller ‘challenger’ banks are no longer on the side-lines, while the big banks guard customer accounts. And in making it easier for providers to access information, Open Banking has unlocked the possibilities of new services and solutions that can make running a business and managing its finances easier than ever before.

There are some great new services appearing on the market and more sophisticated solutions will keep coming; accountants will need to keep up with the influx and identify the best ones. We are already seeing third parties and Fintech companies introduce services like automated cashflow forecasting, tools that gather all pensions into a single pot from bank data, apps that securely initiate payroll or reimburse expenses from within a cloud accounting platform, and easier loan applications that no longer require proof of bank statements.

A boost for practitioners

There are hugely positive implications for practitioners, with Open Banking making end-to-end accounting possible for all business clients, not just the digitally adept ones. Many cloud software solutions offer live banking feeds – indeed some banks even enable this – and it shows how useful access to this real-time data is, giving practitioners better visibility over their clients’ day-to-day financial health.

Having increased visibility into clients’ inner-workings should help proactive practitioners to improve the services they offer. Visibility over accounts enables you to be more hands-on; spotting trends and problems, and proposing solutions sooner, rather than having to fix later. By seeing clients’ daily transactions, you can make suggestions and prompt decisions based on real-time data, not financial information supplied months later.

From a practice management perspective, Open Banking should bring the flexibility to allow you to do more client work at your pace, rather than theirs. Time-poor clients will no longer have to provide countless bits of information to enable you to get on with your job. For areas like taxation and company accounts, where the results can only be as accurate or timely as the information the client chooses to share, Open Banking cuts out the middle-man.

Open Banking is allowing software companies to integrate increasingly innovative services and functionality. These improvements should make for smoother-running processes. Payment processes will become easier and payment options more comprehensive, freeing up cashflow. You can look through payment histories in greater depth, and it will also make life easier to handle clients with multiple accounts.

Increased need for guidance

As with any shift in financial regulations, the onus can often fall to accountants to explain the details, benefits and implications to clients. Practitioners need to convey the risks that Open Banking may bring, specifically in making sure clients only share data with registered or trusted third-parties. In a post-GDPR world, data feels safer than ever, but firms still need to be cautious before allowing an app or provider to access their bank details.

Open Banking should also support small businesses looking for financial support. Where a business is rejected for funding, their bank will be able to pass their details on to other potential funding sources, under the bank referral scheme. It will allow businesses to review and compare options and, if they submit a request, their credit data will be instantly visible. It means SMEs can compare all bank and non-bank options side by side. Of course, in having better access to clients’ banking data, means you can spot issues – like poor cashflow, overdraft use – that may cause hiccups with funding requests, and step in sooner to help.

Clients will also need guidance on switching bank accounts, and whether that is the right option for them. In our personal lives, switching utility provider or phone operator is commonplace, but fewer than 3% switch current account provider. Open Banking increases the temptation and ease to jump ship, but businesses will still need guidance over whether that is the right move, considering relationships, preferential rates, and any loans and overdraft facilities they might have.

Seizing the opportunity

Practitioners with an appetite for digital solutions have the real advantage here; potential partnerships with software or app providers could see accountants present their own solutions for clients. There may even be the opportunity to work with software providers to use your expert knowledge to help build the right functionality to suit business clients. Who knows what new frontiers and income streams this could unlock?

This increasingly digital landscape gives the accountants the chance to work more collaboratively with clients, using current information to give more accurate guidance. It lets you look at holistically at clients’ financial health and make proactive and strategic recommendations – moving far beyond bookkeeper, to trusted business advisor.

As we usher in Open Banking and its promise of a more competitive and innovative financial services landscape, we consider the important role accountants continue to play. Ultimately while Open Banking will give businesses more control, they will still need direction – giving practitioners the chance to step up. More access to clients’ bank accounts enables you to be more efficient, put a stop to outdated processes, and dedicate more effort to adding value, which can only strengthen relationships and the potential for extra fee.


This article was written and produced for the summer 2018 edition of the CPAA's digital magazine for members.