How open banking is set to make accountants’ lives easier

Chasing clients for financial data can be one of the most frustrating tasks for accountants and bookkeepers.

In the era of smartphones and cloud services, it can seem crazy to have to hound clients for paper bank statements or to manually enter data into spreadsheets. Fortunately, the European Union has approved a new directive to take the legwork out of managing client data.

In November 2015, EU lawmakers passed the Second Payment Services Directive (PSD2), which asks banks to open up their data and infrastructure to third-party firms. The rules will introduce two new players into the world of financial services: account information service providers and payment information service providers. The former will be able to access and analyse bank account details, while the latter will be responsible for initiating payments on behalf of consumers.

Welcome to the third party

In practice, this means that tech companies and ecommerce merchants, such as Facebook and Amazon, could soon be providing personalised financial advice and money transfer services to consumers. All EU member states — even the soon-to-depart UK — must ensure the directive has been written into their national laws by 13 January 2018. Once they have, the finance sector will get a lot more competitive.

“PSD2 is set to unleash a transformation in how financial services organisations view themselves, and each other by providing a legislative mandate for more open data and an increased open data interchange between financial services organisations,” says Farida Rahman-Wright, professional standards manager at AAT.

A full finance transformation

Giving third-party providers access to banking information isn’t as simple as asking a customer to tick a box or sign on the dotted line. One of the major challenges for information sharing schemes is that over the last 40 years each financial institution has developed its own unique way of storing data. These legacy systems may store financial information completely differently to each, making it very difficult for data to be used comparatively or shared conveniently.

To make financial information more accessible, PSD2 mandates that banks must create application programming interfaces (APIs). APIs establish a shared language for different computer systems to talk to each other. Using APIs software developers can create apps and websites that access the financial information of users (with their permission, of course) and use it to provide services such as cash flow forecasting, bookkeeping or expense management.

At the moment not many banks have made publically accessible APIs, the UK government is eager to encourage their creation. In September 2015, the Open Banking Working Group, a collective of UK banking and technology firms, was formed at the request of the Treasury and tasked with the creation of an open banking standard. In its resulting framework, the group said that there would be a fully-operational data market in the UK’s banking sector by the first quarter of 2019 —  just in time for PSD2. The advent of open banking will lead to more streamlined and automated accounting software. Rest assured: the days of manual data entry are numbered.

“Banking data is the source data to any accounting or bookkeeping work,” says Paul Bulpitt, head of accounting at software firm Xero. “Having open access saves the client from receiving numerous requests for the information from the accountant, and saves the accountant and the client the time spent manually inputting information from bank statements.”

Spurring healthy competition

PSD2 is not the only piece of legislation asking banks to open up their data vaults and dispense information to third parties. Last August, the UK’s Competition and Markets Authority (CMA) released a report following its investigation into the retail banking sector. The document concluded that there isn’t enough competition in the country’s banking market, with new entrants struggling to get a foothold in the face of big bank monopolies. To remedy this, the CMA issued a series of reforms, one of which mandates that banks implement open banking and data sharing by early 2018.

“Open Banking will make a transformational change to banking for personal customers and small businesses,” says Alasdair Smith, chairman of the retail banking investigation. “For the first time innovative and secure apps will provide personalised services and information to cover all financial needs in one place, and make it easy for people to find out what bank account is best for them.”

In just a matter of years, bank customers in the UK will have a wealth of new options for accessing their financial information. This is an exciting proposition for individuals hoping to manage their money more effectively, but it’s a life-changing shift for the accounting industry.

Jesse Onslow Norton is a writer, editor and communications consultant at Flibl. A former coder, his editorial work focuses on fintech, digital transformation, policy and regulation. His clients include corporations, governments, startups and SMEs from across the world. Follow him on Twitter @JesseOnslow.

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