What open banking means for accountants

The introduction of open banking earlier this year marked the culmination of a push to inject fresh competition into the banking system, based around the principle of third parties being able to gain access to bank accounts, with the customer’s authority.

“Open banking is fundamentally about the greater availability of data,” says John Dunkerley, head of financial institution relationships at Intuit UK.

“It requires banks to make their data and payment infrastructures more open, enabling registered third parties to create new products and services for accountants and their customers, both small businesses and individuals. Ultimately we should see more choice, better service and greater value for consumers.”

How flexible should open banking be?

For customers, this could make it significantly easier to access information from multiple accounts from different providers through an app, or get in touch with several different providers in one fell swoop.

“Rather than having to trawl through past statements and records to extract data themselves, when applying for a loan for example, they’ll be able to connect potential loan providers directly with their bank, taking the hassle out of many financial tasks,” says Edward Berks, director of fintech and ecosystem at Xero. “

As a result, businesses and consumers will be able to more easily understand their financial position so that they can improve cash flow, get paid and make payments quicker, and access credit when it’s needed.”

The benefits to small firms

This capability could help small firms find funding through the bank referral scheme, under which businesses rejected by finance can choose to have their details passed on to alternative providers.

“Banks will be required to have online connectivity with those designated funding platforms,” says Adam Tavener, chairman of Alternative Business Funding.

“As a result, an SME will be able to instantly compare all the available banking and alternative finance products in one place. If the business then decides to proceed with a request for finance, all of its relevant credit data will be instantly visible to all the funders that they have selected, meaning that they can compare both price and suitability immediately, and both bank and non-bank finance in the same place.”

The impact of open banking on the accountant

Open banking has a number of implications for accountants. Initially, it may fall on them to explain the new landscape to clients, and outline the potential use cases as well as any risks.

“As with any component of digital technology, there are certain risks of open banking around online security, so accountants have a pivotal role to play in highlighting the importance of fraud prevention and identity verification to ensure data doesn’t get compromised,” says Berks. This will be even more vital following the introduction of GDPR, he adds.

They may also find themselves being asked to advise clients on the pros or cons of switching bank accounts or other providers. “The aim is to encourage competition, and it’s clear that the sharing of data should achieve this end,” says James Poyser, CEO and co-founder of inniAccounts.

“If I look at my clients today, it’s very rare to see them switch banking provider. With open banking, I suspect, for certain demographics of clients, this to become as common and as frequent as switching mobile network or energy provider. Accountants should be prepared to provide second options and reassurance to clients.”

Creating better connectivity

There are also implications for accountants and their own businesses. Accountants will have more options to connect with different payment platforms and banks, says Dr. Gavin Scruby, chief information officer at SmartDebit, making it easier to handle clients with multiple accounts.

“Given that accountants are already innovative in the way they deal with payments, the real change for them will come with the increase in transparency and speed of payments made,” he says. “They will be able to look through payment histories, with the payer’s permission, in far greater depth than they can currently.”

This should help them improve the services that can be offered to clients, based on the additional insight that is available. “Simply by virtue of having access their clients’ most current transactions on a daily basis, accountants are empowered to guide their clients’ decision-making based on present data, not historical records,” points out Dunkerley.

“Accounting has traditionally been an exercise of looking in the rear-view mirror, but technology is enabling a more future-forward approach for accountants, whereby they can guide their clients’ decisions using accurate and current information.”

Payment Services Directive 2 (PSD2)

Richard Evans, head of risk and assurance at national audit, tax and advisory firm Crowe Clark Whitehill, says open banking needs to be viewed alongside the Payment Services Directive 2 (PSD2).

“Under PSD2 third parties will be able to initiate payment transactions on accounts held by the bank’s customers using the bank’s APIs, as well as being able to use the bank’s APIs to analyse a customer’s account balance and transactions,” he says.

“This open access to bank statements presents an opportunity for accountants to become more efficient in managing a client’s affairs by enabling direct access to transactional data, allowing more time to be spent on more value-adding activities.”

Could open banking create too much choice?

Accountants may even end up having too much choice as more and more third-party apps emerge, believes Caroline Plumb OBE, CEO and founder of Fluidly. “Navigating and identifying those that can really add value will undoubtedly become more difficult,” she says.

“We can also expect to see increasing overlap between accounting and banking apps; expect to see invoicing and tax computations in banking apps, payment accounts and payment initiation in accounting software.”

There could also be challenges from an auditing perspective, adds Poyser. “Whereas previously financial analysis and audit approaches may only have needed to focus on a limited range of products, there is potentially a reduction in financial product lifecycles and an increase in the number of products being offered,” he points out.

“The sophistication of approaches to supporting, providing accounting support and auditing these functions will need to be enhanced.”

Creating opportunities and developing software partnerships

But there could opportunities, too, for accountancy firms which can develop partnerships with software providers, to offer easy-to-use solutions to clients.

“Larger accountancies with good relationships with their system suppliers could easily provide expert help in defining functionality ideally suited to their customers,” says Scruby. “That would be a win for both parties.”

Nick Martindale is a freelance journalist, editor and copywriter. He regularly contributes to a wide range of national and business media, including The Telegraph, Raconteur supplements in The Times and HR magazine.