Using open banking in practice

How the technology is transforming data transfers, banking reconciliation and audit.

The development of Open Banking (OB), also known as application programming interfaces (API) banking in the past 10 years has coincided with – and fuelled – the growth of the UK’s status as a digitally integrated economy. Along with improving the range of services open to retail banking customers, OB is also helping business-to-business transactions and services behind the scenes.

The dawn of the Open Data age is already here, with the government putting its weight behind the push towards lowering boundaries between data holders. It has said it “Shares the excitement of the sector about the opportunities to innovate and increase efficiencies by unleashing the power of data – in particular through the secure sharing of customer data under ‘smart data’ schemes, which government is supporting through measures in the Data (Use and Access) Bill.”

The benefits to retail customers are already clear. “API banking has fully unlocked the digital potential for financial services,” says Sam Wadhwani, a director with PwC UK. “It allows for increased specialisation, personalisation and integration, and has led to the emergence of third-party products that complement banks’ core offerings with niche services and high-quality customer experiences.”

Cloud accounting

Cloud accounting is now widely integrated in the industry, with users reporting that they value the below qualities. Open Banking is a compelling offering because it deepens what so many accountants value about cloud accounting.

According to Open Banking UK, among cloud accounting users:

• 72% consider connecting their bank account a key feature
• 58% value real‑time transaction visibility  
• 77% say it delivers “better visibility of their financial position”
• 75% started cloud accounting within the past 3 years; 36% within the last year
• 87% plan to continue using cloud accounting tools; 79% say they’re good value.

Adoption by accountants

Open banking is also impacting the ways in which accountants work. By using APIs, accountants will find it easier (and quicker) to access customers’ financial data in real time, directly from their business bank account. That includes data like their balance, account information and transaction history. And since the data is coming from banks, levels of trust in its accuracy and timeliness should be higher.

Whatever other benefits may be realised, this will simplify the process of importing data to accounting software. It happens automatically after a few clicks. You eliminate the need for uploading statements on an ongoing basis and leave no room for errors.

Crucially, this results in less friction for the customer, which in turn means higher conversion and better experiences, as well as increased efficiency thanks to reduced time spent on manual work.

Sceptical clients

But it’s fair to say that scepticism remains, at least among clients. A 2023 report from business lender Iwoca suggested that accountants needed to do more to educate and convince their clients of the benefits. The research showed that 37% of accountants said their clients didn’t understand what OB was.

That may go some way to explaining why OB adoption among accountants is relatively low. The Iwoca report cites a number of elements holding back uptake, including trust and interest from clients (48%), lack of understanding and confidence from accountants (38%), concerns over data security (34%) and general distrust of the technology (24%).

Banking reconciliation benefits

However, despite those fears, one of the biggest benefits of OB is that it makes banking reconciliation easier.

It’s well known that mistakes in bank reconciliation can significantly affect a company’s profitability. Indeed, improper bank reconciliation procedures lead to about 30% of businesses experiencing financial record errors.

Fortunately, secure APIs can automate the processes, revolutionising the way reconciliation is performed.

Traditionally, reconciliation involved manually detecting cash manipulations or discrepancies between records and bank account balances. OB can mitigate these errors, as automated reconciliation ensures real-time matching of transactions. Manual data entry and reconciliation have long been pain points for auditors, often leading to inefficiencies and potential errors.

Transforming audit

Open banking is making waves in audit too, streamlining the audit process by automating data collection and analysis. Auditors shouldn’t need to rely on manual data extraction from multiple sources, and so should be able to reduce the time and effort required.

Vasile Valcov, the Chief Commercial Officer of Salt Edge, a pioneering OB company, believes that the technology has the immense potential to transform auditing procedures just like it has done in other areas of accounting.

“By adopting OB and getting access to account data, auditing professionals can achieve superior efficiency, accuracy and transparency, ultimately leading to simplified audit procedures, better financial reporting and thus better decision-making,” says Valcov. 

Ultimately, those practices that do bring clients into the fold and introduce OB to the relationship may see increased efficiency and lower costs, higher revenue from creating or extending new advisory services and closer client relationships based on a wider array of data.

Christian Doherty is a business journalist and freelance writer for AAT.