Save content
Have you found this content useful? Use the button above to save it to your profile.
Digital representation of a bank safe

Can Open Banking drive a quiet revolution in accountancy?


Since its launch in 2018, progress on the flagship Open Banking initiative has been incremental and occasionally inconsistent. Will the removal of a significant obstacle to adoption and an increasingly diverse range of products in the space help Open Banking deliver on its promise to accountants?

29th Jun 2022
Save content
Have you found this content useful? Use the button above to save it to your profile.

When the door to the Open Banking vault swung wide, back in 2018, the mood was one of cautious optimism. 

It’s true that the Competition and Markets Authority’s decision to order the UK’s nine biggest banks (the CMA9) to open up third-party access to their data didn’t make headline news. However, some felt it could be a slow grower that could potentially lead to a breakdown in the boundaries between banking and bookkeeping, accounting, reporting, compliance and finance – with accountants among the biggest beneficiaries.

Four years on, the pot continues to simmer rather than boil – particularly when it comes to the accountancy profession. Research conducted by AccountingWEB and iwoca in April and May this year found that 34% of accountancy firms still aren’t using Open Banking, and the report suggests that if accountants don’t use it, their clients won’t either.

The largest blockers for adoption, according to the report, are trust and interest from clients (48%) and a lack of understanding/confidence from accountants (38%), while the AccountingWEB community also raised concerns about connectivity and reliability issues with the feeds.

For Ghela Boskovich, Head of Europe for the Financial Data and Technology Association, the slow, occasionally bumpy, progress of the initiative was to be expected given the ambition of the project. “It’s the first of its kind in the world, a joint collective effort between the banks, the regulator and fintechs,” she told AccountingWEB.

The fact that banks had been mandated to not only share their customers’ data (and potential market share) but also fund the initiative meant that a certain amount of foot-dragging was inevitable, particularly around the development of access to the data via application programming interfaces (or APIs, as many MTD watchers will know them as) for third-party companies.

But for Boskovich, the five-and-a-half-year journey to get the technology to a level of consistent performance is nearing completion. “The OBIE [the UK’s Open Banking standard-setter] ensured the banks have high-quality, high-performing, standardised APIs. That’s massive in comparison with what’s gone on in the EU market, where there’s no single body that acts as arbiter for the standard or for the performance and conformance of these APIs,” she said. “EU banks have their own APIs built to specification but not to a single standard, so it’s difficult for fintechs to connect to thousands of different APIs across the union.”

While progress has appeared at times glacial, there are now more than 5m regular Open Banking users in the UK. The Open Banking app store currently lists 249 third parties all using the new ecosystem in slightly different ways, and one significant obstacle to adoption is about to be removed.

FCA softens stance on 90-day reauthentication rule

A major sticking point for those who did kick the tyres on Open Banking tools over the past four years has been the requirement to have clients reauthenticate access to their bank feeds every 90 days – something many in the accounting industry and beyond felt severely hamstrung the initiative from the start.

AccountingWEB reader RedFive posted: “Having to get 140+ clients to reauthorise every 90 days is making me old,” while Sam O’Connor, chartered accountant and CEO of sole trader accounting app Coconut, called the rule “a nightmare for accountants and a catastrophe for productivity in many cases.”

In November 2021 the FCA updated its rules, and while the 90-day requirement hasn’t been completely removed, clients are no longer required to re-authenticate access with the bank. Instead, they need to re-confirm consent with the Account Integration Service Provider (typically the cloud accounting software provider). The client can delegate authority to consent to their accountant if they choose.

As with most things Open Banking-related, progress has been leisurely. In early March the Financial Conduct Authority (FCA) updated its guidance to allow “widespread adoption” of the rule change by 30 September 2022, instead of a looming 26 March deadline.

On the accounting software side, a recent email from Xero updated customers on the rule change but didn’t give details of when things might shift – only that it was consulting with Tink, its Open Banking provider that is responsible for making the changes with each bank. QuickBooks Online and Sage have been similarly silent on the issue.

Early-adopter enthusiasm

While adoption in the accounting community may be lower than many had hoped for, those that have embraced the Open Banking era have reported back enthusiastically on efficiency gains made.  

“I don’t really care about cars but I care about getting to work every day on time, and clients don’t care about Open Banking but they care about getting paid faster, paying people easier, and getting access to cash in real-time,” Max Whiteley, head of Accounts and Legal’s Liverpool office told AccountingWEB.

“Bank feeds will always be revolutionary for me, having spent my first two years in accounting ploughing bank statements into Sage50,” said Whiteley, “but the real game-changers are in AR, AP and funding – not just for the client to automate and streamline but for us as accountants to offer new services.”

Whiteley highlighted the likes of Swoop, iwoca and Capitalise, all of which are using Open Banking to connect to cloud accounting platforms and offer access to funding quicker, more flexibly and at better rates than traditional lenders, and the likes of iwoca pay, which helps clients get paid faster with fewer fees.

Swansea-based accountant Lee Coombes outlined the benefits to his firm of being authorised to drop into clients’ records at any time and collect accounting information without having to chase or wait for responses.

“We can be working on [clients’] accounts on a more regular basis now,” said Coombes. “It speeds up our processes and also means we’re a lot closer to clients during the year. We can look at their accounts and see how things are going, and we can have a lot more quarterly review chats. That’s a lot more efficient for us and them.”

From an accounting software perspective, Coconut CEO O’Connor believes Open Banking has levelled the playing field, allowing new providers to offer specialist tools for practices. 

“The big cloud providers have lost their stranglehold on bank feeds, which are essential for efficient accounting work,” said O’Connor. “More innovation and competition is increasing efficiency and margin in specific areas. A good example of this is Coconut’s specialist sole trader software – not possible pre-Open Banking – which helps growing numbers of practices and sole traders digitise their smallest clients, increasing margin.”

Payments come to the forefront

One aspect of Open Banking flagged by Boskovich as potentially transformational is its impact on the payments space, raising the possibility of increasing payment speed, cutting costs and reducing fraud.

“Open Banking payments run faster – they’re settled almost in real-time instead of three to five days,” she said. “And these Open Banking payments cost fractions of pence to process. For clients that make frequent payments – payroll, vendor or supplier AR, those with big churns – the cost of accepting and issuing payments could reduce significantly, perhaps by 75 or 80%.”

Boskovich also highlighted the potential effect mass adoption of Open Banking payment technology could have on fraud. If payments are initiated by an accredited, licenced fintech with the payee’s details and received by a similar firm at the payee end, both with full KYC and due diligence checks, this could significantly reduce payment risk.

“It means you can’t socially engineer misdirection of payments and you can’t fat finger the sort or account code,” said Boskovich. “Cards and card numbers have the highest rate of payment fraud across the board. The vast majority of payment fraud is by card. By eliminating those 16 numbers you’ve derisked payments significantly.”

At an accountancy practice level, Coombes’ firm has implemented a payment system via the firm’s accounting software that allows the practice to pay 300 people a week in a few minutes. “If this was done manually, it would take a good day or two, which is not sustainable for us,” he added. 

Alex Falcon Huerta, founder of Soaring Falcon, uses Open Banking-enabled tools Telleroo and Stripe (connected to Xero) to create a payments and billing platform that sends and receives money. “The transactions coming in can then have rules set up to post the bank fees and the sales can be allocated more easily,” she explained. “If it wasn’t for Open Banking, these items will end up being entered manually or brought in via CSV then manipulated.

“Open Banking allows us to bring in data in a faster way so it can be treated as per accounting rules, rather than us manually inputting that data which just simply takes too long and can be very costly.”

This shift towards payment tech was evident at the recent Digital Accountancy Show, with, firms including Libeo, Pleo, Modulr, World First, Crezco, Comma, Airwallex, Telleroo and Nook all looking to attract accountants’ attention.

The Open Banking future

Whether the initiatives and products outlined above mean the gentle momentum of the project may pick up pace in the coming years is still unclear. However, there are reasons for accountants to be enthusiastic about what the future of Open Banking may bring. 

One part of the profession slowly waking up to the potential of Open Banking is audit. As an example, Irish startup Circit utilises Open Banking to automate third-party confirmations and verify insights on bank and digital asset transactions. “This gives auditors a new way of obtaining independent audit evidence that reduces risk and cuts verification time from weeks to minutes,” Circit CEO David Heath told AccountingWEB.

As outlined by Armalytix CEO Richard McCall, another development that has the potential to turbo-charge the Open Banking ecosystem is Variable Recurring Payments (VRPs). 

Billed as the eventual replacement for Direct Debits for the majority of small, recurring payments, VRPs are a type of Open Banking payment where the amount being collected can be variable and can be initiated on a recurring basis without account holders needing to authenticate permission for each transaction. 

“It’s a payment you set up to fall within certain parameters,” explained Boskovich. “You set the limit, amount or frequency of the payments, allowing you to have a more automated approach to things that dynamically change. You set the cap, anything under the cap, fine, anything over it I need to authorise. You can account for any anomalies in real-time, see the impact on your cash position if all invoices go out and understand what the cost of paying those invoices is. You can automate an entire invoicing structure in a way you can predict.”

Another way Boskovich sees VRPs affecting the accountancy landscape is the impact this could have on a group of businesses under the same umbrella. “You can see the impact of shifting cash from one place to another in real-time from an ecosystem perspective,” she said. 

This won’t be live tomorrow – the CMA9 banks are mandated to implement VRP APIs later this year – but in a few years’ time Boskovich believes that such intelligence ecosystem payments could offer businesses insight into their absolute cash position in real-time. “You can have actual, real-cash forecasting, know exact posting, and as accountants, you can offer real-time advice.”

Replies (10)

Please login or register to join the discussion.

By SXGuy
29th Jun 2022 19:57

The biggest problem with open banking right now is the 90 day re authorisation process. Imagine getting every single client to have to re authorise in person every 90 days.

This is the issue soon to be reality in 2024 under making tax digital for income tax unless the banks step up and remove the 90 day feed limit in time.

It's a great tool if used properly, but unless the changes are made in time it will be a logistical nightmare for a lot of us in a few years.

Thanks (3)
By Paul Crowley
30th Jun 2022 11:12

Not exactly quiet
Just so many people keep talking about it that I would say deafeningly loud

Thanks (1)
By lh3f9764bg1g
30th Jun 2022 11:35

Did I not read recently a post regarding one of the software providers that didn't require the 90 day re-authorisation thingummy? Maybe it wasn't bookkeeping software . . . . . maybe just for downloads. I neglected to take a note of which company that was (even though it interested me and I meant to do so) so . . . . . . . if anybody knows which company I'm thinking of could you please advise? Thanks in advance!

Thanks (0)
Replying to lh3f9764bg1g:
By SXGuy
30th Jun 2022 12:44

From what I gather, it all comes down to each individual bank and when they decide to switch over.

Once a bank switches to the new extended authorisation times software will pick up on it, but until then, theres nothing software can do about it, as its all managed by the banks.

Thanks (0)
By SE_Confused
30th Jun 2022 12:01

if we still have to re-authorise the connection/data sharing every 3 months , this will continue to be a pain, the client forget to log in to do it, then we have gaps in transactions and so on.... any benefit goes out the door when i have to spend unbillable time to chase these.
I am not a fan of this process already

Thanks (0)
By stewarthurd
30th Jun 2022 13:45

At FreeAgent we have implemented the Open banking re consent change for any clients who bank with NatWest or Mettle already, with RBS and Ulster Bank NI following shortly. This change allows our Accounting and Bookkeeping Partners to re consent or re authenticate bank feeds without any involvement from their clients.

We are looking to continue this roll out as more banks make it available.

Here is a link to our knowledge base article

Thanks (1)
Replying to stewarthurd:
By Winnie Wiggleroom
30th Jun 2022 18:06

I like Freeagent and I realise that the banks you mention are within the same group as FA, but if any bank decides to implement the new rules earlier than the next bank surely that should be across the board, not just for one particular accounting software provider.

So either FA has an unfair advantage, Natwest etc are applying one rule for one and one for the other, or Natwest etc are already providing this for all software providers in which case your advert for FA falls flat - Which is it?

Thanks (2)
Replying to Winnie Wiggleroom:
By SXGuy
30th Jun 2022 18:38

From what I know most softwares are allowing the new re authorisations process once a bank switches over.

There's no special deal.

Thanks (0)
Replying to SXGuy:
By stewarthurd
30th Jun 2022 19:11

You are correct, this is not a special deal it is simply an evolution that all providers are hopefully working towards offering.

Thanks (0)
Replying to Winnie Wiggleroom:
By stewarthurd
30th Jun 2022 19:10

I think the main nuance here is how software providers have implemented their bank feeds.

At FreeAgent we have opted against using third parties so it allows us to control and act quickly on the Open banking updates. So NatWest or any bank providing this functionality is only half of the puzzle but as other software providers build the functionality on their end it will come available. It is unique to FreeAgent currently but my hope is it would be available in multiple softwares for multiple banks by the end of the year to remove the current burden in place.

Thanks (0)