Open banking champion Louise Beaumont poses a challenge for accountants who are only just starting to get a handle on the changes now taking place within the sector: “How are you going to be relevant in a world where many accounting processes are redundant – and many are automated?”
Welcome to the future of open banking. In case you missed it, on 13 January the revised payment services directive (PSD2) came into effect, requiring banks to grant third parties with the appropriate authorisation to access bank transaction data from their customers’ accounts.
Combining data via open banking application programming interfaces (APIs) will speed up processing, for example to pre-populate information from official sources for things like identity checks, Beaumont explains. But that’s basic stuff, she says. “
What could the future look like?
The arrival of open banking will (eventually) prompt entirely new services and major enhancements to existing services. For banks, combining data through APIs will allow them to improve customer experience hugely for processes such as account opening, anti-money laundering checks and product application processes, where personal information can be pre-populated and information verified from official sources.
But that’s table stakes stuff, according to Beaumont: “An iterative version of today. Where open banking gets interesting is looking beyond ‘banking’ to where non-banks start to play. Once payments services providers have access to transaction data, they will be able to anticipate when customers are likely to need a short-term line of credit and offer their service as an alternative.”
Similarly, providers will help customers who have given their consent earn a higher return on their money by automatically switching large credit balances from current accounts to interest-bearing accounts. Automated services that help customers manage their money between several accounts, for example to avoid going into overdraft when they’re in credit elsewhere, is an obvious extension of this idea. The possibilities are vast, she says.
“You, the small business, are the yellow bit in the middle and you are surrounded by petals of data. You can chose to share those petals and, as you do, each petal will get more valuable. Banking will become less about products in this environment and much more about services that get more ever more predictive, pre-emptive and hyper-personalised.
“Accountants will have to persuade businesses that they add value to that data daisy, over and above the tech-powered services that come into being.”
Impacts on accounting
There are a lot of implications here not just for banks and businesses, but the accountants who work with them. What will their role be in this new digital data stream? And how will open banking affect the systems they use? The lines are already blurring, as we saw when RBS acquired the cloud accounting application FreeAgent.
AccountsIQ managing director Darren Cran has been pondering how open banking will affect his business and predicted that it may take another year or two before accountants begin to see tangible impacts.
“With online banking, there are so many systems, and they’re so difficult to set up, control and change that most people don’t know how to use them,” he says.
Rather than being by-passed by open banking, the APIs that talk to accounting systems will allow finance teams to reimpose control over payment and banking processes, Cran argued. The Countingup setup might work for sole traders and very small businesses, but more complex organisations will still need access to sales records and invoices in accounting systems.
“The accounts have the master record of what needs to be settled; it can call on a receipt or payment and identify whether it’s domestic or international for VAT and what currency it is paid in,” he said.
In the real world, all the supposed controls surrounding business payments often fly out the window with online banking, so an administrator with the login ends up entering the data and activating the payments.
“Software can provide a control environment around that, so nothing can get through to payment without the purchase order being approved, without invoice being matched.
“The biggest weakness in our current payment systems is that they go through a batch process and pass into someone else’s hands, where it can be interfered with. You don’t want payments being sent willy nilly, so you can set up the proper separation of duties and automate it, so you can’t have approving a transaction to themself.”
The reach of open banking extends into the tax world, as HMRC’s Making Tax Digital regime is powered by APIs that move data from digital tax accounts into compliance software. The new challenger bank Countingup is readying Making Tax Digital compliance tools that could potentially by-pass traditional accounting software and trigger tax payments directly to HMRC.
Louise Beaumont and Countingup founder Tim Fouracre explored these ideas in our latest No Accounting For Taste podcast (listen below) and Beaumont will examine the intersection of banking and tax at the Future of Tax Technology event in London on 24 April.
About John Stokdyk
John Stokdyk is the global editor of AccountingWEB UK and AccountingWEB.com.