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inside a black box

Inside the black box: How APIs affect accountants


Accountants rely heavily on the APIs that control their everyday workflows, without knowing what they are and how they work. Nick Levine opens up the black box to unpick the technology driving an invisible revolution.

19th Dec 2019
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Accountants have undergone a remarkable transformation in recent years, thanks in part to the invisible revolution of application programming interfaces or APIs.

While accountants don’t need to learn how to code or be technically proficient in API mechanics, it is worth learning the basics to understand the role they play in accounting processes. The effort will also offer new insights into where the profession may be headed next.

What are APIs?

Application programming interfaces allow two pieces of software to communicate with one another using agreed protocols to transfer data in formats that will be correctly interpreted at each end. They are the pipes that connect cloud accounting software to third-party apps, bank feeds, HMRC and Companies House data.

APIs are often compared to universal plugs as they provide standardised access, meaning that they provide common functionalities irrespective of the device or the operating system they are connected through.

Web developers like APIs because they can reuse code they’ve already written to connect to other applications, databases and web services for different purposes. And everyday users reap the rewards by being able to access new data sources and communicate and transact with one another through connected apps and platforms such as Google.

What do accountants use APIs for?

Accountants rely on numerous APIs in their day-to-day roles. The big cloud accounting providers have APIs that power their third-party app ecosystems. They rely on the APIs of financial institutions to pull in bank feed data, and plug into HMRC’s API library to file VAT returns and retrieve data on client status and liabilities.

By plugging into an accounting system’s API, an app partner can plug in their expertise to carry out common accounting tasks such as invoice chasing and cashflow forecasting that are not handled by the core program. These developers use cloud accounting APIs to pull in data such as the chart of accounts or transactional data, as well as using a two-way integration to publish their own data directly to the core platforms. 

The big platforms have dedicated sections on their websites to keep this community up to date with the latest API developments and vet their applications before listing them on their app marketplaces.

The evolution of bank feeds and introduction of MTD

Bank feed APIs have undergone a transformation over the decade since Xero adopted Yodlee’s data scraping capabilities for its first feed nine years ago. Now banks, fintechs and accounting developers are getting to grips with the roll-out of Open Banking APIs.

From September, the leading banks were required to update and make available Open Banking API feeds to comply with Europe’s updated payment services directive (aka PSD2). Designed to encourage competition within the sector, the Open Banking directive overcame historic concerns around security to give authorised information service providers (AISPs) read-only access to bank account information.

Olly Betts, co-founder of OpenWrks, which provides open banking API feeds to cloud accounting providers, said Open banking APIs provide “a more secure and reliable method of connectivity, replacing screen scraping that required credential sharing, and where reliability was impacted by any small changes to bank-side interfaces”.

The other big development around APIs for accountants this year has been the government’s Making Tax Digital programme, with cloud accounting companies relying on HMRC’s APIs to make quarterly VAT filings.

Different APIs are required for the different kinds of data that go in and out of the tax department, for example, income tax or trust data as well as VAT and other tax types. Many of these protocols are still being developed, so HMRC has built a sandbox in its developer’s portal to give them a safe testing environment to experiment with new APIs.

Open accounting

The new buzz looming on the horizon, according to specialist developer Codat, is “open accounting”. Codat has built its own API switching yard to connect the APIs of all the main cloud accounting providers, including on-premise packages such as Sage 50 Accounts and Exchequer. In effect, Codat is trying to do for accounting data what open banking does for banks.

This makes it possible for third parties, such as banks, lenders and payment providers to use Codat’s API to pull data from a cloud accounting package or to push sales data into a company’s accounts.

The main benefit of this “open accounting” concept is that third-party software companies only have to create one integration, rather than one for each accounting package.

To date, 26,000 UK small businesses have shared their accounting data with third parties through Codat’s API. Tide Bank, Fluidly and iZettle are already using the service to connect to accounting platforms and the company was recently awarded a £5m grant from the Banking Competition Remedies Fund to continue this work.

Co-founder Alex Cardona said open accounting will enhance the advisory opportunities available to accountants: “Assimilation of financial data from disparate sources is becoming easier as businesses move towards integrated products and services powered by APIs.

“Accountants will spend less time on admin thanks to smarter API-driven products, but need to know which of these products provide their clients with the most value and best user experience to be useful advisors.”

APIs are becoming ubiquitous, popping up in all sorts of places when you least expect them. As well as keeping the flows ticking between so many different accounting processes, they also create the potential for exploration into uncharted new territories.

There’s increasing talk in the wider technology marketplace about the “lock-in” strategies of big platforms such as Facebook, Google, QuickBooks and Xero. The API revolution keeps alive the spirit of freedom that inspired the internet’s pioneers by reaffirming their slogan that “information wants to be free”.

So even if you don’t have the coding skills, if you can find a data source that might clear your particular roadblock, an API-based tool like Codat or Validis might be able to retrieve the information for you.

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