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Open Banking: Embrace the revolution or risk extinction, firms warned

10th Jan 2019
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Accounting firms are dicing with their future by ignoring the potential of Open Banking, a key figure in the initiative has told AccountingWEB, as a slew of new app-based solutions pulling data from the bank accounts of retail and small to medium enterprises is set to flood the market in 2019.

Mark Chidley, independent SME representative to the Open Banking Implementation Entity (OBIE), told AccountingWEB that he expects a big uptick in firms utilising the open API approach in the next twelve months as regulatory deadlines loom and competition heats up.

“I think 2019 is an absolutely critical year,” he said. “One of the key alliances is that between accounting firm, accounting software provider and the new Third Party Providers (TPPs) entering the market,” said Chidley. “Accounting firms working with providers is something the firms will have to do to stay alive.”

Chidley, a veteran legal and banking expert of the OBIE steering group and interim chairman of the Financial Services Consumer Panel, said there have been few times in the history of financial services so much was up for grabs for the accountancy sector.

“Those smaller accounting practices are SMEs themselves, so the opportunity is not lost on them,” he told AccountingWEB in an interview.

With Brexit and the possibility of an economic downturn approaching in 2019, the prospect of many SMEs getting into financial distress is real. However, Chidley said he was buoyant by the number of companies developing products and services using technology in a way that can help.

Previous system ‘fundamentally anti-competitive’

The Open Banking reforms were initiated by antitrust authorities in the UK following numerous unsuccessful historical attempts to break the stranglehold nine high street banks had on the British market.

“Before the Competition and Markets Authority order there seemed a fundamentally structurally anti-competitive banking system set up in the UK,” said Chidley. “Very different from the US, and this needed doing. It’s highly imaginative of the CMA to look at competition and open data as part of the solution. It’s only one part of the CMA order, but a very important one.”

That cast-iron grip by the lenders not to part with lucrative data was evident when a series of delays marked the initial launch, as five of the biggest names in banking (Lloyds, Barclays, RBS, HSBC and Santander) did not hit the first deadline to enable access to customer data by approved parties in January 2018.

However, a dogged push by regulators and the creation of an independent Open Banking working group autonomous from the CMA made activity pick up considerably over the course of 2018.

Banks began to share customer data with authorised third parties over secure application programme interfaces (APIs), and the likes of Intuit, Xero and Sage, gained greater prominence with retail consumers and SMEs through more prominent ad campaigns as the two worlds of banking and accounting increasingly overlapped.

“Accountants are more aware of the opportunities they have to introduce their small business clients to a range of new services that can help them with cash flow management etc,” he said. “It’s the kind of thing SMEs know they should be doing, but often don’t get around to it.”

From September 2019, the European Union’s Second Payment Services Directive (PSD2), will speed the rollout of Open Banking in Britain, as new rules require additional security authentication for online transactions exceeding €30.

“We’re running quite fast towards the critical date for this, September 2019, when things will change,” said Chidley. “We are halfway through the roadmap, it won’t be until September next year that the roadmap will be complete.”

More awareness needed

However, Chidley said that for all the good work done so far, there needs to be more awareness of how revolutionary Open Banking could be, or the initiative risks losing momentum.

“There needs to be a coalition of all interested parties in the Open Banking ecosystem to drive the message,” he said. “There is an existing market of people using account information services, about two million customers, who have been perfectly happy to share details to gain access to these sorts of products and services.”

A well-attended SME forum held by the OBIE in the summer identified the usual problems when gathering business who are “more interested in doing their business than they are worrying about the red tape and more tedious administrative stuff”.

“If you get people together to talk about how Open Banking can revolutionise their business, they say, ‘Great, where do I sign?’, but then actually, the products are only beginning to emerge and it’s in 2019 when we expect to see real momentum,” he said. “It’s critical that people are made aware of opportunities as they arrive. Telling them about something that hasn’t been developed yet can be a real turn-off.”

He said it was somewhat understandable that when Open Banking and PSD2 came into being, many people thought hundreds of apps would simply appear overnight, but the reality is while the products are often simple, the technology underneath is complex, and it will take time for mature solutions to emerge.

“An awful lot of what has gone on last year, to make an automotive analogy, it’s under the bonnet stuff,” he said. “We’ll see a lot of elegant Coupes sweeping out of the garage next year, and we are, to keep the analogy going, most definitely on a journey. Momentum is good, the pipeline is strong – but it’s all about 2019 though,” he said.

Optimism for the future is emerging through a competition to find the most innovative Open Banking solution, which will this month open for a second wave of entries.

A major part of the small business component of the Open Banking order was a demand for the nine banks to contribute towards a £5m prize fund for TPPs that develop new business and consumer tools, as part of the Open Up Challenge, run by the innovation foundation Nesta.

Several accountancy solutions were named as contenders in the initial shortlist from the first wave in November 2018.

Included are:

  • Coconut, a current account for accounting and tax, designed specifically for freelancers, self-employed people and small business owners;
  • Fluidly, which targets cash-flow forecasting and management through intelligent technology;
  • Funding Circle, a global small business loans platform, matching businesses who want to borrow with investors who want to lend in the UK, US, Germany and the Netherlands;
  • Funding Options, which scans the market to find the financing options that best suit a small business' needs;
  • OpenWrks, which builds the technology that makes Open Banking work and provides SMEs with a personalised comparison of banking products based on how they run their business, and;
  • Swoop, a one-stop shop for businesses looking to raise and save money, which technology that analyses every funding opportunity in seconds.

“They all have the potential to take Open Banking and develop products and services that SMEs find valuable to enhance profit and drive productivity,” said Childey. “One of the most exciting components of Open Banking is the coming together of the traditional forward-thinking accountants, accounting software providers who are very much engaged, and new and emerging TPPs with interesting product propositions that can help small businesses in critical areas.”

Replies (12)

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By memyself-eye
10th Jan 2019 10:03

elegant coupes sweeping out of the garage?

My life is incomplete without an elegant Coup-A!...

Thanks (1)
By johnjenkins
10th Jan 2019 10:17

Wouldn't trust bankers with a barge pole. What did Carney say would happen after the referendum. PPI, PPI, PPI.
PPI, PPI PPI I. etc.

Thanks (2)
Replying to johnjenkins:
By dgilmour51
10th Jan 2019 11:34

I'm with you on this ... what seems to be missing is the notion that banks are there to make money out of your money, for them, possibly for HMRC with whom they cosy up, but very definitely not for you.
They will manipulate the system to that end and no other.
The epithet 'Open Banking' is so blatently a propaganda title as to beggar belief and cunningly draw a veil over the dangers inherent in the concept.
To date I have only seen beguiling statements about how great it is for customers, but as with all of these things it is definitely a two-edged sword and would not have seen the light of day if the banking establishment did not believe it was in their absolute interest.

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By TaxTeddy
10th Jan 2019 13:42

I'm not sure I should be rushing headlong into this.

First, if the MTD debacle has taught us anything it must be the benefit of sometimes sitting on our hands and waiting to see how a new technology develops. I have seen many comments from practitioners who have pushed their clients into using cloud-based software for MTD only to find that they are not well suited to it.

I suspect the same could apply here.

Of course, there's nothing wrong with this technology but the first question should be whether it suits each client?

Also, those with a vested interest in promoting new technology will always try and push us to make a quick decision - "Do it now or you will miss out" - but in fact a more measured approach is surely worthwhile.

Yes, I will embrace the technology - when it's proven to be beneficial to the client.

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10th Jan 2019 13:47

As if the industry has not got enough to contend with !!

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By cbp99
10th Jan 2019 14:17

I cannot see the benefit of this except for organisations who want to profit from my information:
Eg, from the website:

With Open Banking, you can make payments directly from your bank or building society.
Er, like I do now?

Open Banking is free. However, some regulated apps and websites may choose to charge you for their products and services.

If money has been taken from your account without your authorisation, contact your bank or building society as soon as you notice. Depending on the circumstances, they may be able to pay your money back.
"May be able" - fills me with confidence

Thanks (1)
Replying to cbp99:
By johnjenkins
10th Jan 2019 15:20

I seem to remember the "cloning" farce, where banks said it wasn't possible and refused to reimburse.

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Replying to cbp99:
By EnglishRose
10th Jan 2019 18:03

Exactly. The last thing I want to do is change bank account or let new banks have access to all my transactions. I pay for a lot of things in cash specifically because I don't even like myself to see what I spent where on a particular day - it just feels far too open.

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By lincolnartist
10th Jan 2019 17:36

Another year, another Emperor's New Clothes story

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By EnglishRose
10th Jan 2019 18:02

Very risky. I want things to be much less open, not much more open. So many people are out there trying to steal and hack data - open banking is an invitation to them all. I don't know what the CMA was thinking when it recommended it.

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Chris M
By mr. mischief
12th Jan 2019 16:50

Yawn yawn another tech guru telling us all how to run our businesses. What would be nice about these articles is if they included a balanced discussion of the risks, some of which in this case are jumping up and down with a massive sticker RISK stuck on their foreheads.

Just like Xero et al never want to talk about the risks of going on to the Cloud.

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By Dandan
13th Jan 2019 14:59

Open banking - Greatest ever threat to businesses.

Facebook and others have been openly pushing for it. Cloud software companies are rubbing hands with glee.

One of the last remaining bastions of privacy about to be destroyed as banks are being Forced to open up. Big penalties from the government if their APIs are not in place.

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