The next step in Open Banking: Iron out the wrinklesby
The coronavirus crisis triggered a big jump in Open Banking adoption numbers, but there are still connection problems and clunky interfaces that need to be resolved to increase trust amongst accountants.
Open Banking had a good pandemic. According to the organisation which oversees implementation in the UK, uptake rose 86% with adopting firms directly citing the crisis as their reason for doing so.
“The pandemic’s course from here remains unpredictable, but we know small business owners will need every edge that technology and the free flow of financial information can provide,” said Edward Berks, global executive manager for financial partnerships at Xero. “We expect the demand for Open Banking to only grow from here, and its benefits to accrue to both the financial sector and the small businesses they serve.”
According to a government report on ‘smart data’, just over 50% of SMEs are using Open Banking-enabled services such as cloud accounting and cashflow forecasting.
It’s taken three years, and an unprecedented global health crisis which delivered social distancing, but Open Banking may finally be starting to deliver on the hype.
A matter of confidence
But before popping any corks, it’s worth noting that SMEs account for 99.3% of the UK business population. This means almost half of the UK’s economy isn’t using the service designed to revolutionise finance since its launch in 2018.
“As accountants, we have a laundry list of problems we’ve experienced with Open Banking, which can be frustrating as we know of the potential it has to deliver for clients,” said Matthew McConnell, founder of bank data integration software startup StreemConnect.
“For example, Open Banking transactions will sometimes be duplicated in clients’ Xero accounts, due to internal bank tweaks to transaction dates or payment amounts.”
Open Banking APIs also don’t include a unique transaction ID, so unanticipated transaction changes can appear as duplicates, McConnell said. Often a delay of a few days in importing bank transactions can avoid the issue, but the situation is far from ideal.
“Not all clients want to use accounting/bookkeeping software, for some, it only increases their costs and need for training and or education and causes admin glitches like forgotten logins,” McConnell said. “It can make managing the Open Banking connections and re-authenticating manually every 90 days a slog.”
The re-authentication issue is a particular bone of contention for users, said Tunde Olanrewaju, a senior partner at McKinsey. “It typically requires users to go through at least eight steps for each bank account, redirecting them to each bank’s website or mobile app. The hassle can often lead to significant friction and drop-off in customer journeys.”
Other bank link headaches include linking from the correct bank account to the right company for clients with multiple businesses, or knowing what dates to start the authentications from.
“Direct bank links to accounting software also have their problems,” McConnell said. “If a bank feed is working well, it's great, but a lot of the time a client may reconcile or delete an item, and it’s hard for the accountant to understand what has happened.”
For Open Banking to make further inroads post-Covid-19 when necessity isn’t as burning, consumers need to gain more experience and confidence sharing their data and banks must continue to shift towards end-to-end digital infrastructures.
There is fair evidence of digital banking transformation, with the pandemic forcing financial institutions to retire their legacy systems and embrace cloud technologies. Consumer confidence, meanwhile, will only grow if some of the many interface problems can be ironed out of Open Banking to make it more reliable and trustworthy.
Risk-averse accountants and bookkeepers remain cautious about the fabled promises of data sharing between banks and fintech firms via Application Programming Interfaces (APIs), and a scan of the AccountingWEB archives will reveal a number of irritating glitches with Open Banking.
Open Banking’s transaction tracking works in theory, but in reality, the last year of bank statements from a busy, not-so-tech-savvy client, might have coffee stains, handwritten notes, missing information or other intangibles to dirty up that data.
Admin glitches, authentication headaches
Bank APIs frequently suffer periods of unresponsiveness, according to Jack Wilson, head of policy and regulatory affairs at TrueLayer. “PSD2 requires banks to stress-test their APIs, such as to prepare for their APIs to handle thousands of calls per minute,” Wilson said. “We often see that this has not been done when high volumes of calls cause reliability issues.”
The result of which can have serious consequences for accountants relying on an unbroken flow of accurate information.
“There was so much happening with the Covid Bounce Back Loans going into businesses and then straight back out it was very hard for bookkeepers to keep track of certain transactions. If there’s a slight discrepancy it can take a long time to find the difference,” Wilson noted.
Happily, solutions such as StreemConnect are now appearing in the market that bridge the gap and provide a full snapshot of past transactional data for several years, along with the three-month reauthentication access.
Other problems with access are being eliminated by software that integrates with bank accounts to deliver up-to-date date statements, balances, and transactions, increasing efficiencies and reducing the chances of errors creeping in.
Some API tools are also helping strengthen corporate governance at a time the regulators and government have accounting and professional services firms in the crosshairs.
“I often hear from insolvency practitioners (IP) that they are not able to produce director conduct reports accurately,” McConnell said. “If they meet a struggling client and appoint a liquidator, from that point on very rarely does the IP have access to the bank statements. It can be difficult for them to understand how much the director has taken out, or if there are red flags around some transactions.”
There are promising signs that Open Banking solutions can help generate all the relevant information for the insolvency specialist before a liquidator is appointed.
McConnell summarised: “Bank statements are the key financial data source that allows accounting professionals to do our job. Open banking done right allows constant access to live, accurate bank statements directly from the bank, making clients and advisers life easier.”
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