The government’s ‘open banking’ initiative, which allows bank customers to freely share their data with third parties via open application programming interfaces (APIs), promises to create a wave of competition and innovation in banking.
The biggest initial potential is where businesses struggle most - accessing capital. Banks now have a responsibility to ‘hand off’ lending applicants to third parties and, with open banking, data can easily be made available to a range of potential lenders. We will see banks partnering in a way they haven’t done before.
API-enabled finance will enable data to flow not just from banks to third parties, but back again. Cloud-based accounting software such as Xero will also be able to act as ‘payment services initiation providers’, (PSIPs) allowing customers to initiate payments from their platforms and removing another pain point for businesses.
For accountants this will mean a much greater ease of reconciliation, significantly reducing the manual processes and costs associated with bookkeeping. In turn, time saved by automation can be invested into building stronger relationships with the clients.
While the big banks have been slow off the mark, open banking is being embraced by challenger banks like Monzo, Starling and Tide, many of which already have open APIs. This is partly because they are starting afresh with digital-ready platforms. The growth of APIs enables not so much open banking as ‘marketplace banking’, in which the banking app or platform offers access to a range of other financial services not provided by the bank.
It’s not just businesses who will benefit from open banking. It could also transform the way individuals apply for credit, by enabling them to share their bank data securely online with third parties, without having to fill out any paperwork, scan their data or provide information manually. Sharing their financial transactions data will also enable customers to access and compare suppliers such as gas and electricity and apply for a mortgage etc more easily.
We’re moving from a world where the bank controls the data they hold on customers, to one where customers get to control it instead.
If you would like to talk to one of our team about how cloud accounting could help your business please contact us.