Open Banking

The door to Open Banking

Rich Sutton Head of Accountant Relationships, iwoca and Nick Levine Chartered accountant, advisor and fintech professional ask what Open Banking means in 2022, following a survey of over 200 accounting firms.

We’re four years into the evolution of Open Banking, so now seems an opportune moment to take stock of its adoption and look into whether accounting firms and their clients are embracing it.

Open Banking’s introduction was greeted with fanfare by the fintech industry due to its promised benefits of users having more control over their data, alongside the competition this would open up in financial services for both consumers and businesses. However, this was countered by scaremongering from some, likely incumbent, financial institutions, raising concerns about security and how data could become misappropriated.

iwoca’s Open Future Open Banking survey of over 200 accounting firms reveals a mixed picture on the awareness and use of Open Banking powered services (see details below). Nearly half of accounting respondents (46%) use Open Banking solutions, but there is less take up from clients (20% to 30%).

The survey shows that Open Banking’s use is limited to a range of administration and compliance workflows but also suggests that firms are missing out on bolstering their advisory services with Open Banking enabled services.

Accountants should take this opportunity to educate clients about how Open Banking can benefit their day-to-day compliance, as well as value-added advisory services.

Open Banking adoption amongst accountants

Nearly half of accountants (46%) regularly use one or many Open Banking solutions. A further 12.5% are testing one or two Open Banking solutions, so when these respondents are factored in too, 58.5% are at least tinkering with related tools.

It’s worthwhile noting that over 90% surveyed are using cloud accounting software (such as Xero, Quickbooks or Sage) in their practices, so it would be prudent to assume that the take-up of non-cloud firms will be lower. However, as the adoption of the cloud increases, traditional firms making the switch will likely incorporate Open Banking tools to maximise efficiency gains from automation.

On the flipside of the coin, over a third of accountancy firms (34%) still are not using Open Banking. And the data suggests that if accountants don’t use it, their clients won’t either: 40% of small business clients don’t use Open Banking, and over 70% of these clients were from firms who don’t use the technology themselves. (Equally, 74% of accountants who do use open banking said most of their clients also use the technology.)

The research identifies the key issues preventing a bigger adoption of Open Banking in accountancy practices as:

1. trust and interest from clients (48%);

2. lack of understanding/confidence from accountants (38%);

3. concerns over data security (34%); and

4. general distrust of the technology (24%).

The majority of firms (85%) who are not using Open Banking, and whose clients aren’t using it either, are sole practitioners or working at firms with fewer than ten employees. These practices are perhaps prioritising the completion of client work over streamlining processes and therefore have not had the bandwidth to consider or implement Open Banking tools. This is a missed opportunity as these are precisely the firms that would see the greatest efficiency gains from the software.

Accountants need to build confidence and awareness of Open Banking to SMEs

As the most trusted advisors to businesses, accountants play a key role in raising awareness of Open Banking. Adoption by clients is lagging behind accountants, with an average of 20% to 30% using Open Banking tools.

A stumbling block to adoption is due to accountants not being proactive and discussing Open Banking with clients. 38% have a lack of confidence in doing so, as well as 48% of clients not having an interest in these conversations.

Accountants must proactively highlight the benefits of Open Banking tools to clients. Software vendors and accounting trade bodies can support these conversations by providing accountants with educational collateral that articulates common user cases alongside benefits to end clients. Businesses must be convinced by the efficiencies and output of Open Banking, rather than it being framed as a blunt tool to solve their problems.

What is Open Banking?

Open Banking – the system to provide third-party access to financial data through the use of application programming interfaces (APIs) – is one of the biggest changes to financial software and management in decades. Consumers, businesses and their advisers are now able to share data with a level of ease and accuracy never before possible. Instead of business figures being siloed in accounts and ledgers, businesses can now use their live data to create actual value with greater visibility, automation and flexibility.

Open Banking has the potential to revolutionise the way we move and manage money. It allows consumers to give merchants or service providers secure access to their financial information, or to authorise a payment directly from their bank. It provides secure and transparent information sharing for individuals and SMEs aiming to give customers greater control of their financial data and better value.

Open Banking (openbanking.org.uk) is the Implementation Entity (OBIE) set up by the UK Competition and Markets Authority to create innovative technology, data standards and the governance structures enabling the UK to implement Open Banking. As of May 2022, it listed 335 regulated providers, 247 third party providers and 88 account providers in the UK. confidence in doing so, as well as 48% of clients not having an interest in these conversations.

Advisory: the next frontier

At present, accountants primarily view Open Banking’s main benefits as boosting efficiencies for record-keeping. The data revealed that the most popular uses for Open Banking were bookkeeping (57%), accounts receivable (43%) and accounts payable (42%). Correspondingly, the most pressing issue for SME clients, according to the data, is record keeping and management information (73%). This proves the benefits for Open Banking in streamlining the data capture process via better integration with financial data sources.

However, these user cases aren’t value-adding and are unlikely to excite businesses. Therefore, it isn’t all that surprising that clients tend not to be overly interested in Open Banking conversations.

To better serve clients’ needs and engage them, we should look beyond compliance-based Open Banking tools and integrate solutions covering access to finance and cash flow forecasting. These tools allow unparalleled access to real-time data, enabling SMEs to access finance easily and quickly, as well as instant cash flow visibility – with accountants able to spot red flags early and provide advice on optimising working capital.

Conclusion

The report outlines the steps needed to drive Open Banking adoption and enhance the value accountants can provide to small businesses. First, there requires a change in attitudes whereby accountants show clients how Open Banking can benefit their businesses and demonstrate trust in their solutions, deploying use cases that are targeted at real problems firms face. Second, accountants must create significant competitive advantage by increasing efficiency, lowering costs and solving the problems that matter most.

iwoca’s Open Future Open Banking survey, consisting of responses from over 200 accounting firms, reveals a mixed picture on the awareness and use of Open Banking powered services (see bit.ly/3og5DLS). ●