Ian Vickers outlines the concept of Open Banking and how it could affect you
First of all, what is Open Banking? According to Richard Evans of the firm Crowe Clark Whitehill, open banking is “a software platform that allows a customer to compare prices of different components of banking services – for example, clearing, payments, investments and use of different providers for different services on one platform”.
These platforms have come about on the back of the Competition & Markets Authority (CMA) review that concluded that large retail banks do not do enough to be competitive with each other to attract customers from each other. In parallel, the EU passed in 2015 the second Payments Services Directive (PSD2), which stipulated that banks had to make Application Programming Interfaces (APIs) to open up all their data and infrastructure to third-party companies by 13 January 2018. And Brexit will not mean an opt-out for British-based banks.
In real terms, for the accountant, what are the ramifications of all this? In short, Cloud-based accounting will evolve once more with, in all likelihood, the banks themselves developing online accounting services so as to remain competitive with each other, as well as with third-party accounting software packages. Theoretically, this could lead to people managing their accounting services through their bank, directly with HMRC. And in such a scenario, who would need an accountant?
APIs are useful things to software developers. They allow the programing code of different software packages to be visible and adapted to other pieces of software, creating a new unified product in the process. An example of this is Uber, the infamously disruptive cab hailing service that uses mobile phone’s GPS to unite potential passenger and potential driver. Done right and done effectively, they can upend an industry overnight; just ask a London cabbie.
All of this will have not escaped HMRC’s notice. What could be more appealing to a government or a state than to have the ability to monitor its own citizens’ bank accounts in real time for tax gathering (and other) purposes? Maybe that is a little paranoid, but you don’t have to be Franz Kafka to acknowledge that the technology and legal framework now exists for governments to access bank accounts directly via the APIs that the banks are forced to disclose under new legislation. Indeed, HMRC itself is rapidly developing a suite of online applications that cuts out the middle man between bank account and state; namely the accountant.
So what is to be done? Practising accountants must modernise their processes across the board, to reflect the rapidly changing technological backdrop. At the very least, an accountant should look to embrace Cloud accounting, as the principles behind it inform the processes of Open Banking. To be brutally direct, we have reached a point in accountancy where it is very much ‘adapt or die’, and I can say without fear that I am resorting to hyperbole to get my point across.
- Ian Vickers is Managing Director of Diamond Discovery Software. Email firstname.lastname@example.org or call 01656 725800.
Accounting Practice Online is part of the ICPA, which is an organisation designed to provide support and guidance for accountants in practice. With 35+ practice specific benefits there has never been a better time to join. Take a look at the routes to membership today.