Sam O’Connor explains how by mastering Open Banking you can increase practice margins and revenues this tax season.
Bank feeds were a massive innovation 10 years ago when they first appeared on the scene. Now that the new breed of Open Banking tools have arrived, there are new opportunities for accountants and bookkeepers emerging – as long as you’re in the know.
Bank feeds promised to eliminate manual data entry or CSV uploads and allow much more seamless bank transaction reconciliation. In a much more automated and instant way, they really helped to bring together the complete picture of a company’s finances.
One of the major benefits with bank feeds was the autonomy it created for accountants and bookkeepers to do our work without bothering the client. This in turn increased margins and improved client experience.
For years bank feeds and cloud did a good enough job, once you’d fiddled around with the manual authentication process. If you managed to get it up and running, your cloud software would stay connected and dutifully pull in transactions overnight for cleaning, reconciling and sorting.
Payment Services Directive 2 (PSD2 or Open Banking)
Then along came the Payment Services Directive 2. This regulation from Europe recognised that many more consumers and businesses were using insecure methods of collecting bank data. The idea was to make the whole system more secure. When this wide reaching regulation came into force in early 2018, it brought standardisation to how bank data is captured, analysed and managed.
Cloud accounting packages pioneered bank feeds and typically managed them with bilateral agreements between them and the banks, so PSD2 really spoiled the party. It cut through the private agreements and opened up the market to much more competition from companies like Coconut.
25+ banks, in a few clicks
At Coconut we offer the same as Xero, Quickbooks and FreeAgent in terms of bank feeds from more than 25 different banks and card providers. And we can do this in a way that provides a much better experience to you and your clients in the process, because we’re built on mobile with Open Banking at our core.
Mastering Open Banking
I believe that mastering Open Banking can really help accountants to increase practice margins, less pain, better client experience and more revenue.
One unexpected issue that Open Banking has created is that the three-month reauthentication requirement. Clients must reauthenticate their bank connections every three months. With cloud accounting this doesn’t work well because it is predominantly web based for the client.
The result of this is that every time we go in to complete monthly work, do quarterly VAT returns or annual self-assessments, accounts or tax filings there is an increased burden on you and your client to reauthenticate.
By giving your client a smartphone first tool, such as Coconut, they can reauthenticate in a few clicks from their phone. What’s more, because having an app provides the power of push notifications and text, the app ensures the client is on top of their re-authentications at all times so that the data is always there when you go in.
This creates a much better client experience, it eliminates stress and workload for the accountant or bookkeeper, and most importantly, client data is held very securely.
Backdated bank feeds
Bank feeds didn’t allow you to collect historical transaction data for our clients. But this all changed with Open Banking. Much like Coconut, many Open Banking accounting products provide a 24-month lookback period for the vast majority of financial institutions.
This means that you can ask your new and existing customers to connect up whichever bank they use within a few clicks from the app. Then you can see their transaction data for the 2019 financial year for limited companies of the 19-20 tax year for sole traders.
When it comes to Coconut you can see this data through the Coconut Portal instantly. It’s easy to export it into your preferred filing software, like Taxfiler, dramatically reducing back and forth and eliminating the need or cost of cloud accounting.
Expert tip: One thing to look out for is that with Open Banking, the window through which you can extract historical data upon first authentication is limited. Sometimes it’s limited to only 5 minutes, so your client will need to follow through immediately to connect up their account and make sure the data is extracted for you to see it. If they miss the window, they may need to re-authenticate and lose the data already collected.
Tools to make life easier
The pace that categorisation technology is picking up is eye-watering and presents a huge opportunity to reduce the manual burden from bookkeeping, and reduce risk of errors.
Open Banking tools such as Coconut use technology to categorise transactions, but also put the tools the customer needs to capture receipts or notes on the transactions in their pocket – quite literally! This accounting information is then available instantly in the Coconut Portal for you to see. And it’s already connected to the transaction, so all stored together.
By using this kind of system that brings together bank transactions through open banking with bookkeeping features like receipt capture, notes and invoicing, you can really drive out manual work and cost from your process, reduce the risk and improve client experience.
Open Banking: the future is now
While Open Banking has taken a while to reach full maturity, the power of this technology can be finally harnessed as we run into the upcoming tax season. I believe that Open Banking changes the game for accountants, as long as you master it.
• Sam O’Connor, CEO, Coconut
All ICPA members can pass on a three-month free deal on Coconut’s Side-hustle or Professional plans to their clients. Check out the ICPA member benefits page for details – https://www.icpa.org.uk/page/Benefits