All accountants will be aware of Open Banking, but is it now time to be thinking about an accounting software equivalent, asks Ian Vickers.
Isn’t it about time we started thinking about improving the transparency of marketing methods and information provided about accounting software, as has been the objective of the Open Banking Directive?
Set up by the Competition and Markets Authority on behalf of the Government, Open Banking was designed to bring more competition and innovation to financial services.
Every provider using Open Banking to offer products and services has to be regulated by the Financial Conduct Authority (FCA) or European equivalent. As I write, the biggest banks and building societies are on the Open Banking Directory, and others are joining the ranks, such as Tide, Starling and Coconut.
As the landscape of banking continues to shift, challengers continue to convince customers to make the digital switch, while the high street banks try to catch up, as usual. Challenger banks, digital banks, startup banks – choose your preferred term – have upended the way traditional retail banking is done.
Low, transparent fees
Many have started by offering free accounts and low, transparent fees. This, coupled with costly marketing campaigns and high compliance overheads, have required eye-watering investment. Private investors put nearly £4 billion into UK-based FinTech firms last year, up 38% year on year.
Also, as tends to be accepted in these markets, many are yet to return a profit and indeed some have posted big losses. The same could be said about some accounting software firms. If only my business, Prelude Software, was big enough to be able to afford to lose money! (I don’t really mean that.)
To recoup these losses and, eventually, deliver a return for investors they are offering other financial services like insurance products, foreign exchange or consumer credit; provided either ‘a la carte’ or as a premium subscription for a fixed monthly fee, becoming a software-as-a-service industry with a ‘freemium’ component.
Some have those features in-house, but many are actually managed by external FinTech partners.
With Making Tax Digital (yes, that is still in progress and inevitable), Brexit and now Covid-19 the demands on accountants and their clients to accommodate new compliance methods, new regulation and new working practices will make ‘proper’ accounting software more of a necessity than ever before. The days of managing with your own spreadsheets are gone.
So Open Banking, massive investment, competition and necessity all contribute to it being inevitable that banks will start offering accounting software, as of course some challenger banks are already doing – and accounting software firms partnering with banks or investing to become challenger banks themselves.
So is an Open Accounting Directive also inevitable, or at least an expansion of the Open Banking Directive to include accounting software?
What do you think about this? Please let us know at firstname.lastname@example.org. We are always very interested to hear about your experiences with HMRC, Prelude and any other accounting software you may use.
I would like to finish by thanking everyone in my Prelude team, who have been diligently working from home during these trying times. I send my best wishes to our loyal Prelude customers, and to the ICPA team and members.
Stay safe, everyone.
• Ian Vickers is Managing Director of Prelude Software Limited. Email email@example.com or call 01656 725800