Ask the expert: Financial servicesEd Molyneux, CEO and co-founder, FreeAgent
The Open Banking framework
Q Can you explain what Open Banking is?
A In the simplest terms, Open Banking is a new framework for the transfer of financial and banking data in the UK. It was designed to bring more competition and innovation to the financial services sector by giving customers a secure way to grant providers access to their financial information. Open Banking was created in response to the European Parliament’s Payment Services Directive (PSD2), which aims to make major banks open up their data and enable information to be accessed easily and securely via third-party software.
Q Why is Open Banking important for small business owners?
A Banks have traditionally been very protective of their data. So, in the past, if you wanted to have a secure flow of information between your bank account and your accounting software, you would have had to build a custom integration between them — or use a third-party “screen-scraping” tool to move data. With Open Banking, and with the customer’s authorisation, banks are mandated to make that information available for other services to access. This means small business owners can have deeper, more integrated insights into their finances across all the systems they use.
Q Why is Open Banking important for accountants?
A A major benefit for accountants is that Open Banking minimises the risk of data-entry mistakes. As clients’ banking data is delivered straight into their accounting software, accountants don’t have to worry about whether transactions are accurate — which makes it quicker and easier to review the data and spot potential accounting issues that need to be addressed. As they’re able to review information quickly, accountants have more time to delve deeper into their clients’ accounts and provide valuable insights and analysis about their business finances.
Q What impact do you think Open Banking will have on small businesses and accountants over the coming years?
A I think Open Banking is going to be the gateway for a lot of innovation in the fintech sector. With ever-increasing visibility of information and a more effective flow of data from bank accounts into accounting software, a new wave of apps and services could be developed that make the process of financial management — and running a business in general — much easier. This could lead to insights that help identify when a business’s cash flow is running low and a tax bill is coming up, and then provide the option to facilitate a loan, or the ability to identify late or nonpaying clients in advance and enable business owners to secure insurance against these invoices. This will help accountants provide the best service for clients. Through Open Banking, clients will be able to stay on top of their daily admin more effectively, giving accountants more time to provide in-depth analysis.
Find out more about FreeAgent at freeagent.com.
FreeAgent is award-winning cloud accounting software designed for small businesses, freelancers, contractors, and accountants. More than 90,000 customers currently use FreeAgent to manage and maintain their business accounts, track time, log expenses, create and send invoices, forecast their tax bills, and file their Self Assessment and VAT returns directly to HMRC.