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What Impact Will Open Banking Have on Accounting?

July 29, 2021

In 2021, Open Banking enabled over 2.5 million UK bank customers to connect to third parties. Fueled by financial concerns brought on by the COVID-19 pandemic, money management apps are now a popular (and necessary) tool for many SMEs across the country.

This evolving technology promises to make banking easier, more transparent and more competitive — a huge benefit for consumers. However, with the rise in account management software, tech-savvy clients may not need the same services from their accountants anymore.

Continue reading to discover how Open Banking is transforming the accounting sector.

What Is Open Banking?

Launched in 2017, Open Banking describes the process of banks and other financial institutions opening up data for anyone to access, use and share. 

Through application programming interfaces (or APIs), Open Banking provides third-party financial service providers access to consumer banking and other financial data from banks and financial institutions. By streamlining and facilitating the communication of real-time financial data between banks and trusted third parties, this new era of banking gives consumers better access to more transparent and effective financial planning. 

For example, consumers can use apps to understand financial behaviour more clearly, such as spending and cash flow, empowering them to access more relevant and cost-effective financial services. 

With consumers benefiting from greater choice, traditional banks face fierce competition with smaller, more agile challenger banks and financial institutions. However, banks are not the only ones facing the effects of Open Banking.

The impact of open banking on accounting

Open Banking is set to transform and innovate the traditional banking industry, but what does this mean for accountants? 

With a frictionless approach to gathering financial insights and greater opportunities for automation for both clients and CPAs, accountants must learn how they can take advantage of Open Banking applications to stay ahead of traditional firms.

 

An evolving role

Open Banking applications can be concerning for accountants, as they provide users with easier, more robust ways of looking after their money themselves. However, with a large pool of financial products and services to choose from, clients will need guidance and expertise to make the right decisions.

That’s where accountants come in. Open Banking is another opportunity for accountants to use their knowledge and modernise their services for a future-proofed firm. Instead of fighting against the new wave of financial management, accountants can adopt the role of trusted adviser and take full advantage of their expertise to offer added-value services.  

For example, with 72% of accountants believing their small business clients don’t understand the concept of Open Banking or the benefits it could bring them, CPAs are in a unique position to offer expert, cost-saving advice for a better client experience. 

 

Automation

Open Banking means more opportunities for automation — both for clients and CPAs alike. Although a worrying side-effect for many accounting firms, the automation revolution brings many advantages for CPAs.

With automated tasks, accountants can spend more time on more valuable, hands-on work. Peak times, like tax season, can be made less stressful, less time-consuming and more client-focused with Open Banking applications, as APIs gather data easily with fewer errors and lower processing costs. 

CPAs can also use these tools for their own account management. Expense report management, for example, is a manually intensive process from both an employee and firm perspective — but not with Open Banking applications like Sweep.

Sweep links to your employee’s bank account and detects any new payment made during the day to turn it into an expense in real-time. All they have to do is upload an image of their receipt. After you approve the expense, Sweep integrates with your firm’s accounting software, automatically generating in-depth and accurate expense reports.

This is just one example of how an Open Banking technology can reduce the time spent on internal admin, freeing up time for more growth-focused activities.

 

A more personalised service

Open Banking makes data aggregation simple. Accountants can easily gather insights from different banks relating to an individual or business and gain a deeper understanding of a client’s business affairs to provide personalised advisory services. 

Armed with information about performance and business patterns, accountants are better able to identify cost savings for their clients — a huge benefit for SME clients who may not have the most robust financial departments. 

With greater visibility into their clients’ finances, CPAs are better equipped to offer tailored advice for an enhanced client experience. If a small business isn’t VAT-registered, their accountant may only see their financial information once a year. During turbulent times — like a global pandemic — accountants may struggle to give their clients the help they need.

Open Banking applications enable a frictionless approach to responsible account management. Accountants can use an app to request bank statement information from a client and, in a couple of clicks, they have all the data they need on their screen. They can then offer timely, personalised advice based on up-to-date information instead of waiting until it’s too late to react to cash flow issues.

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