Automatic Bank Feeds 2017 Part 4: Is Open Banking An Existential Threat To Accountants?
Events have a habit of overtaking discussions. In my first article in this series, I discussed the pros and cons of automatic bank feeds. In the second, I examined how you can use your accounting software to reduce the need for automatic bank feeds, and the third discussed how automatic bank feeds can be used effectively by accountants. Since then, ‘open banking’ has come about as a pressing topic and has ramifications for everything I have discussed so far.
What is open banking? According to Richard Evans of the firm Crowe Clark Whitehill, it 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 will emerge on the back of the Competition & Markets Authority (CMA) review, which concluded that large retail banks do not do enough to be competitive with each other to attract customers from each other. In parallel, in 2015 the EU passed 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 third-party accounting software packages such as Xero, Sage and Diamond Discovery. This could theoretically lead to people managing their accountancy services through their bank, directly with HMRC. And in such a scenario, who would need an accountant?
As you’ll have gathered from my previous articles, I think new technology provides opportunities for the accountancy sector as well as threats, but open banking does seem to pose a genuine and real existential crisis right across the profession.
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. Examples of this include Hootsuite, which allows marketers to control different social media channels from just the one screen, and Uber, the infamously disruptive cab-hailing service that uses mobile phones’ GPS to unite potential passengers with potential drivers. Done right and done effectively, APIs can upend an industry overnight; just ask a London cabbie.
There is a faint silver lining for the progressive accountant: they can now develop their own bespoke software if they so choose, to meet their clients’ needs. However, development can take time and money, and the accountant should consider the ROI of such a strategy.
None of this will have escaped HMRC’s notice. What could be more appealing to a government or a state than having the ability to monitor its own citizens’ bank accounts in real time for tax gathering (and other) purposes? Maybe that is a little paranoiac, but you don’t have to be Franz Kafka and favour green ink 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 whole suite of online applications that cut out the middle man between bank account and state; namely the accountant.
So, what is to be done? As I keep on reiterating, it is important for practising accountants to modernise their processes across the board, to reflect the rapidly changing technological backdrop to the sector. Even if an accountant chooses not to adopt a new technological process, they will need to at least be aware of it and have a rationale for not adopting it (and not all new technology is necessarily desirable technology). At the very least, an accountant should look to embrace cloud accounting, as the principles behind it will inform the processes and behaviour of open banking in the longer run. To be brutally direct, we have now reached a point in accountancy where it is very much ‘adapt or die’, and I feel I can write that without fear that I am resorting to hyperbole to get my point across.
As a software developer myself, I am happy to talk to any accountant who wants to know what open banking and technological change mean for their specific practice, and advise them on the robust steps needed to modernise their services for the 21st century.