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The era of open banking has arrived, on January 13th the long promised data initiative developed by the Competitions and Market Authority (CMA) finally came into effect to a decidedly mixed reaction. For the country’s biggest banks the new guidelines represent a complete shake-up in the financial services market, one that Fintech start-ups and large payment service providers like Google and Apple might be more than happy to capitalize upon.

Open Banking: An Overview

In 2013 the CMA began what would turn out to be a three-year review, into accessibility and competition within the UK’s retail banking sector. A few years into this review the EU government passed a comprehensive new policy known as the Second Payment Services Directive (PSD2). The EU directive required all banks to open up their financial data and infrastructures to third-part service providers.

When the findings of the CMA assessment concluded that established banks simply didn’t face enough competition for customers, the current Open Banking rules were created to resolve the problem, in line with PSD2.

How Open Banking Works

Under Open Banking laws 9 of the country’s leading account providers including HSBC, RBS and Lloyds have developed secure application interfaces that would allow any authorized service provider to access their database of financial information for a particular customer. Authorization would be provided by a unique token granted by the customer, to the service provider.   

What Will Open Banking Do for Customers

Essentially this policy would put control of account data back into the hands of customers. With the click of a button individuals will now be able to connect their existing banks accounts to a third-party service of their choice through a set of secured online technologies.

With these new features in place, third-party services would have the capability to manage and assess all of a customer’s financial information from one dashboard. Common banking issues such as overcharged overdrafts, unfavourable mortgages and loans, and low interest current accounts could be a thing of the past with the market intelligence provided by these service providers.

As an added benefit customers would also be able to initiate and execute payments from a preferred account without the need to go through the cumbersome online login process.

What Does Open Banking Mean for UK Accountants

For accountants Open Banking is simply the latest in a long line of technological innovations that have worked to democratize the flow of financial data.

Perhaps the most obvious comparison here is to cloud accounting. Cloud accounting systems such as Xero already offer clients the ability to link up their bank feeds to their business accounts, to optimize the organization and monitoring of revenue and expenses. Open banking software will simply enhance the efficiency and proliferation of these types of tools.

 In fact, with the new rules in place, many accounting firms may decide to develop their own unique software to help clients interface with their financial information.