Open Banking

Bookkeeping and accounting software companies such as Xero, Sage and QuickBooks are in the process of communicating with their customers and partners about their software’s bank feed integrations and how changes are being made due to Open Banking and the PSD2 regulations.

The changes with the implementation of Open Banking are mainly in the technical background and relate specifically to how banks and other financial institutions technically make their customers financial data available to them and to authorised 3rd parties, such as Xero, Sage & QuickBooks.

For many businesses, setting up the new bank feeds in their accounting software will be a simple process of re-entering their access credentials, but unfortunately not all banks, building societies and financial institutions are ready for Open Banking and as a result, some businesses will be left with no bank feeds, possibly for some months. In these cases, businesses will be required to return to the manual inputting of bank statements until such time that their banks have launched Open Banking.


What is PSD2 and Open Banking?

Open Banking is the secure way to give providers access to your financial information. It opens the way to new products and services that could help customers and small to medium-sized businesses get a better deal. It could also give you a more detailed understanding of your accounts, and help you find new ways to make the most of your money.

The UK’s Open Banking initiative was the result of concern about how poorly a small number of large banks were serving the financial needs of the vast majority of consumer and business customers in the UK. The Competition and Markets Authority found that a lack of new products and barriers to switching meant that customers were over-paying for credit and being under-rewarded for holding deposits. And options for moving money – making and receiving payments – remained limited and costly.

Across Europe, via the European Banking Authority’s PSD2 (The Second Payment Services Directive) regulation, similar concerns were being addressed by mandating that banks and payment providers open up their data to third parties. But the UK went one better, by defining how this should be done, through the creation of the Open Banking Implementation Entity (OBIE). The OBIE worked with banks and other industry stakeholders to define standards (manifesting in APIs) by which third parties can securely access data and initiate payments with explicit customer consent.

The UK’s approach is being seen as a benchmark for open banking initiatives elsewhere in the world.


What comes next?

Late payments and a lack of access to capital are two of the biggest issues facing small businesses in the UK. Xero’s data shows that 37% of small business owners have considered closing their company because of cash flow issues. Open Banking is already having a positive impact on access to capital, the speed and cost of payments and ushering in a host of financial technology innovation for small business – beyond just new bank feeds.


Where to find out more

To find out more about Open Banking for businesses, customers and developers visit the Open Banking website.


references: Xero Blog



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