The current changes being made by all UK banking institutions, to introduce a more secure, but open system might sound like an oxymoron, but what are the practical implications and how might it help businesses.
The first question is “what is open banking”…
Open banking is the promise of allowing other systems, including accounting software, especially cloud-based software, to connect, securely, to your bank and receive data from the bank (regularly).
First of all, don’t panic, this is a one-way feed, so you cannot push a payment back to the bank! However, the prospect of having your bank transactions mysteriously appearing in your software every day, without you having to do anything sounds useful, doesn’t it?
Many of you, who already use cloud software such as Xero, QuickBooks etc, will already be aware of the concept of a bank feed, where the software pulls data from the bank, but up to now that could only be done by a separate agreement direct from the bank (and often for a small monthly charge) OR via a technology known as screen scrape.
Many users feel less comfortable with screen scrape technology as this involves giving their login details and secure words to a computer system to “imitate” them and log into their bank system every few months in order to pull this data through.
Open banking enables the connection to take place under your secure login without passing that information to any other product.
So, what difference might that make to you?
Well, the real difference here is what this new technology can do for you as an individual or business owner.
The technology – API (Application Programming Interface) enables any institution or system you choose to access your data dynamically. Most banks are introducing small add on programs which will be provide analysis of what you have spent (or received) and some will predict what your cash flow might look like based on past history.
| A POTENTIAL LENDER….. MAY BE ABLE TO OFFER BETTER OR MORE TAILORED LOANS TO YOUR BUSINESS |
A potential lender can see your bank history (with your permission) meaning they may be able to offer better or more tailored loans to your business. They may be able to set more favourable terms, if your banking history supports it, even though they are not your bank.
In order to ensure that people are more comfortable allowing access to their data, open banking now requires more secure connections. Predominately, most of the high street banks are using mobile phones to send a code each time a connection is made.
Are there any downsides?
For those who use cloud software to pull bank transactions regularly, the only downside noted so far, is that the connection to your bank has to be renewed every 90 days and as you can no longer share your password with a trusted source who could renew for you, you, personally, need to renew this connection using passwords and the texted code etc.
A LITTLE MORE HASSLE BUT A LOT MORE SECURE!