What is open banking and how can it benefit accountants?

What is open banking?

Open banking is a way of securely sharing financial information between banks and third-party service providers. What does this mean for you? Open banking gives you more control over your financial information and allows you to easily share it between apps and different businesses—simplifying payments. We explain how this applies to accountants and auditors later.

Is open banking safe for your data?

Yes, open banking is safe as it’s regulated by the Financial Conduct Authority (FCA) which ensures UK financial services firms are following strict rules to protect your data.

Open banking technology is usually built on systems already used by high street banks and fintech firms so it’s likely you’re already using this technology to pay bills or manage your money.

Plus, with open banking you’ll never be asked to share security details, you only need to authenticate details to confirm the sharing of data between systems. These systems use anti-fraud controls and put the user in control as you share the minimum amount of data necessary for the task at hand.

What’s an example of open banking?

An example of open banking might be when an app on your phone allows you to pay money to someone even through a link, even when you’re not a member of that bank. Or an app which allows you to see your different bank balances in one place and might use this information to tell you information about your spending or your credit score.

With your consent these apps use open banking to validate your bank account, then gather and transfer data between apps.

How does open banking work?

Open banking allows different financial services to work together using application programming interfaces (APIs), which are secure methods for sharing financial information between banks and approved third parties. Traditional banking keeps data within individual institutions, while open banking enables different financial services to connect and share data openly and securely.

In traditional banking, it's hard for outside apps to access your financial information directly because the data is locked within each bank. Open banking uses standardised data formats, allowing third-party services to validate bank accounts by sharing data with other banks.

There are three main types of APIs in open banking:

• Product APIs let third parties display financial products, rates, and terms, often used by comparison websites.
• Data APIs allow read-only access to account information, balances, and transaction history.
• Transaction APIs enable transferring funds, setting up direct debits, and initiating payments.

Open banking and APIs

Open banking is often done through APIs, changing how financial data is shared and accessed.

Traditionally, banks kept customer financial data within their own systems, not allowing for the sharing of data. APIs help third parties securely access financial data.

What is blockchain technology?

Blockchain is a type of technology that records transactions across multiple computers in a way that means these transactions can’t be retroactively edited orchanged. Unlike traditional databases, blockchain operates in a decentralised network of computers known as nodes. Each node has a copy of an entire blockchain, ensuring transparency and reducing the risk of a single point of failure.

Once a transaction is recorded in a block and added to the blockchain it can’t be changed or deleted, ensuring trustworthiness and security for your data. Blockchain technology adds extra transparency as each transaction is visible to all participants in the network—though their identities are hidden for security.

When thinking about what blockchain is used for you may initially associate the word with cryptocurrency, however they can also be used for supply chain management, voting systems, and in the case of accountants it can be applied to financial reporting, compliance, and auditing.

What is the advantage of using blockchain technology?

Blockchain technology can streamline the audit process by ensuring data security and significantly reducing time spent on bank confirmation.

The immutable nature of blockchain ensures that once transactions are recorded, they cannot be altered or deleted, providing a reliable and permanent record. Thisenhances trust and transparency, while blockchain also reduces the risk of fraud and errors through its secure and decentralised structure.

Accountants benefit from automating the bank confirmation process and taking out the risk of human error.

How does open banking and API technology affect accountants and auditors?

Securing confirmations from third parties often proves to be a difficult and lengthy task for auditors. The frequent lack of responses adds to their workload and can delay the completion of audit and accounts preparation jobs. This becomes a more pressing issue when deadlines for reporting are fast approaching.

Open banking and API technology offer a solution to this common audit issue: secure, cheap, and near-instant banking confirmation. No need to engage in a manual process that can take weeks, when this new technology offers instant banking validation through open banking and blockchain technology.

5 ways open banking and blockchain benefits accountants and auditors

1. Time savings
   Open banking authorisation allows your client to authorise the provision of required data to you to support the audit or accounts preparation —both timely and secure.
    
2. Security guaranteed
   Blockchain security provides you with a safety guarantee as you have a secure audit trail of data provision to your confirmation of key accounting data with external third parties—all as part of a statutory audit.
    
3. Open banking automation
   Accurate and efficient data provision means as an auditor you can replace your predominantly manual processes for simple confirmations with an efficient and secure alternative.
    
4. Accounts can remain compliant with ease
   Leverage blockchain technology to automatically gather confidential financial third-party audit evidence, with confidence the evidence is reliable and accurate. No need to do the process manually—feel confident in your compliance.
    
5. Share information in a secure way
   Blockchain technology provides security of data, ensuring your client no longer needs to share data via less secure methods such as email.

CCH iFirm Validate is your new UK bank validation technology. The solution ensures all parties are validated and sent to the correct recipient, automating this section of the audit process and giving auditors control of bank confirmations—all in one simple and cost-effective solution.

Interested in learning more about how open banking can revolutionise your bank confirmation process, taking it from weeks to minutes?