How open banking will bring change for IFA members
Getting your head around Open Banking and putting yourself in a position to explain it to your client base is a savvy move as we move towards 2021, writes Jon Martingale.
Open Banking, which opens the way for new financial apps and websites, will bring about new methods of interacting with services for your small and medium business clients. It may also change the services and advice you can offer.
Open Banking will introduce a whole range of new financial products and services, as well as a new level of access and control over bank accounts, transactions and financial information.
“It's going to take a while for us to see really new, very different services,” said Imran Gulamhuseinwala, the head of Open Banking Limited.
But as he says, once it has some legs, “it's going to be revolutionary”.
Are you across the details and benefits Open Banking may bring to you and your clients?
What is Open Banking?
Open Banking is a government-led initiative managed by the Competition and Markets Authority (CMA), which kicked off in 2017. The basic premise of the initiative is that a range of data that banks hold will be able to be accessed and shared by your clients to enable new services to be accessed and to unlock a wide variety of benefits.
Open Banking itself is not an app or a service, it should be thought of as a new way of sharing financial data with third parties to develop better apps and services for your clients.
Open Banking necessitates that the UK’s nine biggest banks – HSBC Group, Barclays Bank, Natwest Group, Santander UK, Bank of Ireland, Allied Irish Bank, Danske Bank, Lloyds Banking Group and Nationwide Building Society – will essentially share their data to authorised third parties in a secure and standard format. And this standardisation is already ensuring other banks voluntarily join the revolution, which can only be a good thing for UK business and consumers.
The available Open Banking data can be used to create new financial products and also facilitate direct financial product comparisons, all to the benefit of you and your clients if they should take them up. Your clients will also be able to have much more control and access to their financial data, often cutting out ‘middlemen’ in transactions.
It will be interesting to see how this initiative will transform and evolve as the available benefits are only just being realised.
Why is Open Banking being rolled out?
There has long been a lot of mystery and opaqueness in the UK banking system. This lack of transparency and control relating to bank account holder data is being addressed by Open Banking.
Most people in the UK stay with the bank they chose as teenagers and seldom shop around. Often the same bank is then used when the more entrepreneurial citizens start their own business.
This inertia can now be more easily addressed with Open Banking as it will make accessing and transferring data much easier and should allow UK consumers to make more informed choices on the best bank accounts for them, based on their Open Banking data. There’ll also be a new openness and access to data that was previously tightly held by banking institutions.
In another manner, innovation in the financial sector will be boosted by access to such data in certain permitted circumstances. Business opportunities will abound and should mean IFA members can work with client data even more efficiently.
How might your clients benefit from open banking?
This is an interesting and evolving question.
There’ll be an immense benefit in your clients being able to view all their finances in one place, thanks to Open Banking.
Open Banking may be the key to accurately setting and tracking a client’s budget, finding better financial deals for your clients, and allowing them to shop for the best matching products and services. Your clients will be able to choose to give a regulated and trusted source extremely secure access to their current account information. As an adviser, this trusted source could be you.
As an example, your client may want to compare account deals among various banks or share selected transactions or balance details for the sake of a loan or to receive better financial advice.
It also opens up direct transfers and purchases with no middle vendors. An additional ‘Pay with Open Banking’ button may soon be commonplace on websites.
It should be noted that this data sharing can only be done with your client’s permission. As Mr Gulamhuseinwala says, “we're giving consumers control over their data”.
How might you benefit as an accountant?
As an accountant and trusted point of financial advice for your clients, you may be granted new opportunities in terms of client services and advice. Advisors, accountants and bookkeepers rank highly in terms of consumer trust, so opportunities certainly exist.
By becoming a trusted recipient of information, you’ll have access to individuals and pools of their financials. This will be extremely interesting in terms of the advice and subsequent recommendations and services you can offer.
If you can imagine having trusted, independent access to multiple bank accounts and transaction histories for a business, in real-time, you’ll see that the kind of advice you offer will be improved.
Accountants will be able to use this rich data to form a much deeper understanding of a client’s business to provide a more customised advisory service. Client cost savings, for example, will become readily apparent and recommending a new and beneficial type of account, loan or business approach will become easier.
Furthermore, as new financial products roll out due to Open Banking, you’ll be in a unique position to recommend these to your clients as part of your service.
On another note, Open Banking can also make the act of bookkeeping a simpler and more efficient affair.
In a time when businesses are under unique pressure due to the events of 2020, accurate and trustworthy advice, driven by data, will be well received as business owners seek out any advantage they can get.
The role of the IFA accountant is set to evolve under the rollout of Open Banking. Watch closely.
Jon Martingale, senior partner & product manager of Reckon