New banking regulations brought into force in 2018 may prove to be a turning point in the financial world. What does this mean and, for the digitally averse, is it a step too far? In this blog, Allan Davidson, Head of C+T Digital assesses the potential impact.
January 13 2018 is not a memorable date as such. However, in terms of digital banking, it might go down in history as the date that shaped our future banking world. Known as ’Open Banking’, a series of banking reforms were introduced by the Competitions and Markets Authority in response to the big banks’ monopoly of accounts. Some comment that this as punishment of the larger banks for their financial mismanagement. Others see this as an opportunity to access better banking services. In essence, the reforms require banks to share customer information digitally with other regulated authorities via a standard ’Application Programme Interface’ or ’API’. This interface ensures that when a bank deploys information about customer accounts, this same information can be used across all the banking world, removing cost and, hopefully, competition hurdles.
What can consumers expect?
Firstly, it’s important to note that banks will only share your data if you give them permission. Currently it’s only the bigger banks who must comply with Open Banking, so you might not be affected by it at all. However, if that’s the case, you might also be missing out. Open Banking is designed to make it easier for banks to innovate, and easier for consumers to manage their finances. For instance, if you want your data to be shared, you could use an app to see all your accounts, credit cards, loans and more – all from different banks – in just one place.
Inevitably, the consumer marketplace will become awash with plenty apps and comparison sites that promise consumers flexibility and convenience. By making it easier to compare banks and switch your custom between them, it could show you how good your bank is at, say, competitive interest rates or loan agreements. In the medium term, we may see innovations like a contactless system including invoice tagging – a receipt being automatically attached to your bank statement or an entry created in your business accounting system. For the business banking world, the rising number of tech start-ups offer the biggest potential.
Open Banking reforms are expected to offer businesses hope, as apps will use data to spot trends, tailor offers, and target opportunities directly to the customer. They may even be able to help with the age-old problem of accessing growth funding. Good examples of this are online funding platforms such as Market Invoice and Iwona that have positioned themselves as 3rd party add-ons to online accounting systems such as Xerox in addition to offering loans and funds to start-ups online. These systems will interrogate source data and compare trends with products they offer, for example lending criteria and overdrafts. The traditional banking names are lagging in this area so expect the likes of Metro Bank or Starling Bank to become familiar names.
What are the risks?
Boots on the ground’ is ultimately the greatest risk, with high street bank branches likely to close. People will now be assessed (some might say judged) digitally so your records will need to be maintained and reviewed more often and to a higher level of accuracy. As accountants, our relationships with our clients are also changing for the better. We will work with our clients
closely; not with a focus on what’s happened before but instead with making sure your business is prepared and in the best position for the future. Away from the physical changes, the issue of cybercrime will undoubtedly be a concern. Interestingly, Generation Z and Millennials may be less concerned, having grown up with digital platforms. For others, however, it may be of concern and ensuring your digital footprint is secure will be a priority.
The new General Data Protection Regulation (GDPR) is one strategy for tackling cybercrime, but ultimately it takes work from everyone to ensure their privacy settings, passwords and activity are secure. For some, it’s exciting but for others a period of uncertainty awaits. We can provide the professional support and advice to clarify any uncertainty; if you’re unsure or want to know more about the opportunities, talk to us and let us help you navigate this new world.