Big changes ahead for the entire UK business environment. These changes will impact the way businesses manage and distribute their money – this is all due to two new pieces of legislative action: Open Banking along with the Payment Services Directive (shortened to PSD2) which, when they come into effect, will change the way business finances are conducted forever.

Open Banking, along with the PSD2 legislative changes, introduces more robust access and security change criteria. These changes came into force on September 14^th, 2019. The purpose of the legislation is to make digitally or physically accessing your bank and therein payment data a lot faster and much more secure to help facilitate disruptive change within a sector in need of a shakeup.

In the months after September 2019, we have started to see how these changes to the way you access what in the trade is called FinTech software – but to you and me your accountancy software systems – are happening. Greater user-directed action has been needed to keep bank access and transaction feeds interruption-free. These little hiccups aside, the changes are massive.

We have decided to outline why Open Banking and PSD2 is so important to your business in 2020.

What is PSD2 Legislation?

The Payment Services Directive is a European Union directive. A law of sorts, that all 27 plus the UK member states must adhere to. The PSD2 mandates that all “payment service providers” (PSP for short) and banking services securely share their Application Program Interface (APIs) with other businesses and institutions that you have a financial relationship with. This is done with your consent and following PSD2 guidelines. This then allows you to link your bank account with other necessary financial services without any security issues.

The big difference between Open Banking and the Payment Services Directive is that the latter is an EU directive that has no zero-cost mandate and the former is a UK legislation aimed at big banks and making them provide API access at absolutely no cost. This is a crucial distinction when considering Open Banking services.

Four Things SME’s Need To Know About Open Banking

1. Open Banking Is Super Secure

The way you connect with financial services platforms and your bank will be a lot more secure thanks to Open Banking. This means you won’t have to share critical credentials with third-party service providers to integrate with your banking platform. With your consent, Open Banking’s shared API rules will make smarter, more secure information interchange possible with less hassle for business owners thanks to industry-level rules and guidelines. Also, worth remembering that Open Banking rules give you, the SME owner, greater say over who can and who cannot access your financial data.

2. Open Banking Will Be Super Disruptive

Another great feature, of sorts, of Open Banking and PSD2 as well is that it will turbocharge innovation within a traditionally conservative banking sector. New financial services providers and the boom of Fintech innovation will help increase competition which should drive down user costs and make financial interactions easier for SMEs. By helping to lower the overall cost of banking by allowing newer entrants to disrupt traditional market giants, Open Banking will make it easier to set up new “connections” through trusted and secure APIs with new platforms leading to greater innovation and customer service improvements.

3. Open Banking Sharing Will Make Your Life Easier

Through distributed and secure APIs, traditional banking platforms, FinTech entrants and financial software platforms, businesses will find their financial product interactions faster and even more stable and your ability to switch between your financial platforms will be improved as shared security credentials and greater user security will make the experience a lot more intuitive. Furthermore, banks and financial payment services will leverage Open Banking rules to help develop a range of enhanced financial products that can help improve customer service and drive user innovation and success.

4. Open Banking Has Launched But Not All Banks Are Ready

Open Banking was officially launched on September 14^th, 2019 and some banks were ready at the get-go. Some of the bigger, institutional banks are ready and this means as a customer there is nothing really for you to do but to enjoy the greater security and ease-of-use.

However, there are a minority of banks and financial services platforms that are not ready for this big disruptive era of change. The Financial Services regulators have given some platforms and banks a migratory period to help them get on track. Furthermore, banks and financial services platforms have also been told they won’t face penalties if they are working towards a product release by March 2020. This could mean user disruption in the short-to-medium term.

There are issues with how Sage software could interact with Open Banking. However, the platform is working on developing solutions. With UK/Irish integration incredibly close and many Irish banks registered in the UK there is a delay from Irish banking partners, but again, solutions in the pipeline for March 2020 and beyond.

What Else Should You Be Aware Of With Open Banking For Your SME?

There are several circumstances that could prove to be problematic for businesses. In this article, we would like to outline how these situations could impact your business experience.

Situation One – Majority Of Banks Support Open Banking (PSD2)

In these circumstances, as a bank customer, you may need to link any new financial services platforms APIs to your banking service and new connections will require credential sign-in. Once you’ve completed this task, as the banks follow API standard guidelines, that’s all you need to do to enjoy Open Banking and the disruptive and profitable experiences touted therein.

Situation Two – Minority of Banks/Financial Platforms Aren’t Ready Yet?

Some banks have been given more time by the regulators to get their API houses in order. For banks that haven’t migrated your financial connections and have no user-ready plans for change, your bank feeds will be switched off and you will need to manually import any bank statements into your financial accountancy software platform. However, the regulators have allowed more time for PSD2 compliance and the hope is that banks and platforms will rush out tools to help make the experience more, not less, cumbersome to users. When the bank unveils new Open Banking/PSD2 compliant API connections, your software platform will automatically connect with your stored credentials helping to make the transition easier.

Situation Three – The Connection Isn’t Open Banking Ready and Your Banking Feed Stops Working Altogether

This situation is predominantly based on Irish (and to a lesser extent Isle of Man, Jersey, and Guernsey) banking platforms who don’t have Open Banking API connections ready and waiting for UK customers.

This means that if your banking provider hasn’t implemented the core PSD2 compliance and met with Open Banking API standards that will mean your accountancy platform banking feeds will no longer be updated automatically and you will be forced to manually import bank statements into your accountancy software.

The government and the industry at large are pushing all providers to implement core PSD2 standards and to switch to Open Banking as soon as possible to help make customer experiences and user connections simplistic during this change. However, those platforms that are yet to meet compliance standards will result in manual inputting within your current accountancy platform.

How Prestige Business Management Can Help?

Prestige Business Management can help you navigate the Open Banking (PSD2) terrain by helping your business utilise QuickBooks accountancy software, as a Gold QuickBooks Partner, we can help set up and give you the necessary tools to help make informed decisions about your business finances.

Furthermore, we can help signpost Open Banking ready solutions – from banking services to financial payment services, like Revolut, and beyond. We are here to help make the transition period for Open Banking as easy and stress-free as possible. Our goal is to help you focus on running your business. By letting us manage your Open Banking transition, we can help deliver a seamless transitionary experience for you and your business.

Why not call us today on 0203 773 2927 to help find out more about Open Banking and how it could impact your business in the coming months?