What is Open Banking and PSD2 – and how does it affect your business?

PSD2 and Open Banking will revolutionize the way individuals, small businesses, and accountants access their financial information. What are the changes and how will they affect you?

Like most financial regulations, the Second Payment Services Directive – PSD2 for short – aims to improve life for financial services customers. That covers people with bank accounts, loans, and credit cards, for example, as well as small businesses and accountancy practices.

It does so by opening up the field of play to payments companies and other businesses in the financial technology, or fintech, sector.

Open Banking and PSD2 overview

While most new banking rules aim to close loopholes in the system, the PSD2 regulation opens up the market to new entrants, increasing competition, improving services, and creating a lot more choice. For decades banking was a slow-moving sector, suddenly it’s flush with innovation.

Apart from customers, another key actor in the PSD2 transformation is the growing legion of fintech companies offering digital products that help people and businesses manage their money.

Since the EU legislation went live in January 2016, a swathe of new apps, websites, and services have sprung up allowing people to split restaurant bills, save for a rainy day, manage utility payments or use accounting software more effectively.

Under the rules, banks must open up their Application Programming Interfaces, or more succinctly open APIs, and direct data feeds by the end of September 2019. This transition gives third parties the access they need to connect with customers.

Open Banking, meanwhile, is a UK initiative that runs alongside PSD2. It aims to energize retail banking by driving up competition and fast-tracking innovation.

In August 2016, the Competition and Markets Authority (CMA) called upon large banks to give third-parties access to product data and information on current accounts, enabling them to read data and transact on behalf of customers.

Impact on the market

Smarter data sharing – PSD2 and Open Banking standards will change the way financial data is shared between banks and third parties, including FMS and accounting software providers such as QuickBooks. Bank feeds will be upgraded too, so you’ll get a much better connection.

Intuit QuickBooks was one of the first companies to register with the Financial Conduct Authority (FCA) for qualified third-party status under PSD2. If you’re sharing your bank details with another organization, make sure they’re authorized too. Check the FCA’s Register or the Open Banking Directory.

Better bank connections – Outdated bank feeds will be phased out over the summer as part of PSD2, so if your bank is connected to your FMS account, you’ll need to update it.

It’s a speedy, simple process in QuickBooks — we’ll give you step-by-step instructions in time for the switch in September. And the good news is, the upgraded feeds will be more stable and accurate than the current system. You’ll just need to re-authorize the connection every three months.

Challenger banks welcome – PSD2’s focus on improving competition has made it easier for more banks to sync up with third-party providers. So if your accounting software hasn’t supported connections to your bank in the past, take another look.

QuickBooks is now syncing up with a whole host of banks we didn’t support in the past, including the top UK Challenger banks – Monzo, Revolut, and Starling. That means more customers can tap into our time-saving features.

Access to all areas? – Under PSD2/Open Banking, you have complete control of who can access your financial data. You can grant specific permission to third parties such as QuickBooks, or withdraw it at any time – so if you only grant access to a current account, your credit card account won’t be automatically included.

Personalized products – When you choose to share your data with third parties, you’ll get a smarter service, including automated accounting and access to more customized lending or budgeting options. And as competition increases, you can expect the range of available options to keep improving.

How Open Banking and PSD2 benefits your business

The two sets of regulations will give a range of benefits to small businesses and freelancers as well as accountants and bookkeepers:

For small businesses:

• You own your transaction data, meaning you choose who can see your private information and you can grant or withdraw permission.
• You’ll gain access to better, more relevant services. Sharing your data with third parties allows them to create a more specialized experience
• You’ll benefit from heightened security because you won’t have to enter banking passwords on third party websites. With Open Banking, customer authentication must be refreshed quarterly.

For accountants and bookkeepers:

• You’ll be able to offer a slicker, more efficient service. With their permission, your customers’ data will update in Intuit Quickbooks automatically, which means perfect accuracy and greater confidence within your customer base.
• You will no longer have to waste time extracting data from records because under the new system you’ll have access to historical transaction histories at the touch of a button. This provides greater clarity and more control over your clients’ records.
• Live data flows create new efficiencies, freeing up your practice to add new services and extra value to secure more sales, and build revenue. With accurate, up-to-date transaction records, you can also deliver advice that’s relevant to clients today, rather than in months past.

PSD2 and Open Banking security

Security is a key benefit of Open Banking and PSD2 because customers can permit access to data without having to hand over sensitive passwords and login details. The system uses online banking credentials and customers simply have to re-affirm their permission for third parties to access their data four times a year.

Service Providers like QuickBooks request consent to access your information. This goes to your bank, where you log in and approve the request with the understanding that you can withdraw consent at any time in the future.

Here are just a few other ways the changes will enhance security:

Banks are toughening up:

Under the new system, banks are obliged to improve security measures, potentially including new monitoring protocols designed to detect online nasties such as manipulation by fraudsters, viruses, and data theft.

Restricted third-party access:

Tech providers are limited in the data they can access, meaning they can only use the account information that is essential to delivering their service. In other words, if you give them access to your mortgage, they won’t automatically gain a right to look at other kinds of loans you might have taken out.

No hiding places for platform providers

Technology businesses will be regulated by official bodies such as the FCA and must appear on the FCA register and the Open Banking Directory. So it’s a simple process to inquire whether any particular provider is registered under PSD2.

Providers must publish the registration numbers of their websites. Intuit QuickBooks was one of the first account providers to gain authorization by the FCA (PSD 792934).

How Intuit QuickBooks is winning with PSD2

Intuit QuickBooks helps bookkeepers and accounts teams work faster and smarter. With PSD2 and Opening Banking, new upgrades will make the job even more efficient. Today, you can:

-Save time by connecting accounts and credit cards, automatically uploading transactions as they happen.

-Software matching sales to invoices and costs to expenses, meaning you just have to approve the entries and move on.

-Add unlimited bank and credit card accounts, so you’re in complete control.

-You can create custom rules for repeat income.

-Real-time data is uploaded almost ‘as live’.

-You can add comments and reminders to transactions, so you never forget where income or expenses came from.