Open Banking: 5 things businesses need to know

Easier times are ahead for UK businesses looking to take more control of their finances, thanks to the Open Banking and the second Payment Services Directive (PSD2) regulations coming into effect.  

Open Banking and PSD2 legislation include a new wave of access and security changes that went into effect from 14 September 2019. This will make accessing your bank and payment information faster and more secure to support faster decision making. 

Over the next few months, you might notice some changes in how you access your fintech tools. There may be some action required on your part to prevent your access to your bank feeds from being interrupted. 

Here’s what you need to know about Open Banking and PSD2. 

What is PSD2? 

PSD2 is a new set of European Union-wide rules that require all banks and payment service providers (PSPs) to provide APIs that securely share your financial information with other institutions and sets the guidelines for confirming your consent to do so.

This makes it easier for you to connect your accounts with other financial services without compromising security. 

The main difference between Open Banking and PSD2 is that Open Banking is UK only and requires the largest banks to provide API access for no cost, while PSD2 covers more banks and PSPs but does not mandate free access. 

Five things businesses need to know about Open Banking (PSD2) 

1. Open Banking (PSD2) offers more security

Your connections are more secure because you no longer have to share sensitive credentials with third-party service providers. Instead, your financial service providers connect directly with your bank with your consent.

This gives you complete control of who can access your financial data. You can grant specific permission to third parties and withdraw it at any time. 

2. Open Banking (PSD2) will increase innovation in the banking sector

Open Banking (PSD2) is an initiative designed to increase competition among financial service providers.

This means it should lower the cost of banking services for small business owners, make it easier to set up new connections and allow you to quickly take advantage of innovative products as they develop. 

3. Smarter data sharing and improved customer experience

Your connections will be faster and more stable, and it will be easier for you to toggle between your connections.

You can expect more from your financial service providers as they leverage Open Banking (PSD2) to create smarter business finance tools and more ways to customise your service.  

4. The launch date for PSD2 was 14 September 2019

Some banks were ahead of the launch date and had already implemented direct connections for bank feeds. If your bank has done this, you don’t need to do anything.  

5. A small number of banks aren’t ready

To minimise any issues this could cause, the regulators have granted a migration period for the remaining banks to get ready.

They have also agreed not to penalise the banks so long as they have a plan and are working towards a release before March 2020 – so they won’t need to implement PSD2 immediately.

If you’re a Sage customer, you can check how this might impact your business with our useful tool.

What you need to be aware of

There are three scenarios that might affect your business.  

Scenario 1: Most banks are ready to support PSD2

You may need to authorise a new connection to your bank feed. This just means you’ll need to enter your login credentials when you try to access your bank feed. 

Scenario 2: A small number of banks and account types aren’t ready

If your bank hasn’t migrated your connections and does not have a plan to be ready, then any existing bank feed will be switched off and you’ll need to import your bank statements into Sage manually. 

The migration period we’ve highlighted above is designed to prevent this by allowing banks more time to implement PSD2. 

If your bank is planning on using this migration period, you don’t need to do anything right now. And we’ll automatically make the change for you when your bank creates new PSD2 compliant connections.   

Scenario 3: Your connection isn’t ready for Open Banking (PSD2) and your feed has stop working

A small number of banks or account types, including Irish banks and Irish bank accounts, don’t have new Open Banking (PSD2) connections up and running.

If your bank isn’t Open Banking (PSD2) ready, your current Sage bank feeds will no longer work. This means you’ll need to manually import or enter bank statements into Sage.  

We’re pushing banks to switch to Open Banking (PSD2) ready connections. You can visit our dedicated Open Banking and PSD2 page to check on the latest status for your bank. 

Editor’s note: This article was first published in September 2019 and it has been updated for relevance.