EXECUTIVE SUMMARY

The Open Banking Implementation Entity (OBIE) produces the Open Banking Impact Report1 every six months to support greater understanding of how open banking is evolving and the extent to which it may be helping the UK’s consumers and small businesses. The approach to the report is underpinned by a comprehensive Theory of Change. This is based on the premise that the ultimate success of open banking depends on:

the availability of different types of open banking-enabled services

whether these services are adopted by consumers and small businesses

the extent to which users have a positive experience of them

if and how consumers and small businesses are actually benefiting from open banking-enabled services.

Our two previous Impact Reports each provided incremental insights into different aspects of this Theory of Change.

The key insights in this Impact Report are:

Availability of open banking services

Availability of services continues to expand, however growth is increasingly coming from participants which are not regulated as TPPs, such as agents.
We have a significant number of services in three outcome areas:

decision-making
payments
borrowing.

These account for 74% of all propositions offered by TPPs and their agents.

Adoption of open banking services

Adoption has continued to grow, with 10 – 11% of digitally-enabled consumers now estimated to be active users of at least one open banking service. This is up from 6 – 7% in March 2021.

"Adoption has continued to grow, with 10 – 11% of digitally-enabled consumers now estimated to be active users of at least one open banking service. This is up from 6 – 7% in March 2021"

Impact of cloud accounting services on small businesses

New research undertaken in this third report focuses on how small businesses are utilising cloud accounting, of which open banking feeds are an integral part. This reseach explored the extent to which the adoption of cloud accounting has delivered efficiencies and improvements in how small businesses are able to manage their accounts and improve business decisions. For the first time, we can now understand the types of businesses regularly using open banking and the benefits they are deriving from it. The key insights are:

Small businesses of all sizes are adopting cloud accounting services, although penetration is higher among larger and more complex businesses.

Our pilot study2 found that 45% of respondents were using cloud accounting services. However, this figure drops to 22% for sole traders and rises to 78% for those with 5 – 9 employees. In the main survey, 78% of respondents were from VAT-registered businesses, confirming that more complex small businesses are more likely to adopt cloud accounting3. Our sample shows different paths to adoption. 41% said their accountant required or recommended it, others were encouraged to adopt it to help drive efficiency, while only 2% said they’d been attracted by advertising. This complex inter-relation between awareness and adoption across different open banking services is a theme we might explore in future reports, along with the reasons for non-adoption.

Open banking has become a critical component of cloud accounting

It appears that open banking plays a key role in cloud accounting. Although cloud accounting services pre-date open banking, it is notable that 75% of users started using the service no more than three years ago, with 36% having adopted it within the past year. Open banking started to be incorporated into cloud accounting from April 2019, as one of the earliest propositions, although the move to HMRC’s Making Tax Digital initiative that year may have been additional driver for adoption. More significantly, 72% of respondents rated the ability to connect to a bank account as an important feature of the service, and 58% felt the same regarding the availability of real-time transactions, a consequence of open banking connections. 11% of respondents claim they would stop using their cloud accounting package and 50% would look for an alternative if they lost the ability to incorporate real-time transactions. Open banking is clearly a valued feature among adopters.

Users are positive about cloud accounting services and plan to continue using them

Small businesses of all sizes have positive experiences of using cloud accounting services, with 87% of respondents indicating that they are likely to continue using the service. The Net Promoter Scores were positive, although some way from best in class, and slightly higher for the larger segment of small business we surveyed. Cloud accounting represents an additional cost for many financially-squeezed small businesses. However, our research finds that a significant majority (79%) feel that they get good value for money. 40% gave the top score of very good value. Only a very small minority (4%) felt that value for money was poor.

Cloud accounting helps small businesses understand their business better

We know many small businesses find it hard to accurately understand their current financial status. An overwhelming majority (77%) of respondents report that they now have more immediate and accurate insights into their financial position at any given time as a result of using these services.

"77% of respondents report that they now have more immediate and accurate insights into their financial position at any given time as a result of using cloud accounting services"

Users find it easier to interact with their accountants

73% of respondents agreed that use of the service had made collaboration with their accountant easier. These results are even more marked when looking at larger and more complex business - 78% of businesses with a turnover exceeding £500k agree with this statement.

Cloud accounting has a key role in making small businesses more efficient and profitable

It is clear that cloud accounting led to small businesses feeling more efficient, with 84% agreeing with this statement. 70% saw benefits in the management of late payments, a key challenge which many small businesses find hard to track. Some small businesses suggest that cloud accounting services are saving them money: 59% said it had delivered internal savings and 64% external cost savings. 44% of all small businesses reported that their use of the accounting software means that they longer need external accountancy support.

1The Revised Roadmap refers to the delivery of a Consumer Evaluation Framework (or CEF). For publication purposes we refer to this as the Open Banking Impact Report.

2The analysis that we have in this area should be treated with caution given the small sample size. 3Our sample was not representative of the UK business population however, as we set quotas to get a range of companies of different sizes and avoid the very large skew toward the very smallest businesses.