1. What is Open Banking and what are its current applications?
Cashroom:
“At a top level, Open Banking provides a standard and secure method to connect businesses with banks. It enables the sharing of data and access to banks services such as setting up payments, with the overall aim of providing greater financial transparency and making the lives of businesses and their customers much simpler.
“Created during the implementation of PSD2 (the Second Payment Services Directive legislation in Europe) in 2018, its mission is three-fold:
• to make consumers better informed and engaged in financial services,
• to enable numerous payment choices for customers,
• to create an enhanced client experience through increased competition and product innovation.
"It is this final point of creating an innovative ecosystem with new products where Open Banking is having its main impact on the legal sector. For us, this has meant being able to set up lawyers payments using a ‘straight-through’ process.”
Armalytix:
“For us, Open Banking has meant that conveyancing firms can improve their analysis of the source of funds, making buying a house faster and more secure. Firms can automate their data collection and gain the information that they need via Open Banking, which analyses data from different sources including personal and business bank accounts.”
2. What are some core challenges that the legal sector faces?
Armalytix:
“The tedious manual processes, lengthy forms and paper chains that underpin the legal sector have made the sector a playground for fraudsters. Add in tired and overworked employees who have to fill in forms by hand, and the opportunities for fraudsters and the challenges for the legal sector are numerous.
“The value of successful frauds in property sales more than tripled from 2013 to 2017 (from £7m to £25m), and this number has continued to rise. According to the Law Society of England and Wales, 2021 was one of the worst years for fraud in property sales, especially APP fraud (Authorised Push Payments) – as the temporary removal of Stamp Duty put people under additional time pressure to complete their house sales, opening the door for criminals to impersonate clients’ lawyers and convince the sellers to send their hard-earned money to the wrong account.”
Cashroom:
“Another core challenge that we are seeing from within the legal sector is the increased digitisation of both businesses and society. People live their lives through their electronic devices, and this has resulted in a higher expectation from both clients of law firms and the employees of law firms to deliver a digital offering comparable to online banking. This has increased the pressure on law firms to abandon their reliance on paper and outdated technology by replacing some of their existing processes with more efficient ‘digital first’ solutions.”
3. How can Open Banking address these challenges and make the legal sector more efficient?
Cashroom:
“Open Banking is providing lots of opportunities for suppliers to the legal sector to help build automated end-to-end processes, making it easier and more secure for the required data to flow from the clients through to the many complicated back-office processes in law firms. Open Banking is part of the whole drive to make law firms more efficient and less risky.”
Armalytix:
“Open Banking is a time-saver. For example, it could save companies 50% of the time spent doing manual source of funds checks.
“Meanwhile the anti-fraud benefit of Open Banking is vitally important and is a key reason why we have implemented it. It creates a digital register and audit trail, automatically, with no input needed by employees. The fraudsters and criminals will have to look elsewhere to find the firms with weak processes requiring heavy human input, which allows them to slip between the cracks without being noticed, as we see in so much of the property market today.”
4. How do you (Armalytix / Cashroom) use or apply Open Banking?
Armalytix:
“Open Banking helps us access up-to-date, accurate numbers. We can then analyse the data and summarise it in an easy-to-understand format, so the conveyancer can immediately assess the client’s source of funds. By being able to confirm that the payees are who they say they are, we help prevent fraud and money laundering. Open Banking provides a simple digital journey for both the law firm and their clients, enabling them to provide and access the data in only a few clicks, so decision-making is quick, easy and safe.”
Cashroom:
“We use Open Banking to initiate the payments required by a law firm. This ‘straight-through’ processing of payments removes the need to rekey bank account details, removing a source of potential errors and making it quick and easy for the lawyers to authorise the payments that need to be made.”
5. What are your predictions for Open Banking in 3-5 years?
Armalytix:
“The recent ruling from the FCA states that users no longer need to re-authenticate their connected accounts every 90 days. In our opinion, this is a step in the right direction for Open Banking to become mainstream in the legal sector and shows that the government is committed to innovation and improving outdated processes.
“Open Banking will continue to develop worldwide, and 2022 is shaping up to be a bumper year globally, with the UK and the EU set to follow Brazil’s lead in the move to Open Finance. People are beginning to see the massive benefits of Open Banking, and how it makes the lives of everyone easier and more secure through creating a better client experience. Over the next couple of years, we expect Open Banking to become a key tool in many businesses’ armouries, opening up a path for a form-free future.”
Cashroom:
“The demand internationally for Open Finance initiatives will continue to grow, and the requirements for regulation, and checks on fraud and financial crime will rise sharply with it.
“Everyone will become more comfortable using Open Banking. They will also be more aware of what data they have, and be aware of the risks associated with sharing this data, so they will expect a secure digital journey to be provided.
“Open Finance will continue to lead to innovation by suppliers to the sector, such as banks and other financial institutions. Their processes will become much more efficient, by removing the need for most manual inputting of data and securely sharing data across different processes, all leading to a better and safer world.”
See also:
• Cash flow management for law firms
• Building the perfect legal business - checklist