Understanding Open Banking and How It Connects to Your Accounts

Open banking has quietly become one of the most useful innovations for small business accounting. It allows your accounting software to connect directly to your bank account, pulling in transactions automatically so you no longer have to enter them manually or download and upload CSV files.

But open banking is more than just a convenience feature. It represents a fundamental shift in how financial data is shared, and understanding how it works helps you make better decisions about how you manage your business finances.

What is open banking?

Open banking is a system that allows third-party financial service providers — like accounting software, payment apps, and financial management tools — to access your bank account data with your permission. Rather than your bank being the sole gatekeeper of your financial information, you can choose to share that data securely with services that help you manage it.

The concept originated from regulatory initiatives. In the UK, the Open Banking Standard was introduced in 2018. The European Union's PSD2 directive serves a similar purpose. Other countries including Australia, Canada, and Brazil have implemented or are developing their own open banking frameworks.

The core principle is the same everywhere: your financial data belongs to you, and you should be able to share it with services you choose, securely and with your consent.

How open banking works

The technical process

When you connect your bank account to your accounting software through open banking:

1. You initiate the connection from within your accounting software
2. You are redirected to your bank's secure website or app
3. You authenticate using your normal banking credentials
4. You grant consent for the accounting software to access specific data (usually transaction history and balance information)
5. A secure connection is established between your bank and the software
6. Transactions flow automatically from your bank to your accounting software

At no point does the accounting software see or store your banking login credentials. The connection uses secure APIs (application programming interfaces) and token-based authentication. Your consent can be revoked at any time.

What data is shared

The data shared through open banking typically includes:

• Transaction history — Dates, amounts, descriptions, and counterparty information
• Account balances — Current and available balances
• Account details — Account number, sort code or routing number, account type

What is not shared:

• Your login credentials
• Your PIN or password
• Access to make payments (unless you separately authorise payment initiation)

How open banking benefits your accounting

Automatic transaction import

The most immediate benefit is eliminating manual data entry. Instead of typing in every bank transaction or uploading CSV files, transactions appear in your accounting software automatically, typically within hours of occurring.

This saves considerable time — particularly for businesses with high transaction volumes — and reduces the errors that inevitably creep in with manual entry.

Faster bank reconciliation

Bank reconciliation — the process of matching your accounting records with your bank statement — becomes much faster when transactions are imported automatically. Many accounting platforms can automatically match imported transactions with invoices and bills you have already recorded, turning a tedious monthly task into a quick review process.

Real-time cash position

With open banking, your accounting software shows your current bank balance alongside your financial records. This gives you an up-to-date view of your cash position without having to log into your banking app separately.

Better categorisation

When transactions are imported with their full bank descriptions, your accounting software can use rules and machine learning to suggest categories. Over time, it learns your patterns — recognising that a payment to a particular supplier should always be categorised as raw materials, for example.

Multi-bank visibility

If your business uses multiple bank accounts — perhaps a current account, a savings account, and a credit card — open banking lets you connect all of them. This gives you a complete view of your financial position in one place.

Open banking vs traditional bank feeds

Before open banking, many accounting platforms offered bank feeds through screen scraping or proprietary connections. These had several limitations:

| Feature | Traditional feeds | Open banking | |---------|-------------------|--------------| | Security | Screen scraping often required sharing login credentials | Secure API-based, no credential sharing | | Reliability | Connections frequently broke when banks updated their websites | Standardised APIs are more stable | | Data quality | Often limited or inconsistent data fields | Richer, standardised transaction data | | Coverage | Limited to banks with partnerships | Growing coverage as regulation mandates participation | | Speed | Could be delayed by hours or days | Near real-time in many cases |

Open banking is not yet universally available — coverage varies by country and by bank. But where it is available, it is the superior option.

Security considerations

Security is the most common concern business owners have about open banking. Here is what you should know:

Regulatory oversight

Open banking providers are regulated and must meet strict security standards. They undergo regular security assessments and are subject to oversight by financial regulators.

Encryption and authentication

Data transmitted through open banking is encrypted in transit and at rest. Access is authenticated using secure tokens, not your banking credentials. The connection uses the same level of encryption as online banking itself.

Consent and control

You are always in control. You choose which accounts to connect, you grant specific consent, and you can revoke access at any time through your bank or the third-party provider.

Read-only access

Standard open banking connections for accounting purposes are read-only — they can view your transactions but cannot make payments or move money. Payment initiation is a separate service that requires additional consent.

What to check

When connecting your bank to accounting software through open banking, verify that:

• The provider is registered with your country's financial regulator
• The connection uses bank-grade encryption
• You can see and manage your consents
• You can revoke access at any time

Setting up open banking in your accounting software

Step 1: Check compatibility

Verify that your bank supports open banking connections and that your accounting software supports your bank. Coverage is growing but is not yet universal.

Step 2: Initiate the connection

In your accounting software, look for options like "Connect bank," "Add bank feed," or "Open banking." Select your bank from the list.

Step 3: Authenticate and consent

You will be redirected to your bank's website. Log in as usual and review the consent screen. This will show you exactly what data the accounting software will be able to access.

Step 4: Select accounts

Choose which bank accounts you want to connect. You do not have to connect all of them.

Step 5: Review and categorise

Once connected, transactions will start flowing in. Review them, set up categorisation rules, and match them against existing records.

Step 6: Maintain the connection

Open banking consents typically expire after 90 days and need to be re-authorised. Your accounting software will prompt you when re-authorisation is needed.

Making the most of your bank connection

Set up categorisation rules

Create rules that automatically categorise recurring transactions. A monthly payment to your landlord is always rent. The weekly order from your main supplier is always stock purchases. Automation reduces the manual review workload significantly.

Reconcile regularly

Even with automatic imports, you should review and reconcile your bank feeds at least weekly. This ensures transactions are categorised correctly and that nothing has been missed or miscategorised.

Use matching features

When you record a sales invoice, and the payment subsequently arrives via the bank feed, your accounting software should be able to match them automatically. This closes the loop on accounts receivable and keeps your records accurate with minimal effort.

Connect all business accounts

For a complete financial picture, connect every business bank account and credit card. Partial connections mean partial visibility.

The future of open banking

Open banking continues to evolve. Future developments are likely to include:

• Payment initiation — Paying bills and invoices directly from your accounting software, without logging into your bank
• Variable recurring payments — Automated payments that adjust based on invoiced amounts
• Enhanced data — Richer transaction data including tax information, invoice references, and merchant categories
• Wider coverage — More banks and more countries adopting open banking standards

For businesses, this means accounting will become increasingly automated, with less manual data entry and more real-time financial visibility.

Relentify's accounting software supports open banking connections, letting you link your business bank accounts for automatic transaction import and streamlined reconciliation.

Getting started

If you are still manually entering bank transactions or uploading CSV files, open banking is a straightforward upgrade that saves meaningful time. The setup takes minutes, the security is robust, and the ongoing time saving is significant. It is one of the simplest improvements you can make to your accounting workflow.