Open Banking vs Traditional Banking: What Accountants Need to Know [2025]

Traditional banks have served as the foundation of financial services for decades. Now innovative alternatives are leaving them behind. Traditional banking still depends on manual processes and isolated data. Open banking has revolutionised how financial information moves around. The numbers tell the story – $56 billion in global transactions in 2023 alone.

We accountants see the dramatic change from traditional systems to digital banking approaches every day. Open banking brings huge advantages to the table. More than 11 million UK users have their attention drawn to it already. Tasks that used to take weeks now wrap up in minutes. This lets us focus on giving strategic advice instead of typing in data. The numbers paint a clear picture – 72% of accountants say their small business clients don’t grasp what open banking can do for them. Traditional banking services keep declining. We must adapt quickly to stay competitive and make our client work effective.

This piece breaks down everything accountants should know about open banking versus traditional banking. We’ll cover security concerns and practical steps to implement these changes in 2025 and beyond.

Open Banking vs Traditional Banking

The banking industry now stands between its time-tested traditions and digital breakthroughs. Accountants need to understand the key differences between these two banking models.

What is Traditional Banking System?

Traditional banking represents a long-standing model that centers on physical branch networks and centralised operations. Banks act as exclusive guardians of their customer’s financial data through hierarchical decision-making structures. Customers connect with their banks through in-person visits, phone calls, or specific online portals that often limit accessibility and flexibility. The system’s backbone consists of physical infrastructure like branch offices, ATMs, and customer service centers. Data sharing remains restricted, and information stays locked within individual institutions.

Open Banking APIs vs Manual Data Requests

Accountants face the biggest difference in how they access and transfer financial data. Open banking uses Application Programming Interfaces (APIs) that create standardised, secure communication between financial institutions and authorised third parties. Traditional banking needs manual data requests. The process becomes tedious when users log into online banking, enter payee information by hand, and complete extra verification steps.

These APIs come in three main categories: Data APIs give read-only access to account information and transaction history. Transaction APIs handle fund transfers and payment services. Product APIs let third parties list financial products and terms. Accountants can now choose between automated, standardised data formats or time-consuming manual processes.

Open Banking Benefits for Accountants in 2025

Accountants see significant gains in efficiency as open banking adoption grows toward 2025. Traditional banking processes give way to new methods that change how accounting professionals help their clients.

1. Faster Bank Confirmations and Audit Evidence

Getting audit confirmations through traditional banking services takes too much time and effort. Open banking cuts this process from 20-30 days to as little as 2 days. This improvement eliminates frustrating delays that often hold up audit completions, especially near reporting deadlines. Accountants now receive instant banking validation through secure APIs instead of manual processes that take weeks.

2. Improved Client Advisory with Up-to-the-Minute Data

Open banking helps accountants provide better advisory services based on current financial information. Companies that use open banking spend 44.5 hours monthly on finance tasks while non-users spend 57 hours, saving more than 150 hours yearly. Data aggregation lets accountants analyse complete financial pictures rather than isolated account information. About 73% of businesses say cloud accounting with open banking makes it easier to work with their accountant.

3. Reduced Errors Through Standardised Data Formats

Raw and unformatted transaction data typically comes from traditional banking sources and needs extensive cleanup. Open banking provides standardised data formats that remove manual reconciliation errors. This standardisation helps reduce the 30% of businesses that face financial record errors due to incorrect bank reconciliation procedures. Manual data entry elimination cuts down human error and streamlines processes.

4. Time Savings During Tax Season

Open banking integration changes tax preparation significantly. HMRC’s ‘Pay by bank account’ option saw over half a million people use open banking to make tax payments worth more than £1 billion in six months. Companies without open banking spend £1,687 more yearly on payment processes than those using this technology. Automated open banking lets accountants focus on advisory services during busy tax periods instead of collecting data.

Challenges and Risks in Both Banking Models

Banking systems face major obstacles as the financial world continues to change. Accountants must learn about these challenges to guide their clients through transitions while reducing risks.

Decline of Traditional Banking: What It Means for Firms

The financial sector shows a clear move away from old banking models. Commercial banks’ share of financial intermediary assets dropped from 40% to less than 30% since the 1970s. This decline affects accounting firms because their clients can’t access many traditional banking services they once used.

Basic economic forces have reshaped the scene through state-of-the-art financial tools that boosted competition. The commercial paper market, junk bonds, and asset securitisation have weakened banks’ usual advantage in lending. The pretax return on equity for traditional banking activities fell from above 10% in 1960 to almost negative 10% in early 1990s.

Security Concerns in Open Banking: Myths vs Reality

Common beliefs about open banking security risks don’t match reality. I-Finity’s 2024 survey shows more than 1 in 3 people wouldn’t feel comfortable sharing personal details with an Open Banking platform. All the same, open banking often provides stronger security than traditional methods.

Open banking security measures include:

• Secure API architecture and endpoints
• Data encryption during transit
• Digital certificates for verification
• Multi-factor authentication
• Active consent mechanisms

Traditional methods like emailing PDFs or mailing physical documents are nowhere near as safe against tampering and interception.

📚 Top 10 Myths about Open Banking Services

Client Education and Consent Management

Client education remains the biggest challenge for accountants. Only 14% of European consumers know about open banking. Most UK consumers – 84% – don’t trust open banking’s safety, while 58% don’t grasp its concept.

Accountants must focus on consent management. Open banking systems let customers share only essential information through secure digital channels. Accountants should explain to clients that open banking never asks for bank login details or passwords except with the client’s own bank.

Accounting firms need solid client education programs about consent management, especially since 73% of consumers worry about how companies use their data.

Preparing for the Future: What Accountants Should Do Now

Open banking continues to alter the map of financial services. Accountants must prepare their practices for this technological change. Smart firms already make use of information from these innovations to reshape their service offerings.

Adopting Open Banking Tools and Platforms

Cloud accounting software provides the most available entry point into open banking for accounting professionals. Research shows that 72% of small businesses cite bank account connection as an important feature of their service. These services have helped 77% of respondents get better visibility of their financial position.

Accountants should look for platforms that offer secure API connections to major financial institutions to start this process. The best providers have complete UK bank coverage, live data refresh capabilities, and FCA authorisation. Your first step should focus on solutions that combine smoothly with popular accounting software like Xero, QuickBooks, and Sage to keep workflows running smoothly.

Training Teams on API-Based Workflows

The core team’s competencies become essential next. Your structured training programs should help staff understand technical operations and the benefits these systems provide. Your firm’s specific workflows need detailed documentation and standard operating procedures.

Industry research shows that open banking technology can reduce accounting operations by up to 80%. This boost in efficiency comes from automating manual processes like:

• Transaction verification and categorisation
• Bank reconciliation and statement matching
• Client financial position analysis

Regular check-ins and feedback help address team members’ challenges during implementation. Staff members feel supported through the transition with this improvement approach.

Staying Compliant with Evolving Regulations

Accounting firms must keep up with regulations as open banking frameworks evolve. The UK’s open banking landscape has seen most important developments. The CMA confirmed full completion of the final Roadmap for Open Banking in September 2024.

Accounting professionals need industry newsletters, professional associations, and regulatory updates to stay informed about changing requirements. Your firm should verify that any open banking platform maintains FCA compliance and follows strict data handling protocols.

Accounting firms can become valuable advisors in an increasingly digital world by accepting new ideas thoughtfully. This approach works well even as traditional banking services continue their decline.

Conclusion

The banking world is changing rapidly, and open banking has become the way forward for accountants who want better efficiency and client value. Traditional banking with its manual processes and isolated data is giving way to API-driven workflows that save time and resources. Accountants who welcome this change can cut bank confirmation times from weeks to days and get access to standardised, live financial data.

Many clients still doubt open banking because they worry about security and data privacy. As trusted advisors, we need to do more than just implement the technology – we must show clients how resilient infrastructure in open banking platforms provides better protection than traditional banking safeguards.

Numbers tell the real story: businesses that use open banking spend 13 fewer hours each month on finance tasks than those who don’t. This saves substantial costs and lets accountants focus on valuable advisory services instead of manual data entry.

Traditional banking worked well for decades, but its time has passed and we must adapt. Forward-thinking accounting firms should focus on three key actions: they should adopt open banking tools that merge with existing accounting software, train staff on API-based workflows, and watch evolving regulations carefully.

The switch needs original investment in technology and training. In spite of that, faster audits, fewer errors, live financial insights, and huge time savings during tax season make this change crucial for accounting practices that want to succeed beyond 2025. Open banking isn’t just a competitive edge – it’s the new benchmark that clients will use to judge all accounting services.