January marked Open Banking’s fourth birthday but it is still foreign country for many, including the legal sector. Questions as to what Open Banking even is, and how it can be applied, remain unanswered.
In this joint Q&A, Open Banking experts Steven O’Day, Head of Technology at The Cashroom and Tom Lyes, Head of Legal and Property at Armalytix, tackle key questions around the applications of Open Banking for the legal sector.
What is Open Banking and what are its current applications?
At a top level, Open Banking provides a standard and secure method to connect businesses with banks to enable 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 in 2018, its mission is three-fold: to make consumers better informed and engaged in financial services, to enable numerous payment choices for customers, and to create an enhanced client experiences through increased competition and product innovation.
It is this final point on 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 develop the capability to set up lawyers payments using a straight through process.
For us, Open Banking has meant that conveyancing firms can improve their analysis of 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.
What are some core challenges that the legal sector faces?
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 – the opportunities for fraudsters and challenges for the legal sector are numerous.
The value of successful frauds of property sales more than tripled – from £7m in 2013 to £25m in 2017, and this number has only continued to rise. According to the Law Society of England and Wales, 2021 proved to be one of the worst years for fraud in property sales, especially APP fraud (Authorised Push Payments) , as the removal of Stamp Duty put people under additional time pressure to execute on their house sales, opening the door for criminals to impersonate clients’ lawyers and convince them to send their hard owned money to the wrong account.
“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 on their law firm and employees within the law firm to deliver a digital offering, similar to online banking.
This has only increased the pressure placed on legal firms to modernise their reliance on paper and outdated technology by replacing some of their existing processes with ones that are more efficient and digital first.
How can Open Banking address these challenges and make the legal sector more efficient?
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 that happen within the legal sector.
Additionally using the same principles as Open Banking is to promote within other areas of the legal technology to continue to drive the efficiencies that many firms are looking for to help provide the best service they can for their clients.”
For our Source of Funds analysis, the time saved from using Open Banking cannot be understated. In terms of the benefits for clients, using Open Banking could save companies 50% of the time spent analysing manual source of funds checks.
The anti-fraud benefit that open banking brings is critical and is a key reason as to why we have implemented it. It creates a digital register and audit trail, uploaded, and maintained without the input of employees. This helps to prevent fraudsters and criminals who like to target weak processes with a heavy human input, as it allows them to slip unnoticed between the cracks – which is the case for the current state of the property market. Historic cases indicate that criminals won’t engage with robust technology. They realise the value isn’t there for them.
How do you (Armalytix / Cashroom) use or apply open banking?
Open Banking helps us access up-to-date and accurate numbers. We can then analyse the data and clearly present it to help the conveyancer assess the client’s Source of Funds more efficiently. By being able to confirm that the payees are who they say they are, we can help to prevent fraud and money laundering. Open Banking provides a very simple, digital journey for both the law firm and their clients, enabling them to provide and access the data in only a few clicks, and provide a clear picture for conveyancing firms to make their decisions.
“We use Open Banking to initiate payments required by a law firm to provide straight through processing of payments removing the need to rekey bank account details and making it easy for the lawyers to authorise the payments that need to be made.”
What are your predictions for open banking in 3-5 years?
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 products
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. Across 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.
“This demand internationally for Open Finance initiatives will continue to expand, and the requirements for regulation, fraud and financial crime checks will rise sharply with it. Whilst everyone will become more comfortable using Open Banking and enabling the required flow of financial data to make their interactions with sectors like the legal sector easier. They will also be more aware of what data they have and be aware of the risks associated with sharing this data so will expect a secure digital journey to be provided to enable this sharing of data.
Open Finance will continue to open up more capabilities within suppliers to the sector, such as banks and other financial institutions, which will provide greater opportunities to make processes more efficient, by removing the need for most manual inputting of data and securely sharing of data across the processes, all leading to a better and safer world.