Come and explore what Open Data is, why it matters for accountants. We also share how the Open Ledger Partnership is framing this exciting space to our community.
What is Open Data?
“Open data is data that can be freely used, shared and built-on by anyone, anywhere, for any purpose”.
To achieve this, data must be both legally and technically open. Legal openness means you can access the data legally, build on it, and share it. For example, data is provided under an open licence, or placed in the public domain. Technical openness means there are no technical barriers to using that data. For example, data is in machine-readable file formats, rather than PDFs, or from a human relaying it by voice.
The test for whether data is open, partly open or closed has three elements. If all are met data is open, if some or none are met data is partly open or closed.
Can it be freely used?
Can it be shared?
Can it be built on by anyone, anywhere, for any purpose?
What type of data meets that definition? For starters, let’s look at accountants accessing clients' bank transactions. Accountants have long relied on this as the key building block of financial statement creation, tax compliance, and most other advisory services accountants offer.
A. Originally, clients accessed paper bank statements at a cost and sent these to their accountant.
B. Later, Banklink later provided a digital feed of bank transaction data between client bank account and the accountant.
C. More recently, cloud accounting apps enabled bank transactions to flow directly into an accounting system that both client and accountant could access.
Not all of these methods pass the Open Data test. A is not usable because of the unwieldy paper format. B and C are not freely usable because the banks and software providers charged the client or their accountant. Just because data is not open, does not mean it isn’t shared. It simply means there are limitations to that sharing.
Let’s look at some other methods for clients sharing bank statement data developing under Open Data:
D. Accountants become Accredited Data Recipients under the Consumer Data Right - meaning clients can share with their accountants within that data sharing system at no cost.
E. Accountants operate outside the Consumer Data Right system - meaning clients can share with their accountants outside that data sharing system via the accounting software application at no cost (assuming cloud accounting providers choose or are forced by the regulator to join the CDR system).
F. Accountants access client data via a public blockchain at no cost.
All of these methods are likely to pass the Open Data test. It is important to note that D and E are still evolving as the Open Banking rules are fleshed out, so we cannot say for sure they will meet the test.
This is one foundational service example of Open Data for accountants. We will deep dive into others that offer promise for accountants in another article as part of this series.
How will the Open Ledger Partnership approach it?
We can see there are different expressions of Open Data. Based on discussion with the early Open Ledger Partnership members, our view of the most helpful way to apply Open Data to advance our mission follows four principles:
(1) A broad approach to Open Data. We care about the outcomes more than the way they are realised. Over time the best method of data sharing will win and become homogeneous. For now, different data sharing methods are underway. Whether it’s by integrating between SQL databases, exchanging data via API or smart contract on a blockchain the key question is - does it meet the Open Data test above? We think the Consumer Data Right system is an important expression of Open Data, as is Web 3.0 and Distributed Ledger Technology and are open minded about mediums not yet invented too.
(2) Focus on accountants and their clients. In particular we have our eye on public practice accountants and small business consumers as users of Open Data. We think this is where some of the biggest opportunity lies to realise enormous social and economic gains.
(3) Action-oriented and concrete. Explore how accountants can practically apply the trend and changes to their clients and practice. The current narrative focuses on lofty, often abstract policy goals, or detailed debate on technical standards. We want to make it real for accountants and focus on how they and their clients’ lives will be better because of it. What will accountants practically be able to do using Open Data, which they could not do without it?
(4) For humans. We believe in Open Data’s potential to improve relationships and drive humanity forward. We will focus on Open Data expressions or service examples that advance these goals, over those that do not.
Why does it matter to accountants?
Open Data matters to accountants because of the unique position they hold as trusted advisors. Their clients will look to them for knowledge, guidance and expertise. It also poses serious threats and opportunities to accountants, and raises fundamental questions about the profession’s future.
The prize for accountants is to cement their role as the trusted business advisor while arming themselves with new knowledge, skills and tools to compete fiercely in today’s fast moving markets.
Accountants are in the box seat with client relationships, deep trust and unique societal standing as someone firmly relied on by most other participants.
On an ethical note, it is also an accountant’s duty to act in the best interest of her clients, as a member of a regulated profession. The adoption of Open Data will raise all sorts of questions and challenges.
Clients will turn to their accountant expecting them to act out the role of advisor, and probably data custodian to work through these.
The wider potential societal and economic benefits of Open Data are hard to quantify and accurately estimate but believed to be enormous. Estimates for Europe alone are that by 2025 the Open Data market will be between €199 billion to €334 billion and employ up to 1.9 million people (source: 25 February 2020, Capgemini Invent). It’s like trying to guess how much value the Internet would create in the mid-1990s. A tough job.
But we can assume the benefits and value will be significant by inferring from other factors. Firstly looking at the value created by private corporations using data. Two of the world’s largest companies, Facebook and Amazon with market caps of $911b and $1.77T have built businesses heavily premised on using customer data suggesting decentralising power and control of this data could lead to similarly large value. Secondly, the adoption and growth rates of Open Data applications in markets around the world suggests the market is ready to share it. Plaid the US data-sharing giant has enabled consumers to share data and create moments hundreds of times using its 9,600 bank integrations, and created $13.4b worth of company value in 8 years. Adoption rates of digital assets like Bitcoin and Ethereum on public blockchains have gone from one person to hundreds of millions and $2.9t of market cap in 12 years. Data is valuable, becoming increasingly open and consumers want to share it under the right conditions.
On the other hand the threat to accountants is a failure to step into this trend, or to do so inadequately.
One of the key threats is that accountants and their industry are under pressure from technology and competition, and at a vulnerable point in history. Large slices of traditional compliance accounting work are steadily being automated. Technology firms and rolled up accountancy businesses look hungrily at the accountants client relationship, their structured financial data and repeatable compliance accounting work. In a world where automation and expanding the scope of customer relationships and number of services sold to them is the ultimate, accounting is an obvious target. If accounting is the one true global language allowing us to keep score in the game of business, Open Data may accelerate the robots learning that language, and they may well soon speak it better than their accountant teachers.
Being an advisor and custodian of data and helping clients is complex stuff, and will stretch many accountants into new areas requiring different skills.
Data analytics, security control audits, privacy, carbon reporting and financial services advice all require different expertise to the technical job of accounting. Will accountants step into these areas deftly and successfully?
It seems that If accountants do not step into the playing field of Open Data to support their clients, we anticipate others will do it for them, taking the customer relationship from their hands.