What Are Bank Feeds and How Do They Work?
Understand bank feeds: the technology that automates your financial data flow for simpler, more accurate record-keeping.
Bank feeds offer a streamlined approach to managing financial information by directly linking a business’s accounting software with its bank accounts. This digital connection automates the process of importing transaction data, eliminating the need for manual entry. They simplify and accelerate the reconciliation process, ensuring financial records accurately reflect bank activity by providing up-to-date transaction details.
Understanding How Bank Feeds Operate
Bank feeds function through a secure, electronic connection between financial software and banking institutions. This connection typically uses application programming interfaces (APIs), which allow different software applications to communicate. When a user enables a bank feed, the accounting software requests and receives transaction data from the bank’s API. This automated process ensures financial records are consistently updated with the latest bank information.
Data transferred through bank feeds includes deposits, withdrawals, electronic transfers, and debit or credit card transactions. Each transaction includes the date, amount, and a description. This information is pulled into the accounting software for categorization and matching. Data updates generally occur daily, or several times a day, providing a near real-time view of cash flow.
Upon receiving transaction data, the accounting software automatically categorizes transactions based on predefined rules or historical patterns. For instance, recurring utility payments might be tagged as “Utilities Expense.” This automation reduces time spent on manual data entry and categorization. The system also flags new transactions for review before they are recorded in the financial ledgers.
Steps to Connect Bank Feeds
Connecting a bank feed within accounting software involves a series of steps. Users navigate to a section like “Banking” or “Connect Accounts.” From there, they search for their financial institution from a list of supported banks and credit unions. This ensures compatibility and establishes the correct digital pathway.
After selecting the financial institution, the software prompts the user to enter their online banking login credentials. This process uses robust security protocols, transmitting sensitive information through encrypted channels. The accounting software does not store these credentials directly; instead, it uses a secure, tokenized method to maintain the connection. This authorizes the software to access transaction data from the bank.
Once authenticated, the user selects which accounts (such as checking, savings, or credit card) to connect. Upon confirming the selection, the initial synchronization of historical transaction data begins, typically pulling transactions from the past 90 days to a year. The connection is then established, and new transactions automatically flow into the accounting software.
Data Security and Privacy
Data security and privacy are paramount concerns when utilizing bank feeds. Data transmission between banks and accounting software relies on advanced encryption protocols, such as TLS or SSL, which scramble data during transit to prevent unauthorized access. This ensures that transaction details remain confidential and secure as they move from one system to another.
Furthermore, many bank feed systems employ tokenization, a security method that replaces sensitive data, such as account numbers, with unique, non-sensitive identification symbols called tokens. These tokens cannot be reverse-engineered to reveal the original data, adding an extra layer of protection. Accounting software providers also adhere to industry security standards and undergo regular third-party security audits, such as SOC 2 examinations, to verify their controls over data protection. These audits assess security, availability, processing integrity, confidentiality, and privacy.
Regarding user credentials, accounting software applications do not store the user’s actual bank login information. Instead, they use secure tokens or encrypted keys provided by the bank’s API, which act as a digital handshake to maintain the connection. The data accessed is strictly limited to transaction details necessary for accounting purposes, such as dates, amounts, and descriptions. This information is used solely for categorization, reconciliation, and financial reporting within the user’s account and is not shared or sold to third parties.