Attributed to Alex Campbell, Managing Director of Xero Asia
The financial sector is no stranger to disruption driven by technology. The industry is once again at an inflection point with structural change driven by a confluence of technology, regulation and changing consumer behaviour.
The first wave of what we now call “fintech” looked to be aiming to compete with the banking sector. But, these early fintech companies soon found that gaining distribution at scale and financial strength that the banks have is extremely hard and expensive (with the exception of a few areas like payments). As a result fintech is now in its second wave where partnerships with banks are forming to create value for customers. The fintech companies bring their ability to innovate and build great experiences for customers and the banks bring a huge customer base, brand and balance sheet.
In a similar vein, online banking and cloud accounting have been on parallel paths. In the near future, the two will become inseparable. Tech companies – in particular Xero – and banks are working closer together, more than ever before to provide customers with financial management solutions that they have come to expect from the digital age. A big part of this is the evolution of the financial web, which uses high integrity accounting data to help small businesses access the capital they need to grow.
The financial web facilitates a circle of transactions – beginning with secure bank feeds where transaction data flows automatically into the small business accounting platform every day. Fully formed, the financial web connects small businesses with financial institutions, government, apps all in one platform so an entrepreneur has a complete view and control over their financial and business data – ideally with an accounting professional to help them along the way.
These direct, digital bank feeds have transformed the way small businesses work. Overnight their bank transactions are automatically loaded into their accounting platform in the cloud, and when they need to work they can pick up their phone and, with the tap of a button, mark an invoice or bill as paid – creating accounting entries. From the accounting software, these entries are then passed securely onto the user’s online banking system – only the people with the appropriate permissions can check the entries off.
When payments are passed securely to the bank and processed through the bank’s payments system, this unique two-way transaction connectivity forms the basis for high integrity accounting. The data hasn’t been touched by human hands, and a small business owner’s accountant can see, using the data assurance dashboards in cloud accounting software, there have been no manual transactions added or deleted. Accountants can then be very confident in the cash position of the business and, here, there’s an opportunity for continuous certification of the quality of the books.
This presents an amazing opportunity for accountants to be a major sales channel for banks. In the majority of situations, a small business owner on Xero is connected to an accountant. Across all these accountants and small business owners, there are hundreds of thousands of conversations about financial services happening every month. Banks need to educate accountants on their services, and accountants are open to this training. Accountants want to know how they can take banking services and add value to small businesses.
Cloud accounting software connects a global network and creates opportunities for small businesses. The financial web makes it easier for financial institutions to identify, reach and serve small businesses globally through one platform, at scale – making it easier for small business owners to access capital. It also helps them make better decisions so they can grow, boosting employment and economic contributions in the process.
While the use of accounting data to make lending decisions is well established, leveraging new bank APIs to integrate banking into business software, eliminating manual application processes provides a massive opportunity for banking roadmaps over the next 10 years.
All this combines to help connect the financial world to small business owners, supporting entrepreneurs, around the corner and the globe.
“Original publication in Finance Digest Issue 1 https://www.financedigest.com/