On the 28 September 2006, we met with New Zealand’s ASB Bank and pitched the concept of supplying bank transaction data into Xero’s online accounting software. Just a month later, on the 31st October, the very first feed file arrived from ASB overnight, and bank feeds were born.
That was six years ago. We were the first cloud accounting software to link data from banks to an accounting package where the business owner and not just the accountant could see their bank activity. The feature was a hit – customers could login to Xero, reconcile their transactions and immediately update their financial records to match the activity in their bank account.
The idea for bank feeds came out of our design-led approach. We followed small businesses around and quickly learned that the first business task they do is to check their online bank account to see who paid them overnight. But at the time, business owners didn’t process their accounting transactions there and then; they had to come back later to do the bookkeeping. Bank feeds made bank reconciliation a natural starting point for daily workflow – one of the few substantial small business process changes in many years. Daily reconciliation eliminates catch up work and lets business owners have a real time view of their numbers.
A year later, Xero’s bank feeds service was extended to Kiwibank, ANZ, and the National Bank (ANZ and National Bank of course completed their merger earlier this week), and then BNZ, Westpac and TSB. A year after that, in 2008, we had our first feed from ANZ in Australia.
We’re quite pleased that bank feeds have become a basic prerequisite for all accounting software.
Xero now has direct relationships with all of the major banks in New Zealand, and direct relationships with most of the major banks in Australia, and we are continuing to develop and build these relationships on an ongoing basis. If you’re in New Zealand or Australia and hold a small business bank account – chances are that your bank supplies feeds to us directly. In order to receive one of these feeds, all you need to do is complete an application form and send it in, and we take care of the rest. The bank securely and directly transfers data to us on a nightly basis.
The full list of the financial institutions that partner with us is available in our Help Centre. If you’re setting up a new account for your small business, we encourage you to use one of our listed partners.
Yodlee, the USA and the UK
In 2009 we recognized the need to reach the thousands of banks in the United States in a way that didn’t require us to form relationships with each and every institution individually. Yodlee has been doing account aggregation for over a decade and are the best in class at what they do. Yodlee believes that bank account data belongs to the customer (“your account, your data”) and when a bank fails to make a customer’s data accessible, Yodlee provides a way for that customer to get their data into the systems they want to use.
Our Yodlee integration gave us a way to provide our US and UK customers feeds when financial institutions were too slow or too technologically constrained to supply the data to us directly. Yodlee is well established in the US – so much so that 8 out of the top 10 US financial institutions use Yodlee for their own aggregation purposes. What Yodlee has found is that by opening up the data within those financial institutions – something the institutions in the US and UK market have been reluctant to do – they have enabled a huge amount of innovation across the financial services sector – with over 600 financial institutions and companies using their platform for a massive variety of services: credit-worthiness reporting, debt management, personal financial management, credit-card charge monitoring, account-ownership verification, and of course, small business accounting too.
Yodlee has faced criticism for some of its methods – you need to supply your online banking credentials to use its services – but this is a product of a lack of innovation in the financial institutions that have failed to provide viable alternatives. Yodlee takes security very seriously and has not yet had a security incident. They are a PCI Level 1 Service Provider which is a bank-grade level of security.
Yodlee is completely optional and is provided to Xero subscribers free of charge. You can choose to stick with manually uploading bank transactions if you do not wish to use it. It’s worth noting that other aggregation methods, such as those provided in the US by accounting giant Intuit or FiServ’s CashEdge, work in exactly the same way. It looks to us like the market has spoken and that aggregation services are now a core component of the industry.
Ideally the banking sector would provide direct methods for us to provide the functionality that our customers want, and when they do so, we will migrate to them. In fact, we are actively working with financial institutions in all markets, and with Yodlee, to evolve alternate methods which eliminate the need to ask for customer credentials.
We were possibly the first to use an aggregation service like Yodlee with small business accounting software, but Yodlee had been used for years with personal financial management products like Mint, and Yodlee feeds will soon be available for Xero Personal too.
Bank Feeds Today
Bank feeds have grown so much within Xero that on a weekly basis we now process over 1.5 million statement lines and generate over 700,000 statements for the 111,000 small businesses using our software. Bank feeds has grown into a significant part of Xero’s business, with three full-time development staff and a dedicated customer support team. Despite the simplicity of the concept (data gets delivered to Xero, Xero delivers data to customer), there is a tremendous amount of complexity under the hood in the variety of ways in which banks supply data to us, and the formats and frequency with which they do so, and all of the queuing, scheduling, processing and parsing that happens every time a file is received or a feed is refreshed. The bank feeds development team do some of the most challenging work in the company.
The Next Six Years
Our direct partnerships with banks have been tremendously successful – for both ourselves and for our partnering financial institutions – and we are in constant conversation with the banks that we work with about how to increase the amount of benefit for our shared customers. Bank feeds are just the start. We believe financial institutions are in a tremendously powerful position to improve the lives of small businesses, and when they partner with us they can start to unlock a lot of small business potential that would otherwise lay dormant.
Ideally we’d like to see all banks offer feeds as a direct service. This might include a standard way for account owners to provision feeds for any product, including Xero. It might include the ability for account owners to provide read only feeds to other stakeholders, as it seems crazy, for example, that boards of not for profit organizations can’t get a summary of bank transactions for the entities they are responsible for. And finally, it might include OAuth style access to bank feeds services which would provide a way for banks and customers to control access to their accounts without providing credentials or completing paper forms.
We’ve been thinking about this stuff for a long time, and it was great to see a lot of these concepts explored by speakers at Money2020 in Las Vegas last week. We look forward to discussing some of these ideas with financial institutions soon, and I’m sure we’ll get to see most of these ideas put into practice over the next six years.