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Cloud accounting: Changing the landscape for small business banking

Posted 6 years ago in Small business by Xero
Posted by Xero

The financial services sector is at an inflection point. Right around the world, banking is facing a wave of digital disruption, driven by new technology, regulation, the need for cost reduction and changing consumer behaviour; the sector is starting to reshape.

Over the past decade, banks have focused on evolving their technology stack and operations so they could meet significant changes in expectations from consumers, increased regulations as well as arm themselves against fintech companies, which they saw as challengers to their market. Financial technology companies also saw themselves as challengers. They could move faster than the banks and focus on deeply solving specific customer problems with modern, beautiful and easy-to-use technologies that can link – and hide – banks’ old school systems in the background.

As a result, some bankers had thought tech companies would eat the financial services sector. What’s actually happening is many top-tier institutions are developing better business by partnering with their tech counterparts. Strategic partnerships are bringing banks closer to their customers. We’re seeing technology companies increasingly becoming enablers, rather than disruptors in the financial services industry.

This sense of competition has culminated in, what has essentially been, a race for the front-end of banking. The big question is, who will garner the customer loyalty through daily interaction and who will solve the most critical customer challenges? Those that the customer would be most willing to pay for. However, the reality, which is just now starting to culminate, is that banks and fintech companies are going to need to collaborate to be successful. It’s a three-legged race where both sides need to team-up to deliver a compelling and integrated customer experience.

Accounting software monetizes on business software subscriptions, so it does not need to cannibalize bank revenue, rather both parties have the opportunity to partner with cloud accounting software to grow mutual revenue from new connected services and drive frictionless banking experiences for small business.

The completion of the financial web is nearing

Over the last 10 years, online banking and cloud accounting have been viewed by many as two adjacent services. In the future, the two will become inseparable. Tech companies – in particular cloud accounting providers – and banks are working closer together than ever before to provide customers with the next generation financial management solutions they expect. A big part of this is the evolution of the Xero financial web, which uses high integrity accounting data to help small businesses access the capital they need to grow.

A great example of how the financial web has benefited small business is in the New Zealand farming sector. Xero accounting software connects the farmer with their bank and accountant who work as a team, reducing bank risk while keeping farmers on their properties.

The financial web facilitates a circle of transactions – beginning with secure bank feeds, which flow automatically into the small business accounting platform. 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 — with an accounting professional to help them along the way.

Direct, digital bank feeds have transformed the way small businesses work. As entrepreneurs sleep, their bank transactions are automatically loaded into their accounting platform, and when they wake up 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.   

Accountants are an amazing channel for banks. In the majority of situations, a small business owner who is a cloud accounting platform user 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.

Soon, accountants and bookkeepers can use Xero HQ’s Explorer function to see how the banking relationships of their clients relate to the industries they’re working in. They will be able to use this information to help identify collaboration opportunities and build stronger relationships with their local banking partners.

Cloud accounting software connects a global network of accounting providers to regional bankers. It’s a new opportunity for banks to unlock the trusted Xero advisor channel, and working together with them on a local basis creates opportunities for their small business customers.

An opportunity for banks to reach small business owners

The financial web also 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 now and 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.

We encourage the global banking community to come on the Finweb journey with us to realize our vision: to ensure Xero small business customers have a choice of financial services’ products that help them run and grow their business.

Visit www.xero.com/finweb.


Alain Renard
February 4, 2017 at 3.16 pm

Hi Rod. I really enjoyed this article. I was perusing Xero.com and found the “high integrity accounting” whitepaper. Do you have more whitepapers like this available? It is so good to read a thought provoking piece. Could we see more like this coming from Xero? Regards. Alain

Jean Lie
March 30, 2017 at 1.57 pm

This is pretty amazing article. Reaching out to small businesses is hard because they the owner itself is the one managing the financing matter. They also have less time to got to banks. This system will help them engage with banking because of this they can manage their account through the internet.

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