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Reflecting on the evolution of bank reconciliation at Xero

Posted 2 months ago in Product by Craig Walker
Posted by Craig Walker

Around 15 years ago, I sat down at my dining room table in Wellington and began writing the first lines of code for a start-up that would ultimately become Xero. In recognition of that anniversary, I’ve been reflecting on those early days, and how a simple idea to transform bank reconciliation changed the game for accounting and helped build the global small business platform you see today.

Bank reconciliation continues to be one of our most loved features of Xero, and a core part of our vision to automate routine tasks, so you have more time to focus on what matters most. So today, I thought I’d share a behind the scenes look at where we started, some of our latest enhancements, and why we’re investing in machine learning to supercharge your bank reconciliation in the future.

The early days of Xero

Of course, bank reconciliation has been around longer than Xero. For hundreds of years, comparing two sets of records to make sure the figures are correct has been a core bookkeeping task. Back then, you would manually enter a bunch of bills and invoices into an accounting system, then run your eye down your bank statement to find the relevant transaction and tick it off.

What we did when we created Xero was totally rethink that concept. We started by essentially creating a matching game, with your Xero transactions (bills and invoices) on one side, and statement lines from your bank on the other. We would then do the match for you, or allow you to quickly add transactions on the fly. Nobody had ever done this before. It was a totally new way of undertaking a very traditional bookkeeping task, and it’s what made Xero stand out from day one.

The first version of bank reconciliation, released in February 2007

Since 2007, we’ve continued to invest in bank reconciliation and improve the experience for our customers. In fact, you may notice in the coming days that your bank reconciliation page has a fresh new look. But we’re not just focused on aesthetics, we’re also enhancing the engine that makes it work so efficiently, to help you complete your reconciliation faster than ever.

Partnering for success

The early days were ones of pure discovery. None of us had built accounting software before, so everything was up for debate. But we all agreed on one thing—the success of bank reconciliation would depend on the accuracy of the data that was entered. And that data started with what was already in the bank account. 

The key to unlocking this was to get as close to real-time access to that bank data as we could. That’s why we partnered with ASB Bank in New Zealand, before Xero even went live. 

While our approach to reconciliation was unique, in reality the true innovation was the bank feed. At the time, no one else had daily bank feeds, and it became our next big milestone—the ability to ingest data directly from banks and surface it during the bank reconciliation process. It meant customers could tick the green box without having to manually find a match or create a transaction.

Xero now has 300+ connections to banks and financial services partners around the world, and we’re adding new bank feeds each year. As we continue to extend the reach of our partnerships and improve the quality of our bank feeds, our algorithms find it easier to remember transactions and suggest better matches during the reconciliation process.

Once Xero was able to regularly digest data from banks, we focused our efforts on creating bank rules. These rules automatically categorise transactions that occur on a regular basis (like parking expenses), to help reconcile cash transactions. Unlike the original version released in 2010, you can now see the details of each rule in your bank rules list, without having to click edit. We’re also releasing a new search tool soon, which will help you find and manage the right bank rule in seconds.

Predicting the future

Technology has come a long way since I first started Xero’s bank reconciliation experience at my dining room table. We continue to invest heavily in machine learning capabilities, so our algorithms not only remember the actions you took in the past to reconcile transactions, but can also suggest what actions you may want to take in the future.

The first milestone in this journey is a new feature that we recently released, called transfer memorisation. It’s a powerful feature that allows Xero to remember the account you transferred money to, so it can suggest the same account when a similar transaction occurs in the future.

But the real magic—something I’m really excited about—is how we’re using predictive algorithms to suggest the contact and account code for transactions created during the bank reconciliation process (ones that aren’t based on an existing bill or invoice). I’m going to be bold and say when we crack this, it’ll be the biggest thing we’ve done to date in bank reconciliation at Xero.

Our teams have already released the beta version of this feature to a small group of customers, and hope to release it more broadly soon. At first, it will positively impact a very small percentage of your transactions. But over time, as our algorithms learn which matches are correct, you’ll notice a real difference. I can’t wait to see the improvements in the breadth and accuracy of our suggestions, and how much time it will save you at the end of the day.

The journey continues

After 15 years, so much at Xero has changed. And yet, so much has stayed the same. Our vision hasn’t changed—we always wanted to make life better for people in small business, their advisors and communities around the world. The concept of bank reconciliation hasn’t changed either. And yet, the manual process that used to be the norm seems so archaic now.

We often use bank reconciliation as a metaphor for innovation at Xero, and I stand firmly behind that. It’s what made Xero the company it is today, but we’re not done yet. We’re constantly trying to make this thing we all know and love better, with ongoing investment and innovation that will continue to save you time, and help your business thrive. Watch this space.

The early days of Xero, at the dining room table with Fletcher Brown in Wellington, New Zealand

22 comments

Ed Henry
August 10, 2021 at 11.37 am

Hi Craig,
Thank you for your blog about Xero bank reconciliation and your ongoing incredible work and enthusiasm for your ’baby’.
When I first found Xero in 2013 it was a real shock as an accountant to be working directly from a bank statement before any transactions had been entered into the ledger, but then my forward-looking management accounting training kicked in and realised that this was revolutionary.
Already I have noticed the predictive transfer AI in operation and I can’t wait as other AI kicks in and predicts Contact and code.
Keep up the awesome work. I love how there is always something new and beautiful evolving in our ‘baby’ (I am a an avid adoptive parent)

Leanne O'Connell
August 10, 2021 at 12.22 pm

Great to see these changes. Congratulations on 15 amazing years. Pity the sound quality on the video was so poor, and your excitement didn’t quite come across. But, I do love your work, Xero.

Tony Newton
August 12, 2021 at 11.03 am

Craig, appreciate your work but we do prefer the old version which shows many more transactions on the screen. Is there away to return to the old format?

Beeny Atherton in reply to Tony Newton Xero
August 12, 2021 at 3.04 pm

Hi Tony, thanks for getting in touch. I have passed your feedback onto my team.

Caroline bevan in reply to Beeny Atherton
August 19, 2021 at 2.37 am

I just find it sad that your investing all this time making the pages ok prettier when your not addressing fundamental issues like credit notes. I have been asking for 3 years for credit notes to appear on the reconciliation page so that I can see which invoices and credit notes were allocated to a payment. Currently you have to go to dashboard. Write down all the amounts taken. Then go to accounts payable, Supplier, find the credit note, allocate it and then go back back back to account payable to see the next credit note. It’s painful. Then I have to go back to the dashboard to reconcile it. I see some customers have been asking fir the same for 10 years. I personally received 5 emails from the community forum asking for the same thing. And Gary Turner is no help as he thinks my issue is being addressed when it’s just been fluffed off. Please fix this.

Angela
August 23, 2021 at 12.03 pm

Right on Caroline, with you all the way. It’s a total pain, and Xero should be addressing these issues and not just dumbing things down.

Craig Thorn
August 12, 2021 at 1.40 pm

Hi,
I am not sure that chosen to be in “initial group” is always fantastic. The New invoices were so terrible I havent gone back to them, I miss out on the autosave, but have learned to live witout it. In this case the reconciliation changes have not been bad, however I would be really unimpressed if I way paying someone to do my accounts who was easily flustered by these sudden changes. Perhaps next time advise me there is a change comming up and ask do I want my organizaton to be a guinea pig.

Beeny Atherton in reply to Craig Thorn Xero
August 12, 2021 at 3.15 pm

Hi Craig, thanks for your comment and sharing your thoughts with us here. We understand that not everyone appreciates sudden changes to the way they do things so I have passed your suggestion of providing prior notice of upcoming changes with the team.

Xero User
August 13, 2021 at 8.51 am

I have two Xero subscriptions for our small businesses. I’m starting to get that feeling of dread with Xero’s updates that was the cause of my initially switching to it from another popular program. Why? The new reconciliation page.

Besides everything being about 3x too large, to the point of the increased size making everything LESS readable (and involving an inordinate amount of scrolling), it seems (at least on Mac) that Command-clicking “Reconcile” no longer opens a new window in any browsers I’ve tried. Please God switch back to the old version…this new UI is really not good. If you aren’t bringing back that functionality, I’d like to read an explanation (or rather, a defense?) of why this was done.

I agree with the above poster regarding new invoices too, although those are far less cumbersome than this update. I do multimedia work for a living and live on the computer; I know there is always some grumpiness and resistance around software version changes, but usually you can at least see the point of the change. If the AI has improved, keep that, but please return to the prior graphical interface and most importantly, the ability to Command-click “Reconcile X Items” from the dashboard and have it open a new window. At the very least, offer an option to use the classic view?

Beeny Atherton in reply to Xero User Xero
August 16, 2021 at 2.45 pm

Hi, thank you so much for sharing your thoughts with us – we are reviewing all the feedback on the latest changes so I have passed your comment on to our Product Team. In regards to the inability to open a new window – can you please contact our support team so we can take a closer look into this for you? Thanks!

Xero in reply to Stuart Taylor Xero
August 18, 2021 at 2.59 pm

Thanks Stuart – we are gathering together all the feedback being shared by our small business and partner community about the latest changes to the bank reconciliation screen, and our teams are reviewing it all.

Vicki Gardiner
August 18, 2021 at 4.36 pm

thanks for the updates however the “new” bank reconciliation screen is a complete nightmare! The sizing is impossible to work with, is use two 23″ screens it just doesn’t work without having to zoom in, then on the next screen have to zoom out again. We all get the need for improvements but this is making beautiful software, ugly! This “improvement” is causing a huge amount of distress in the bookkeeping community, we are constantly fielding complaints from our clients, let alone staff. At this difficult time changes and disruptions like this just make it so much worse.

Elizabeth Salter
August 18, 2021 at 7.33 pm

Perhaps if the intention of the change was for accessibility or similar, then having an option or a click button to turn the bigger size on or use the previous size might be a good option to have.

Jerry
August 19, 2021 at 2.26 am

Shame … I was excited when I saw this, as I thought you would have incorporate a sort by name to group all transactions from a supplier / customer together rather than having to scroll through pages (even more now there are less transactions on a page) one by one to reconcile a single supplier . That would be a timesaver and easy to implement.

James
August 19, 2021 at 3.18 am

I have posted my comments on the above mentioned thread on Xero Central due to this form not allowing me to list them here.

Juda
August 19, 2021 at 11.39 pm

I love Xero and have been a big fan of you guys. There are some amazingly good thought out stuff in Xero and there are also a some very lackluster items. Reconciliation is actually something Xero does a bit of both. I love the reconciliation reports but it would be nice to have them as a tool as well and not just a report.

So first thing is that I have always been a bit annoyed at the word reconciliation and the way Xero uses it. They should call it “categorization” and you once you categorize, THEN you reconcile with the bank statement to make certain everything is accurate. This is where the reconciliation report comes in handy. But the term reconcile is being used incorrectly and has always frustrated me when I train my team. So I typically tell them, “I know it says ‘reconcile’ here but what Xero calls reconcile we call categorizing bank transactions, things are not reconciled till we check with the bank statements.”

The second, I am not seeing any big news other than a reformatting and some AI prediction. QBO does AI prediction and it actually causes more issues than help so I would be curious if Xero is going to be different.

I was hoping more for a better reconciliation report tool when I saw this announcement, but so far I am underwhelmed to be honest.

Julie Wiggins
August 20, 2021 at 7.00 am

You stated that the reconcile window is “what made Xero stand out from day one”, and I 100% agree with that statement but this latest updated to the reconcile window is absolutely HORRIBLE, the font is way too big and has made the reconcile window completely unusable unless we zoom out to 60%.

I’m all for improvements and change but you didn’t really need to change design/layout of the page for the new code to work unless you really didn’t want people to use the reconcile window anymore

Debra Cooper
August 24, 2021 at 8.22 pm

Hi Craig
I have been using Xero for many years and absolutely love your product.
My problem is the new bank reconciliation window. It is terrible.
I have been trying to get used to it over the last week and now for the first time have had to reach out to Xero and beg you to go back to the drawing board. This has not been an enhancement and I am struggling to get through my work. Please let me have the old version back. It worked, it showed everything clearly, I could see the whole page without having to scroll up and down.
I know I may be an aging bookkeeper but my eyes are not that bad yet! Thanks 🙂

Xero Xero
August 25, 2021 at 2.06 pm

Thanks everyone for sharing your thoughts with us. Your feedback is always appreciated and our team are listening and assessing what changes we are able to make. Thank you and keep safe.

Alex Marsom
September 21, 2021 at 9.25 am

I know you will “pass this on to the team” and just forge on ignoring the literally thousands of negative comments about the new look, but just wanted to add another vote to the 1-star column.
Its odd because the early version screenshot he posted shows 7 transactions, now on a 21″ screen I barely get 2.
The problem seems to be that these changes are pushed through by developers who dont actually have to use the software. I would prefer the look of the first version of bank reconciliation, released in February 2007.
Anyway, chalk me up as another dissatisfied customer.

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