Xero Blog

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