Rod Drury, CEO of cloud accounting platform Xero, penned a blog last week discussing the impact Xero’s financial web is, and will continue to have on the small business community. For those of you who aren’t in the know, Xero’s financial web provides banks with access to Xero customer data via a suite of APIs. Use cases include direct bank feeds into Xero, payment instructions initiated out of Xero for AP, payment buttons on invoices for AR and sharing of financial data for lending decisions.
These are only a few financial use cases. The opportunity for banks to innovate around how this data is used is endless. In my opinion, the big opportunity for banks is in tapping into this data to become true advisors to small business, beyond the financials.
Banks realise this, the execution is just extremely difficult. In Australia, CBA is the only bank who has come close to implementing a business analytics function for its customers, as an advisory conversation starter. The product, known as Daily IQ, delivers ‘unique insights about your business and customers, helping stimulate ideas that can enhance success.’
Xero’s success is built for the most part on the back of the accountant and advisory community. So Rod naturally sees accountants and bookkeepers as the natural conduits for SME banking advisory as well. Helping SMEs move from that ‘now what’ moment that occurs once business insights are revealed, to taking action. He sees banks partnering with this advisory channel to deliver the goods, as per the extract below.
“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.”
He’s not wrong. But it’s also not necessarily the only option all banks have at their disposal. Thank’s to the emergence of fintech, banking is swiftly moving to being more than just a numbers conversation with an SME. Banking is now a technology + numbers conversation.
What will be interesting is if very focused, tech first, SME only banks emerge as advisors in their own right, not necessarily removing the need for a traditional advisor, but plugging a niche hole that exists to day – namely advisors lack of knowledge about fintech services. This will be an extremely natural place for tech banks to play, as given the nature of their business model, forming relationships with tech vendors embedded in the SME community has been critical to their success from day one. They’ve been advising on tech and banking since their inception.
Understanding how technology knits together with banking is not a natural space for an accountant to enter, yet. But for a tech bank to understand the best practice way banking should and can work with cloud accounting is not a stretch at all. So when a business owner calls into to discuss best practice AP and AR practices for their 4 hospitality venues, the tech bank expert can quickly map out the tech add ons and banking plug ins they need to make everything work.
Legacy banks will struggle with this for years to come. It’s just not in their DNA. It’s not impossible an SME could easily equate tech advisor with bank in the near future. Xero has made this possible. It’s up to tech first banks to now grab the opportunity at hand.