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Ben Smith looks at why accountants have never been more important to banks, and the propositions banks are likely to be showing off at Accountex 2019.
In the first part of this three-part mini-series, I looked at the platform vs suite debate and asked whether technology investment will be driven primarily by compliance or client experience? This week I'm going to look at why banks want to be your friends again, and the new propositions they're developing to make this happen.
Accounting firms have not been the priority focus for the big banks (or the challengers really) for at least 10-15 years. However, thanks to a number of factors this is changing. Here are a few things driving banks back to the accountant.
Accounting firms are becoming more attractive as customers of the bank
A big part of the shifting dynamics in the practice space is pricing models. The emergence of the subscription style (or just plain old direct debit) fee models makes the accounting firm a very attractive banking customer. Recurring revenue, distributed across a wide client base presents the bank with a lot of security to lend against. So if you’re looking for investment to power growth or acquisition, the banks will see you (with recurring revenue) as a great option. And if they can build a relationship with you beyond your own banking requirements, they’ll see it as more likely that you go to them for that funding.
Blurred lines and access to your clients
Cash accounting legislation is just one of a number of factors that mean, with the addition of a few key features, the business current account (BCA) could also act as the accounting solution, at least for simple businesses. We’ve seen CountingUp launch, and Tide.co gain market share. Banks don’t want to lose out here, for obvious reasons.
For the most part, banks will KPI growth on BCA setup numbers. They’re losing this battle at the moment, but they’re also losing in other places. In particular, agile FinTech finance lenders/brokers like Capitalise, MarketInvoice and Iwoca make funding feel easier and quicker (not that this doesn’t cause the odd issue for the accountant). Banks can’t afford to lose out on the profits they make from business lending.
Between them, these reasons combine to force the banks’ collective hand. They know they don’t currently incentivise accounting firms to bring them business, either by product experience or via a valuable relationship. We’re going to see the development of multi-layered propositions to win you back. These are two of the layers we might well see:
Reciprocal Value: FCA (and presumably GDPR) rules prohibit direct, systematic referrals from the bank to the accountant. As such, the bank will find other ways to make accountants want to work with them. This could be the sharing of aggregated vertical/regional business performance insight to support the sophisticated conversations of the modern accountant. It could also be indirect marketing support. We’ll see the banks further grow their local small business networks, and make accounting firms central to that strategy.
Productivity Tools: We've seen Tide.co launch their ‘account viewer’, which is just the first of many roadmap innovations from a single challenger bank. The big banks will find ways to enable selected ‘partner’ firms to benefit from their massive data and development resources (which might actually work in their favour for once). For example, the accountant will be able to form a new company for a client, setup up the bankfeed, and carry out KYC/e-ID all at the same time. It may even integrate into your practice management system.
The point is, incumbent banks do not want to be disintermediated from the data decisions enabled by two-way API access to transaction detail (ie Open Banking/PSD2). They know that accounting firms are still the most prominent and influential small business advisors in their food chain, and they’ll develop propositions to make you want to work with them. In 2019, you probably won’t be calling your firm a ‘Barclays/HSBC’ firm in the way you define yourselves as a Xero or QuickBooks firm. However, the propositions being developed could well lead to that.
In the final part of this series, I'll be looking at how payment execution technology could close the loop on the virtual CFO model.