Albert the great bet for Santander as UK lenders target accounting apps
Micro-business invoicing app Albert has been swallowed by Santander Group, as UK banks bid to shore up their SME customers, offer accounting services and ward off competition from new players in the market.
The banking group bought out the entire team and technology of Albert, which helps freelancers and self-employed to keep control of their finances by automating and simplifying invoices, somewhat ironically declining to reveal what it paid.
The app’s newly minted co-founders said the current red-hot status of the UK’s self-employment sector made it the perfect time to sell, while Santander’s line is the purchase will aid growth amongst the UK’s 5.7m small business owners.
Both statements were eerily similar to the platitudes rolled out in March 2018, when the Royal Bank of Scotland Group paid around around £53m for accounting software specialist FreeAgent, following a trial partnership between the pair.
The strategic move was designed to widen the bank’s ability to cross-sell additional services and conduct top-level assessments of business performance and risk, experts said, as the boundaries between accounting and banking further blurred.
In 2016, Barclays inked a tie-up with Xero, rolling out perhaps the first use of the aforementioned template, announcing it aimed to “give small businesses and their accountants easier access to the services and funds they need to manage and grow their business”.
The bank has kept its powder dry in relation to other such money management activities, but just before Christmas poached Megan Caywood, the chief platform officer at challenger bank Starling, as it seeks to ramp up its third-party integrations.
“The battle is on for SME banking business,” said Jonathan Charley, executive at Financial World Consulting. “The need for SMEs to be able to focus on their business and not on running IT is driving the need for banks to offer them enterprise resource planning solutions.”
As the accounting technology space continues to flourish, Santander’s move could trigger similar acquisitions as competition intensifies and traditional banks struggle to keep pace, said Dave Locke, chief technology advisor at World Wide Technology.
Launching their own solutions can drain resources, take too long, and become too costly, he said, not to mention worsen existing legacy infrastructure issues for the biggest banks.
The advent of Open Banking, which enables third parties to create products and solutions using hitherto walled off customer data held by banks, has jolted the high street lenders into life, he said.
Suddenly they are faced with nimble financial technology upstarts taking their lucrative data stores and using it to sell into the SME, micro-business and sole trader customers that may already be using the bank.
As of 2018, 63 percent of current financial services players didn’t exist a decade ago, and 64 percent of banking customers around the world are expected to take advantage of the Open Banking initiative by 2022, to PricewaterhouseCoopers.
“In the last year, the Open Banking initiative has contributed to a significant surge in the number and type of financial service providers,” Locke said.
The fightback has begun with the acquisitions of FreeAgent and Albert, and Locke says the sheer size of the largest names means gives them a head start over a fintech firm or an accounting firm that attempts to park its tanks on the lawn of a high street lender.
“Currently, banks have two major advantages over the latest fintech players: an established customer base and the customer data that comes along with this,” Locke said.
Another new player in the small business accounting ecosystem is Coconut, which rubs out the line between accounting and banking altogether.
The app offers a current account for freelancers, small business owners and the self-employed, to free them from completing business administration tasks.
Designed by two PwC alumni, Sam O’Connor and Adam Goodall, it automatically updates a user’s accounting details, removing the need for bookkeeping, and provides an estimate of how much tax they will owe at the end of the year.
O’Connor told AccountingWEB that today’s web-savvy customers want more from bank accounts than lenders can offer; accounts are ineffective, not in real-time, and becoming tougher to open for SMEs.
Banks also tend to focus on the top 10% of their SME customers; businesses most likely to take loans or go for other services, he said, ignoring a vast market.
“The biggest and fastest growing segment of SMEs is deeply underserved; these companies operate in a fast and more flexible way, yet banks have thrown up multiple hurdles such as making it difficult to open a second bank account, for their business,” he said.
Coconut may also give jitters to accounting professionals, who must be increasingly clued up on the latest developments available to help their clients. Many are facing a forced evolution from strict tax compliance professionals to quasi or full advisor roles as new technologies automate certain processes and provide tools that help predict rather than simply crunch numbers.
Emboldened by the success of their initial product, for sole traders, Coconut has launched a product aimed at limited companies, taking the fight to the banks.
“We are starting to take the banks’ customers,’ he said. “We are building products and services on top of what we do that banks cannot compete with. Traditional lenders are increasingly starting to take interest in what we do, and are trying to understand it.”
He said the firm would thrive on the competition and focus on solving problems and taking away the pain of tax and accounting, regardless of whether it was through Open Banking or HMRC via making tax digital.
So few people switch current accounts that statistically individuals are more likely to get a divorce than move banks, but there is growing evidence, not least in the booming accounting tech sector, that the general public is much more aware of their options and more involved in their finances.
“We see the big banks coming into the game as really exciting, because you also have the emphasis put on much more innovative products by some of our early competitors,” O’Connor said. “Our challenge is differentiating when people are looking; we know we can win the battler because we have a very distinctive product, but the more people look around, the better it is for us.”