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Is it time to move to a bank for your accounting software?

As banks move into the world of fintech, Richard Sergeant looks at how new banks are moving into the accounting sphere, and what that means for accounting services.

19th Feb 2020
Director Principle Point
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Banks have started to make their way into the world of fintech, and more recently, have been attempting more seriously to integrate banking with accounting services. 

Digital bank Starling seems to be leading the pack with a range of new bank features – loans, overdrafts, and a soon-to-be-released range of paid-for business tools, including the ability to file for MTD. 

But it still remains to be seen whether these recent accounting options from new banks will be able to go toe-to-toe with the incumbents like Xero and QBO.

Bank and accounting ledger convergence

The ability to bring accounting and banking data to one place is a valuable capability from the perspective of an accountant. However, many vendors are not convinced that clients are able to see the distinction. 

According to Countingup COO Andrew Garvey, “Thinking about the ‘bank’ and the ‘accounting ledger’ is becoming outdated from a client's perspective. Businesses will choose a financial platform that enables them to make and receive payments, handle bookkeeping and tax, and produce the reporting they need. The convergence of banking and accounting into one financial tool is inevitable.”

Banking as a Service

The rise of technology platforms offering Banking as a Service (BaaS) effectively means licensed banks integrate their digital banking services directly into the products of other non-bank businesses. As a result, the short cuts to developing these services further and more broadly is accelerated. 

For Ivo Weevers, chief product and design officer at Asto UK (part of Banco Santander), the rapid development means that the broad range of services becomes key for businesses.  “Integration is the old way of looking at this. Banking-as-a-Service is where the world is moving [towards]. No one cares about accounts and payments. They are a nuisance. People care about new benefits that are unleashed because BaaS sits behind it.”

Small businesses and the self-employed are the core market for these products – as they will freely admit. However, in terms of functionality, is the lure of these additional services enough for accountants to promote more widely to their client base?

The functionality question

On the whole, most of the functionality on offer is fairly straightforward compared to standard cloud offerings explains Andrey Perrett, cloud accounting associate partner at TC Group. “Across the board, they still seem quite basic at the moment. Although Starling’s offering looks interesting, it seems to be good for sole traders but not bigger businesses. The lack of basic accounts reporting and manipulation will be a limit for some”.

With the focus on expense management and categorisation, sending invoices, making payments and debit cards, plans have recently been unveiled for common reporting functions. Countingup, as Garvey explains, intends to add  “balance sheet and trial balance to the reports section of our Accountant Hub very shortly. MTD VAT filing and adding journals won't be far behind”. And there are similar plans for rival Coconut and digital bank Starling.

Although this might provide encouragement for the direction of future reporting, getting the reporting right is not always easy. If these are going to be true replacements for some of the accounting ledgers, they will need to be fully functional and accurate.

The MTD fit

Hudson Business Advice’s Della Hudson highlights some of the basics around MTD. “The idea of being able to do a VAT return from a bank statement has been around for a while. However, VAT claims are dependent on VAT invoices, so these still need to be checked manually. Not all transactions go through the business bank account, so there is still additional handling required”. Although you would expect much of their target market to be below the VAT threshold, the signal of being ‘MTD Ready’ is actually more important as the future rounds of digitalisation of tax become clear.

“MTD for income tax is a little more promising for these services”, Hudson continues, “ although key areas of development need to be able to handle simplified expenses and home office claims. And the effectiveness of automatic coding needs improving – although Starling has recently added more cost codes which will help. On the plus side, they're a good start for collecting 90% of business expenses, so I'd like to see them expanded further.” 

On balance, it would seem there is still some way to go before they pose a threat to the big cloud beast like Xero, Sage and FreeAgent, but is that the right way to view them?

The threat to existing software providers

According to Counting Clouds managing director Caroline Harridence, “To date, I have found that the attraction for businesses is cost-saving over options like Xero, rather than the functionality. However, if we have a new alternative with better functionality that is attractively priced, then I think we will see accountants moving clients over.”

However, many like Della Hudson do not see an imminent threat. “Are they going to trouble existing accounting software? Only at the very small end, so I doubt whether Xero or QBO will feel threatened”.

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Replies (14)

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blue sheep
By NH
20th Feb 2020 10:28

The issue from a practice point of view is that whilst I feel confident in recommending a particular software to fit the accounting needs of a particular client, I would never feel comfortable in recommending one bank over another, especially now that the days of the local branch manager have gone.
Natwest/RBS and Freeagent are the only ones who do this the right way IMO, the software is excellent on its own, and so it is very easy for me to say to a client - if you feel comfortable using this bank you will get decent software that we are happy with for free, saving yourself x amount per month. However even Freeagent does not fit all businesses so just because you bank with Natwest does not always mean you should use Freeagent.

Thanks (2)
Replying to NH:
Chris M
By mr. mischief
21st Feb 2020 18:57

I agree. FreeAgent has been the standout support provider of these 3 for me, if Nat West goes under we'll have more than just accounting software to worry about. So a solid balance sheet, good product and very good support.

Of all of the 7 or 8 Cloud products in use across my client base, FreeAgent is the only 1 which ticks all 3 of those boxes.

Thanks (0)
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By JSJ54
20th Feb 2020 10:39

Isn't that putting the cart before the horse? Choose the best bank and the best software.

Thanks (1)
Replying to JSJ54:
Andrew Garvey
By AndrewGarvey
20th Feb 2020 10:44

Hi, JSJ54 I'm interested in the factors you consider when assessing the best bank for a client? Would you be able to share those, please?

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Replying to JSJ54:
Richard Sergeant
By
20th Feb 2020 11:22

JSJ54 - I think the two things are converging. These new providers are essentially saying that there should be no distinction between your 'bank' and the software. It's the same thing.

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Andrew Garvey
By AndrewGarvey
20th Feb 2020 10:42

Great to be able to contribute to the article Richard. As a quick update, our trial balance and balance sheet reports are now live.

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Profile
By indomitable
20th Feb 2020 14:13

VAT, CIS, Payroll, Income tax, rental Income, Corporation Tax, depreciation, accruals, journals, useful reporting - all things small clients use and need to

Are banks really going to be able to provide this sort of functionality. I don't think so maybe just the very basics.

Many examples of even software companies trying to be all things to all men. It invariably fails as the learning curve and development costs are too high and sometimes the advantages are just not worth the effort.

Take Xero for example a good piece of bookkeeping software, but their payroll and practice management modules are shocking despite throwing money and resources at them. We have many clients using 'tide'. Again I cannot see myself what time it actually saves them when they are also using Xero.

I agree with NH below the Natwest/ freeagent tie up is the way to do this.

I don't believe banks will be able to provide a comprehensive enough solution apart from the very simplest

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Replying to indomitable:
Andrew Garvey
By AndrewGarvey
20th Feb 2020 14:40

"VAT, CIS, Payroll, Income tax, rental Income, Corporation Tax, depreciation, accruals, journals, useful reporting - all things small clients use and need to

Are banks really going to be able to provide this sort of functionality. I don't think so maybe just the very basics."

I can't speak for other banking providers but Countingup is currently working on the majority of those features.

I was Head of Practice Sales at FreeAgent before I joined Countingup and it's a great product. However, in my opinion, the arrangement with NatWest isn't convergence. It's the same cloud accounting model that's existed for 15 years +.

The lines between banking/accounting are going to disappear. If you go back 10 years there was similar sentiment about cloud accounting. Many people were saying it would never replace on-premise software.

Fintech is going to disrupt the banking and financial services industry massively in the next decade.

Thanks (0)
Replying to indomitable:
avatar
By kiwilondon99
20th Feb 2020 15:05

years ago NATWEST + the likes of LLOYDS [and probably not limited to them] offered their clients cut down versions of SAGE forecasting - most useful

have you ever tried to move banks in 30 days when given contract Notice - when your bank decides your account or overdraft are not 'earners' - its uphill
imagine trying to get your financial records out in tandem

stick with best of breeds - not all-in one basket. in2 years they'll all integrate seemlessly anyway Just cannot imagine a bank revolving door Manager having oversight of accounts packages- they hardly know enough re customer service to their Banking clients !

Thanks (0)
Replying to indomitable:
avatar
By kiwilondon99
20th Feb 2020 15:05

years ago NATWEST + the likes of LLOYDS [and probably not limited to them] offered their clients cut down versions of SAGE forecasting - most useful

have you ever tried to move banks in 30 days when given contract Notice - when your bank decides your account or overdraft are not 'earners' - its uphill
imagine trying to get your financial records out in tandem

stick with best of breeds - not all-in one basket. in2 years they'll all integrate seemlessly anyway Just cannot imagine a bank revolving door Manager having oversight of accounts packages- they hardly know enough re customer service to their Banking clients !

Thanks (0)
Replying to indomitable:
avatar
By kiwilondon99
20th Feb 2020 15:05

years ago NATWEST + the likes of LLOYDS [and probably not limited to them] offered their clients cut down versions of SAGE forecasting - most useful

have you ever tried to move banks in 30 days when given contract Notice - when your bank decides your account or overdraft are not 'earners' - its uphill
imagine trying to get your financial records out in tandem

stick with best of breeds - not all-in one basket. in2 years they'll all integrate seemlessly anyway Just cannot imagine a bank revolving door Manager having oversight of accounts packages- they hardly know enough re customer service to their Banking clients !

Thanks (0)
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By Roger7248
20th Feb 2020 16:29

I'm sorry but I don't believe such a joint venture would be of any use other than to a small sole trader.
I would certainly not join a bank sponsored accounting system whilst banks treat connectivity (or lack of it) as a "feature", and consider losing log-in for more than a week is worth only £50!
I would also need some sort of assurance that should you wish to change your bank there is still continuity with the accounting system and they don't use is as force majeur to keep you as a customer.

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Duane Jackson
By DuaneJAckson
20th Feb 2020 20:42

To put it another way: the bank account just becomes a feature of the accounting software.

The vast majority of smaller businesses just need to be able to send and receive money. That’s all they need from their “bank”. It’s a feature. Complex underneath but pretty basic in what it surfaces to the user.

Thanks (1)
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By rmillaree
21st Feb 2020 10:54

Being honest the banks and the software suppliers are all currently inept.

All we (us and client) want is functionality for client to be able to pay and for them to be able to take associated picture/pdf and for that information to end up prepepped in software with amount - awaiting coding of net amount and vat. Better still pdf of invoice will be genrated automatically by retailer where retailer is signed up.

do any of the providers currently do this ? no (well not that i am aware of)
When you ask any of the current providers about this they squirm change the subject and say oh but we can do this though.

Natwest in particular have no excuse they own mettle the app bank and own freeagent - so why cant they do it?

Starling is close and you can even get pdf invoices from retailer i believe - does the pdf pull through to Xero - No?

Another app based card provider - does similar to startling and gives you a contorl panel where pdf's can be stored next to transactions - does it export those pdf's to xero - No.

I am guessing i won't have to wait more than 12 months for someone to twig that i don't want to use some sort of dumb "clever" huboc type solution to go in and extract from there to here and then manually link up to my golden pear. I want my golden pear to have its cabbage attached to it without me doing anything.

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