There’s been a lot of talk about fintech this year, but when is the latest buzz phrase likely to make a meaningful difference to accountants? Ahead of the industry’s big annual gathering, John Stokdyk has a look at what’s been happening in this fast-evolving sector.
In January, AccountingWEB heralded the arrival of Europe’s Payment Services Directive (PSD2) within the UK.
The new open banking mandate stipulated that UK banks must make their clients’ data available to authorised third parties via a common application programming interface (API). While many accountants may have greeted PSD2 with incomprehension, high street banks reacted with well-practised indifference, with five of the designated banks failing to meet the deadline to conform with the open banking API.
According to tech UK open banking leader Louise Beaumont in our April On compliance podcast, this was because “Banks are hardcoded for compliance. They have no understanding of the other factors behind business disruption.”
Fintech is blurring the distinctions between adviser, banker and technology provider. So banks are beginning to act as accounting software providers, alongside online finance apps lending in tandem with accounting software platforms that themselves are beginning to operate as banks.
Or what about Satago, which generates its income from business lending, but markets itself to accountants with a set of free credit control and practice CRM applications?
As we are already seeing, there are a lot of plot twists and competing scenarios in the world of open banking and fintech, but don’t let the complexities and confusion block your view of the potential business opportunities it can support.
Clear Books founder Tim Fouracre got so excited about the possibilities of open banking that he left his position there as CEO to set up a new challenger bank/accounting hybrid called Countingup. Fouracre explained why it was so compelling: “It’s setting off a wave of incredible innovation through the merger of banking and accounting. It’s forcing banks to rethink how to build accounting on top of business current accounts. So software vendors could work closely with lenders to provide instant lending decisions within applications.”
As far as accounting goes, open banking will introduce more automation and reliability, Fouracre explained: “Open banking makes transactions more accessible to accounting systems. Low-value bookkeeping work will become much more automated. With MTD on the horizon and the potential workload, this automation should be welcomed by accountants.”
Game of Thrones
Following the slump in business lending after the financial crisis, the Competition and Markets Authority decided in 2013 to loosen the lending logjam by stimulating competition to get funds moving again. Regulations such as the open banking rules and grants were put in place to encourage challenger banks, fintechs and other players to fill the vacuum left by the big banks.
Imagine a pile of cash, sitting in the middle of a field. Behind the nearest and most strongly defended wall to all that cash are the established banks. But ranged around the other three sides of the money field are three distinct camps:
- Challenger banks – The new pretenders lured into the market by the CMA, offering more nimble, digital alternatives to the old guard. The ones that have gained the most recognition among accountants include Cashplus, Coconut, Revolut, Tide, Starling and Countingup.
- Cloud accounting platforms - On the banks’ other flank are QuickBooks, Sage and Xero, which all have different payment mechanisms in play and see open banking as an opportunity to insert themselves into the money flow.
- Online funding providers - Closing off the square are the fintech irregulars, made up of a host of startups and developers who are working on specialised apps to fix specific steps along the payment chain from foreign exchange through to online business lending. The main names here are Capitalise, iwoca, Satago and MarketInvoice, but other options are coming to market at regular intervals.
If only the picture were so clear. The battle lines are becoming increasingly confused as different entities strike upside alliances or annexe subdivisions of the competing camps.
Like oil companies investing in solar energy firms, the R&D wings of big banks have responded by pouring money and resources into fintech incubators and startups in Shoreditch, most notably when Barclays took a minority stake in MarketInvoice in August.
Back in March NatWest/RBS made its a move in the opposite direction, spending £53m to acquire its own accounting platform, FreeAgent in March. Already, the bank has done away with the software fees for businesses and accountants who bank with NatWest/RBS in a move that is said to have boosted FreeAgent’s user base by 25,000.
As part of that deal, the bank plans to offer instant finance to companies that use its accounting platform and agree to share the live data with the bank – moving it into the territory occupied by fintech apps such as iwoca and MarketInvoice.
Xerocon showcases open banking
The recent Xerocon in London was awash with these open banking overlaps as the New Zealand-based developer unveiled its own bank feed API. While still sticking to the closed APIs it already deploys with most UK banks, Xero has signed up with the UK Financial Conduct Authority as an Account Information Service Provider and latched onto the open banking movement as a means to connect businesses and their advisers with its network of affiliated fintech providers.
Tide, Starling, TransferWise, Revolut and Soldo all pledged their public allegiance to Xero at the conference with different offerings. Revolut, Starling and Tide are in the challenger bank camp, while TransferWise specialises in cross-border payments.
Soldo is a card-based “spend management platform” that recently launched in the UK and has been educating the profession about the opportunities in its guide, The fintech future of the modern accounting practice.
Land of opportunity – and risk
When he wasn’t busy picking up Xero’s small practice of the year award, AccountingWEB member Glenn Martin spent some of his time at Xerocon getting a first-hand view of these fintech contenders. While the Soldo solution impressed him, the rise of fintech-driven funding solutions concerned him.
“It’s potentially dangerous,” he said. “It’s so fast there’s a danger of adopting them too quickly so it’s like Wonga for small business.”
Another Xero pioneer, Sharon Pocock, agreed that the lending landgrab posed the kind of risks that we last encountered during the sub-prime mortgage crisis of 2007-8. “Online funding isn’t right for every business. If you make it too easy, there’s a risk that they’ll end up stretched with repayments they could have avoided,” she said.
As an accompaniment to Xerocon, the forthcoming Fintech event in London on 5-6 December offers an opportunity to get close to all the main strands of fintech and to see what the main players are offering.
A classic case of convergence
A look at the FinTech Connect agenda shows that fintech is making inroads into the fields that have been occupying accounting technologists over the past few years, including artificial intelligence, blockchain and emerging compliance solutions that travel under the banner of “regtech”.
All these different technology strands are significant developments in their own right, but what is most telling is the way they are all blending into each other.
If you don’t want to end up like many of the victims strewn across the battlefields of Westeros, now is the time to start opening up diplomatic relations with the competing fintech clans. Their troops may not be massing in your car park just yet, but their scouts are already infiltrating your accounting software and clients’ business banking habits.