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Fintech: The next frontier for accountants

19th Nov 2018
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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.

New hybrids

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.

AccountingWEB is a media partner of FinTech Connect, taking place at ExCel in London on 5-6 December. Register your free visitor pass or quote the code ACCOUNT15 to claim a 15% discount when you upgrade to a conference pass.

Replies (5)

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By johnjenkins
22nd Nov 2018 12:22

John, as the marketing machine ploughs on, one can't help wondering how far off are we from having a chip installed in our heads, programmed to send every piece of information we think about and analised by chainblocks or the like.
There is probably software out there that can already do it.

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By Dandan
22nd Nov 2018 14:41

Open banking is not for me. The CMA order being implemented by OBIE has a touch of the sinister for me ; it has something of the night

On their website, OBIE also talk about regulated third parties having access to customer bank information(presumably , government agencies and without customer consent). That is in addition to your average Tom, Dick and Harry (software companies and other third parties ) who would require consent (which would probably be hidden in the terms of use)

Everybody wants to be a bank nowadays. Facebook is aggressively pushing for this facility . I think its time to go back to basics and use the mattress bank.

I may be an IT enthusiast but I know where to draw the line:-

1.Never share your medical records
2.Never share access to your bank or allow third parties to make payment on your behalf.

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By tax91
22nd Nov 2018 16:39

In the mists of time we have seen some familar linkages in the 1980s/early 90s - accountant firms with marketing, accountants with banking. These have not lasted. I agree with DanDan.

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Glenn Martin
By Glenn Martin
26th Nov 2018 13:28

John we didn't finish our conversation but here is my full views.

All small businesses struggle for working capital and banks just don't get it.

Working capital facilities, if thought out correctly can be a good solution for a business to help them grow. Clients need to take advice though and not just dive in. A platform like Capitalise is good for this as they do a whole market search for you.

However I see the likes of Funding Circle bombarding clients with offeres of £500k loans unsecured. I would worry that some people just apply for money to see if they get it.

There seems to be more money in the FC platform than there is deals to do, and they come across as desperate to get the money out, and I would question the level of Due Diligence involved in some deals.

What is also of concern is I see a lot of offers for funding to pay VAT or CT bills. If this is any other than a one off I suspect there will be bigger problems in the business, and this sort of last chance finance will come with eye watering costs, effectively a pay day loan for a business.

Whilst the technology is good around payment, cards I dont see the problem they fix is that big. I use my AMEX which is a credit card which also has a bank feed to Xero, so with bank rules it takes no time to do.

Whilst the payment cards collect bills as they go they are flawed as you have to prepay them, as I suspect having a credit card is a bigger issue to crack.

If you have 10 people on the road using credit cards, the difference in switching to prepaid cards will be a big hit on your cashflow, not sure if easier expense claims is a big enough win to justify this. Also what would happen if if all the prepaid cash is sitting there and one went pop.

This wouldn't happen with a traditional credit card.

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Replying to Glennzy:
By johnjenkins
26th Nov 2018 13:38

I have found (especially in mortgage loans and equity release) that there is loads of money around to be lent but the lenders will only lend to "squeaky clean" business or person. This always happens occasionally and once it all dries up the "not so clean" get a chance. Then they start silly lending and away the circle goes off again. Bank charges and the interest they charge on borrowing goes up to cover what they lose when people can't afford to pay (for whatever reason). What's that song "Money makes the world go round".

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