Insurance tech startup Hokodo has published a whitepaper that explores what is happening as “tech, accounting and banking collide”.
In a London meeting on Thursday 27 June, Hokodo co-founder and report contributor Louis Carbonnier (above, second from left) highlighted the key trends identified by the company’s ‘Blurring Lines’ report as:
- App fatigue: Businesses surveyed reporting using an average of 54 software as a service (SaaS) apps. “That means 54 different user experiences and screens and toggling between them all. We’re reaching the end of the first phase of SaaS. We cannot continue with same developments,” Carbonnier said.
- Single cockpit: “One login, one KYC – you could access all the tools in one place to run your business in a new breed of superapp.” To illustrate his point, Carbonnier pulled out his smartphone to demonstrate the Alipay, “superapp” that brings together phone top-up, healthcare, e-invoicing, payments, insurance, stocks and more in the same, consistent user interface. “As a user with one superapp I can run all the various aspects of my life,” said Carbonnier. “We see integrated SME superapps coming to Europe within the next three years.”
- Embedded finance: Financial services are going to be distributed more and more through other kinds of software. For decades, financial services have been bought by companies through agents, relationship managers and brokers. “Fast forward a few years and if you’re a small business owner, why walk into a branch or broker when you can access finance at a click of a button in your QuickBooks software?” asked Carbonnier.
For fellow Hokodo founder Richard Thornton (above, third from left), the joint research with Practice Ignition pointed to a wave of impending innovation. “For us that’s been a validation of why we set up Hokodo. We saw a convergence in banking, accounting and data and technology. If that convergence happens, then those players are going to need a provider of financial services.”
Small business innovation
The report argues that for the first time innovation is happening at the smaller end of the market rather than among the largest corporations – and that’s why so much investment cash is going into the app developers who are exploring the areas where banking, accounting and technology overlap.
This was the view of Futrli co-founder Hannah Dawson. She harked back to the “fear of numbers” when she first acquired a pub at the age of 26. “The accountant meeting was terrifying. The Sage 50 accounts had been spewed through IRIS and looked completely different and they said, ‘Just sign here.’ It was frightening, but that’s the way compliance work was done.”
Dawson started Futrli to try and overcome that fear with user-friendly reports and dashboards fed by online accounts data. Having established its reporting and dashboarding app among the first wave of cloud accounting adopters, she is now aiming to deliver a new platform that will embed that single cockpit idea within a social media-like news feed showing all the issues of concern and action points around the business.
The Blurring Lines report is a fascinating and timely read but falls into the trap of assuming that accounting software only arrived with the birth of the PC in the 1980s. For small business customers, that may be the case, but mainframe accounting systems go back to the 1940s and 50s. Even more crucially for this sector, many of the high street banks still run their core accounting functions on highly bespoke mainframe programs.
The cost and complexity of maintaining these legacy systems is one of the handicaps (aside from complacency and bureaucratic inertia) that is holding the big banks back from responding effectively to the fintech challenge.
With support from UK competition authorities, a new generation of digital banks including Monzo, Revolut, N26, Tide, Countingup and Shine are building niches among small business users who appreciate speedier account set-ups, lower fees and easier access to finance that they offer.
Countingup founder Tim Fouracre is pushing the convergence idea even further by offering a current account that also categorises transactions to eliminate the duplication of maintaining separate accounting and bank records.
Convergence opportunity for accountants
In his view the great tech convergence is a big opportunity for accountants: “The traditional bank manager has gone. Accountants have a local presence in the market. That gives them an opportunity to advise on different banking, lending and finance options. Accountants don’t want to mess with bookkeeping records. That has become more automated. By cutting time spent on that task, the accountant can become more profitable.”
If accountants are going to act as guides to this emerging world, they’re going to need to know which horse to back. Yet after conducting their study, the authors admit they don’t know who’s going to win in the race.
Louis Carbonnier ran the form on the main contenders: “There are only a handful of winners in the long term. There’s only going to be one provider of the SME cockpit. Accounting ledgers already have app marketplaces and they have the tech focus to make the cockpit a reality. The neobanks are building huge customer banks and sit on an amount of funding that gives them a good shot of becoming integrated SME cockpit. The third challengers are cashflow management software people who sit over other apps that give you the one user interface that helps you manage your company.”
If, as the report speculates, the accounting and banking sector will follow consumer market patterns and consolidate around one dominant player, the lending services being offered by QuickBooks and Xero are already staking a significant claim to leadership. Since it was launched two years ago, for example, QuickBooks Finance (aka the Bank of Intuit) has lent more than $1bn to its US customers.
In typical Intuit style, QuickBooks European head of product Shaun Shirazian tried to shift the emphasis from financial might to customer focus: “It’s easy to get wrapped in the theory and structure of the ecosystem. But it’s an individual who’s running a business. They’re going to have needs and problems. What happens in the industry is down to who’s going to solve their problems best and quickest. That will determine the outcome.”