Andrew Garvey explains why accountants will likely cause the biggest disruption to the established monopoly of the high street banks.
The UK banking industry is undergoing dramatic changes; some of which are radically shifting what business owners expect from their banking and lending providers.
However, it is likely that it will be accountants that will cause the most disruption to the established monopoly of the high street banks.
The exponential rise of cloud accounting software over the last decade has been underpinned by accountants who have helped select, recommend and implement them with their clients.
Without the accountant, it is unlikely that we would have seen such widespread adoption and the same is likely to be true for the Fintech revolution. In turn, there will be an impact on the profession and the services they are able to offer.
Opening a business account as part of the onboarding process
Small business owners have often chosen a business current account on the basis of:
- They already have a personal account with a certain bank
- There being a branch nearby
- Their accountant has recommended one to them
The number of bank branches has reduced significantly in the last few years. In addition, many people now have personal accounts with several providers.
The rise of “challenger” banks in the personal space means that there is generally more acceptance of banking being a digital rather than physical service. This means that there is an expectation that current accounts should be opened easily. For businesses, this is often not the case.
Before onboarding a new client an accountant will have already carried out their AML/KYC checks, perhaps incorporated a company, set them up on accounting software and internal systems, gained authorisations and still be waiting for the bank account details (a process which could take 4-6 weeks).
Explaining that they have to book a call or visit a bank branch has always lessened the impact of even the slickest client onboarding process.
Now it is possible to open a business current account in minutes, increasing the likelihood and even expectation that a new business owner will complete your onboarding process and be ready to begin trading immediately.
Connecting banking and accounting data
The evolution from chasing a client for bank statements, to the advent of online banking, and then tools to scan bank statements which turn them into CSVs for uploading into accounting software was dramatic. Direct bank feeds into cloud accounting software has made this even easier.
What we’re starting to see now is full convergence of banking and accounting, and a future where we may no longer need separate apps for expense capture, invoice raising, bookkeeping and to make payments.
For the millions of self-employed people and businesses that will come within the scope of MTD over the next few years, this represents a significant cost saving and a much simpler process. For accountants, these solutions should mean that the perception of additional service is greater, as well as actually proving more profitable to serve even the smallest businesses clients.
Business needs access to capital, either because of growth or to manage cash flow. The first port of call has often been the business current account provider, out of convenience or the perceived sense of trust and relationship. This means that many small businesses choose products from their existing bank even when there are better alternatives.
CountingUp have partnered with Iwoca and Capital on Tap, who are both part of a new breed of fintech companies specialising in small business lending. Their applications and decision-making processes are simple and quick. In addition, there are aggregators like Funding Options and Capitalise who can search multiple lending providers off the back of one application.
These providers are radically re-engineering the whole SME funding process, enabling accountants to leverage their role as trusted advisor and guide clients through the assessment of need, type of funding available, affordability, and even application process.
Card acceptance more accepted
Payment devices such as Square, iZettle and Countingup’s partner SumUp, have made taking card payments possible for many more businesses. Even domestic tradesmen such as plumbers and electricians are using these devices to accept payment on-site. For an accountant, this increases the digitisation of the records of a business, making it better for MTD and year end purposes, as well as being a great way to support cashflow.
The death of cheques?
The UK’s Faster Payments system allows almost instant inter-bank transfers so it’s perhaps surprising that over five hundred million cheques are still processed each year (notwithstanding that not everyone is comfortable or suited to digital banking).
It’s highly probable, however, that cheques will die out within the next ten years. Many of the new digital-first banking providers (including Countingup) don’t accommodate cheques and most of the high street banks now only issue cheque books on request.
With cheques fading in popularity this offers an opportunity to move clients on to more cash flow friendly methods of payments for professional fees, such as a monthly direct debit.
What about cash?
Although it isn’t dying out, debit cards have already overtaken cash as the most frequently used payment method in 2017. A useful insight into the future could be Sweden where half of the retailers are forecasting they’ll stop accepting cash by 2025.
Cash handling will remain, although paying-in will become more difficult as bank branches close. At Countingup we’ve partnered with the Post Office and PayPoint to accept cash at over 40,000 outlets across the UK. From the feedback we’ve had from accountants, it would seem this is important as many small businesses still require the facility to pay in cash locally.
The bigger picture
There are a number of factors driving change in the retail banking space. The next few years are likely to see a paradigm shift in how people view and interact with their banking providers.
In August 2016 the Competition and Markets Authority (CMA) published its report on UK retail banking. The findings revealed the big four banking groups (RBS Group, Barclays, Lloyds Banking Group and HSBC) had 80% of the business current account market in the UK.
The report also highlighted that even after receiving a substandard service there was a high level of inertia amongst SMEs once they had chosen a provider.
The CMA was keen to remedy this and was armed with the £775m that the RBS Group was forced to pay by the EU following the government bailout it received. This has funded an incentivised current account switching scheme and the Capability and Innovation Fund, which supports initiatives to encourage competition.
As clients become less likely to stick with a banking provider that delivers poor service, being aware and able to make recommendations for alternatives underlines the role of the accountant as crucial to core financial administration.
Changing behaviour and innovation
There has been an exponential increase in the use of banking apps to manage business and personal finances, with many of the new challenger banks becoming “mobile first” or even mobile only.
Added to the shift in the payment methods now favoured by consumers the question becomes why would you ever go to a bank branch again? The decline in branch visits, plus the reduction in local bank managers means that the options for a small business owner to seek business advice from their bankers has significantly diminished, and again is reinforcing the opportunity for good local accountants.
How does all this change affect accountants?
The overarching challenge, therefore, is that with so much information and choice available to business owners many of them will need help to select the tools that best fit.
If we take the switch to cloud accounting and indeed MTD, as an example small business owners are highly likely to turn to accountants for help and advice.
Although this opportunity may, in fact, be forced upon accountants, it is precisely because it impacts on core areas of financial administration and good practice that they are best equipped to help their clients through this period of technological change.
The reality should play to the strengths of every practice: putting service at the heart of guiding businesses through change.