Fintech comes in many shapes and sizes and offers a variety of solutions to different accounting needs, including bookkeeping automation, managing payments and accessing online finance. The objective of our recent Tech Stack Session webinar was to set out a basic framework to assess different fintech apps and how accountants are using them.
“Fintech grew out of the 2008–10 global financial crisis,” explained webinar panellist and fintech consultant Nick Levine. “People distrusted financial institutions. They weren’t viewed to be in favour of consumers and had clunky tech. Post the financial crash, fintech [was a way] to make things easier so banks were on consumers’ side.”
The starting gun for fintech app use is usually traced back to the UK’s adoption of the European Union’s revised Payment Services Directive (PSD2) at the beginning of 2018. This measure required the country’s nine biggest banks to grant access (subject to clients’ authorisation) to account data and payment controls via an open banking application programming interface (API).
“Open banking is still in its relatively early days,” said Levine. “We’re four and a half years in and some really exciting innovations are happening. It’s an infrastructure play, so if it’s doing a good job, you don’t really notice.”
By way of example, Levine explained how payment interface apps like TrueLayer and Yapily allow you to stay within a native app such as iwoca and make payments without being bounced around.
Setting the scene with findings from a recent iwoca fintech survey, senior accountant relationship manager Tom Johnson said nearly half of respondents reported using at least one or two fintech apps within their own practice. “When we looked at where they think open banking will really impact the business, financial management and record keeping was tops, [using feeds to] get data into their systems,” he said.
More than half the iwoca survey respondents (57%) identified bookkeeping as an area where fintech could have the most impact, followed by accounts receivable (43%) and accounts payable (42%).
“On the flipside, when we looked at clients, their struggles were cashflow and access to funding,” Johnson added. On that score, open banking has played a significant role in opening up new and faster access to business loans.
“When we look at the fintechs coming to market and giving quicker access to more reliable data, we as a lender can connect into these systems to make better decisions relatively easily,” Johnson said.
The MTD ITSA challenge
With Making Tax Digital for income tax (MTD ITSA) on the horizon, fintech’s potential for facilitating digital record-keeping and reporting was identified by 38% of survey respondents. The Tech Stack Session audience included more accountants who were yet to take their first steps into fintech, but 31% of them still mentioned MTD ITSA as an area where these apps could help.
Open banking APIs have been written into cloud accounting platforms like Xero, so users are now able to see the benefits of bank transactions appearing in a consistent way within accounting ledgers, explained FD Works founder and webinar panellist Jonathan Gaunt. “Xero has spoiled us to some extent,” said Gaunt. “So people think open banking means visibility of transactions.”
Soaring Falcon founder Alex Falcon Huerta pointed out that bank feeds aren’t infallible yet, but she still wouldn’t go back to the old days. “They’re always missing lines and missing a big sales transaction can have a massive impact on the management accounts.”
Gaunt felt there was “more value to be got” from open banking, for example by using the feeds to validate balances. “Even a simple balance confirmation could save an awful lot of time for the accountant,” he said.
New frontiers
While open banking has become an accepted part of the accounting process, the webinar panellists explored other areas where fintech apps were having an impact, including payments and online funding apps.
As practitioners, both Falcon Huerta and Gaunt took their first steps into fintech by using Telleroo to handle bulk payments. When she set up Soaring Falcon in 2015–16, Falcon Huerta looked to automate payments from the off. “Having to send [mandates] out and get a wet signature before sending them to the bank was so painful. When we came across Telleroo, it helped to automate the back office rather than having to do things manually.”
While looking to solve the problems he was having paying suppliers and employees on behalf of clients, Gaunt said he saw the words “payments API” on a promotion for Telleroo. “That was the start of a journey that opened my eyes to fintech,” he said.
But that’s not the end destination for Gaunt’s fintech adventure. Having used fintech tools to improve bookkeeping, payments and access to funding, “How do we use that information better, not only for lending decisions, but also for the day-to-day?” he asked.
“It would be great for an accountant to take on a new client, jump straight into open banking and get a profile of where the money’s going and what they have committed to. Sometimes we’re expected to be magicians and know the business owner has gone out and bought something for £1,000 and it’s not in the cashflow because they haven’t told us about it. If it’s in the accounts because of open banking, then yee-ha! That’s the excitement – how we use accessible data in a better way to make our lives easier.”
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