Head of Insight AccountingWEB
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Xero widens its fintech web

For those with a taste for cutting edge technology, there were some interesting stories unfurling at Xerocon London around the cloud accounting platform’s payments and fintech strategies. Senior executives Edward Berks and Nick Houldsworth took time out at the show to tell AccountingWEB more about their plans.

21st Nov 2019
Head of Insight AccountingWEB
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One of the dominant themes at Xercon this year was driven by research showing that only half of UK companies were cashflow positive during any given month in 2018.

Comparing 2019 to the previous year, Xero’s study found that in an average month 48% of invoices issued by small businesses were paid on average 14 days after their due date. As a result, the average UK small business was owed £23,360 in late payments, a 17% increase on 2018.

To counteract this persistent problem, Xero introduced a number of new initiatives at this month’s Xerocon event in London, including a 30-day cash forecast tool that will go into beta testing in the New Year. Alongside the forecasting tool, Xero showcased tighter integrations with receivables specialists Stripe (card payments) and GoCardless (direct debit).

Where these collection mechanisms fail to anticipate and plug cashflow gaps, the accounting platform can connect into a network of fintech lenders such as iwoca, MarketFinance and NatWest’s Esme and Rapid Cash services.

On the payables side, Xero revealed a “Pay with TransferWise” service, links to NatWest’s APtimise accounts payable system and a partnership with CreDec (Faster Payments and Bacs payments).

"There’s huge fragmentation in that set of [financial] services," said Edward Berks, Xero's UK director of platform business. "Players are emerging with deep specialisation in lending, payments, foreign exchange and so on. Consumers and customers are more open-minded about the institutions they take services from."

Riding the payment rails

Payments are particularly complicated, with a barrage of different electronic processes.  Take your choice from the established bank settlement systems such as Bacs and Swift, Faster Payments that use internet banking protocols, card-based options, proprietary currency exchanges and, looming on the near horizon, cyber-currency settlement tools.

Fintech insiders constantly refer to “payment rails” in conversations on this topic – harking back quaintly to the pre-digital era. The image also conjures up memories of the railway madness that took hold in the 1850s. In the early days of rail, independent companies raced each other to open new lines using different gauges and technologies. Twenty-first-century digital payment mechanisms are creating similar process duplications and overlaps.

Xero takes on the payments challenge

Xero’s journey into the payments labyrinth began with incoming payments. “We have a number of players we partner with to provide access to the platform, but we connect more deeply with Stripe and GoCardless so we present the mechanisms in-app as part of the workflow. This allows people to build in options to get paid with Stripe or by direct debit with GoCardless,” Berks explained.

“The TransferWise integration is an extension of that. It’s been a long aspiration for our accountant partners to make and manage payments on behalf of clients.”

After an 18-month review and integration process, Xero selected TransferWise to initiate payments from within its core accounting platform.

“They are one of a number of small fintechs with native access to faster payments. They started out as a foreign exchange specialist, but to receive pounds into the UK from abroad, they have built the facility to disperse funds to UK bank accounts,” said Berks.

Pay with TransferWise is now part of Xero’s invoice workflow, where CreDec and Apptimise link in via the program's application programming interface (API).

Open Banking, but not quite yet

Partly to encourage banking competition and partly to bring some order to the chaotic world of banking data and payments, the European Union set down legal requirements for Open Banking APIs. The payment services directive (PSD2) came into effect in the UK at the beginning of 2018, but the APIs have been implemented in different ways by banks.

Xero responded last year with its own Open Banking API, where you connect to it and it then connects to the different Open Banking connections in the wild. It’s not what a technology purist would understand as an “open” data exchange standard, but Xero also needs to connect to banks in jurisdictions beyond Europe, so it needs a global banking API.

With so many different fintech and banking options to choose from at last week’s event, AccountingWEB asked Berks whether offering these overlapping options complicated the choices for its customers. Wouldn’t it make their lives easier if it offered an integrated, own-brand payments service and direct access to finance like QuickBooks in the USA?

He replied that the company was pursuing different partnerships to cater for different user communities: “First and foremost we want to be driven by the needs of our users, whether it’s helping customers get paid quickly or accessing capital when they need it.”

Xero executive general manager of ecosystem Nick Houldsworth reinforced the underlying strategy: “Part of Xero’s success was picking out a good group of customers and having a good platform capability so we could partner to deliver a wide variety of needs. Our strategy is to partner best of breed providers while continuing to improve our core product. It’s certainly working for us now.”

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