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  • Matthew Duckworth

The Accounting Stack Revolution - Part 2


In Part 1 of this series, you learned that the world of accounting is starting to become more automated. Driven by changes in the amount and quality of data we can get from a credit card or check transaction, we also learned that fintech is playing a major role in enabling better, faster, cheaper accounting.


In Part 2 of this series I'm going to discuss how payments and banking technology will open up the door to the day of VERY automated accounting systems (as apposed to partially automated systems of today).


So, what is happening with payments?


There are six major trends shaping the industry:

  1. Barriers to entry are getting lower,

  2. Payments are getting cheaper,

  3. More payments are being made through digital channels like virtual credit cards,

  4. Payment data is becoming more open via APIs,

  5. More data is being collected about each payment and

  6. Payment services are becoming more embedded within accounting processes

A huge amount of money is flooding into fintech. That has driven A TON of innovation. In fact, this year alone (2021) fintech VC investment more than doubled, rising from $22.5 billion in H1 2020 to $52.3 billion in H1 2021. Although many of the companies started during this period fall squarely in the crypto space (still a relatively small portion of total payments), there were many companies that focused their energy on building "rails" to allow people more access, speed, and transparency with their payments.


These companies, companies like Unit, Qolo and Treasury Prime took the approach of making it really easy for other companies to build payments into their processes. Qolo, for example, has built the rails to allow almost anyone to control:

  1. Deposit Accounts

  2. Debit Cards

  3. Credit Cards

  4. Crypto Wallets

  5. Cross-boarder Payments/Fx

  6. ACHs

  7. Rapid Funds Transfers

  8. Wire Transfers

In other words... Pretty much any kind of payment you'll ever need to make is available for you to customize to your needs.


In addition, virtual credit cards and ePayables use is growing rapidly. According to a recent study by Mastercard, virtual credit card use will increase by 37% in the coming years as businesses shift away from paper check use.


When you layer all this over data like GPS location and product/vendor categories (accessible thru vendors like Plaid), you can start to get a sense of where the market is headed. More on that later...


And what is happening with banking?


Banking is changing in three major ways:

  1. There's more integration (APIs)

  2. There's more data (More context)

  3. Artificial Intelligence is getting smarter (More predictive capabilities)

Banks, for the most part, have woken up to the fact that - although they may value innovation - they are not good at creating it and the world around them is changing much faster than the pace of regulatory change. As a result, more banks are seeking solutions that build on their core banking software to give customers access to better products.


That has opened the door for integration, access, and smarter, cheaper payments.


Companies like MX and Akami make it possible for anyone to build banking applications that can tap into core banking software. The doors have been opened for innovators to use this data to do new things. Things like:

It's plain to see that the barriers to entry are getting lower for the payments industry. When this happens, a few things tend to occur.


Just like the TV and Music industries who, when the cost of production and distribution fell, many more niche channels found their way into the market, we are about to see a wave of startups that use payments to differentiate their products for specific industries. There's a lot of innovation about to happen in this space.


Second, this additional access to data and more customized products will lead to more automated accounting. Why? Because accounting is very dependent on people to give you the right piece of information at the right time. For many accounting departments, searching for a lost receipt or trying to understand which invoice a deposit should have been coded to is the most time consuming part of the process. Like software companies collect technical debt, accounting departments collect "Disorganization Debt". Building products that optimize specific industry workflows to deliver the right information at the right time is what will eliminate that Disorganization Debt.


By way of example, imagine you run a landscaping company. In a perfect world you would know how long people spent on a job, what materials were used, what new materials were purchased for it, what value you provided to your customer, and what part of that value you can charge to your client. You'd also be able to easily invoice the customer for the right amount at the right time and know you'll get paid promptly.


In the real world, however, lots of things don't work perfectly. People don't always clock in on time, they forget to turn in receipts or other documentation, they forget which job they were on, they lose track of contracts, and they forget to send and follow up on invoices. A lot can go wrong. Furthermore, the way you collect this data for a landscaping company is different than if you run a manufacturing plant, so to solve the people problems effectively, you need customized solutions.


This is where the world is headed and it will be here faster than you think.





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