If you want to win small business banking, you have to address cash flow: 60% of small businesses in the US face cash flow problems on a monthly basis, according to a 2012 whitepaper by Barlow Research Associates.
Cash flow is a major problem, not just for incumbents and their frantic SMB customers, but for the American economy at large. According to an SBA report, SMBs really are the backbone of the American workforce: they employ 49% of the US population (that’s 120 million people), create 64% of net new jobs in the US, and account for 43% of US payroll dollars.
Wells Fargo has been taking steps to help small businesses get a grip on their finances. To do so, the bank, which has 3 million small business clients and provides more loans to SMBs than any other bank in America, established the Wells Fargo Works for Small Businesses resource portal in 2014.
Barlow’s whitepaper showed that one of the main problems keeping SMBs in perpetual cash flow pandemonium is a lack of integration between banking services and accounting. Enter Xero, an accounting software and online booking company, whose new data-sharing integration with Wells Fargo should provide a simple integrated solution to joint customers of the firms.
Standardization brought them together
The US banking system is leaning more heavily on banking APIs - a set of routine definitions, protocols, and tools for building software and applications. Both startups and incumbents benefit greatly from them, using these software hooks to create holistic experiences to meet their customers' needs. Unsurprisingly, financial companies of all sizes have begun to put aside their differences to aggressively pursue API standardization.
“Its about how we create a world where data and details can transfer more securely and more seamlessly,” says James Maiocco, General Manager of Xero.
Together, banks and fintech startups are trying to develop a balance between giving customers control over their data, while remaining within the boundaries of security, privacy, and regulatory frameworks. It was at several different conferences about banking APIs that Wells Fargo and Xero started flirting with the idea of an API-driven integration.
The conversation about creating an integration for joint Wells Fargo and Xero customers started several quarters ago. However, the actual development of the integration only took six months from start to finish.
Each company had an executive sponsor - Maiocco for Xero and Brett Pitts, Head of Digital for Wells Fargo Virtual Channels - as well as respective technology and business teams that had to work through the terms. Ultimately, the negotiations were dependent upon “a small handful of people on both sides of the table,” says Maiocco. He credits API standards as enabling such small teams to pull off such a big deal:
That’s the beauty of standards. You’re not building something custom for an individual organization, you’re actually gravitating around a standard that can be used by everybody. It doesn’t require large teams, it just requires an agreement around the standards and the commercial relationships of both parties.
Marketing the integration to their client base
Even if their joint customers aren’t all caught up with both firms' press releases (as Maiocco notes, small business owners are the busiest people on the planet), Xero will make them aware of this new integration by messaging about the service at login, as well as engaging in a certain amount of more traditional outbound marketing activities. Though he couldn’t speak to Wells Fargo’s practices, he assumes that they too will be focused on informing their customers of the integration through customized, personalized channels.
Neither Wells Fargo nor Xero are disclosing the exact number of how many joint customers they share, but Maiocco told Tradestreaming that Wells Fargo represents a double-digit percentage of their customer base in the US. Ultimately, customers have to actively choose to apply the integration.
Miraculously, everybody wins
In theory, it’s a chain reaction of good. The Wells Fargo/Xero integration enables customers to stop circling the cashflow whirlpool and start succeeding in business, potentially resulting in more revenue, jobs, and security. Wells Fargo wins, because it means less risks, less businesses defaulting on loans. Xero wins, because the SMBs continue to grow with them.
For Maiocco, one of the biggest winners are those unsung heroes, the accountants. Many small businesses with 25 employees or less outsource their bookkeeping. From experience servicing accountants, Xero learned that a lot of their time is spent doing rote tasks that could really be done with machine automation. With this new integration between Wells Fargo and Xero, accountants could save up to 2 to 4 hours per joint customer, depending on transaction volume.
This is not only significant for the SMB customers, who typically pay their accountants hundreds of dollars per hour, but for the accounts themselves, who can stop doing manual data entry and focus on higher added value services for their clients. Maiocco suspects that Xero’s accountant base will push more clients to Wells Fargo as a result of this integration.
"The average SMB bookkeeper and accountant will have somewhere between 50-100 small businesses that they manage," he said. "If you can save 2 to 4 hours per business per month, that’s a lot of time saved.”