Cloud-based accounting software platform provider Xero (NZE:XRO) and banking behemoth Wells Fargo & Company (NYSE:WFC) just did their small business customers a huge favor.
The two recently announced (PDF) in a press release the formation of a strategic relationship built around an API (application programming interface) that connects Xero’s accounting software with Wells Fargo’s servers to create a secure shared data feed.
In laymen’s terms, that means the two systems can talk to one another enabling the business owner to see, at a glance, what his financial picture looks like — something that, up to now, has only been possible with enterprise organizations.
Although this qualifies as major news on its own, it is just one part of a much larger story that’s been brewing for some time: the financial Web.
The Financial Web Defined
The “financial Web” is a term coined by Xero CEO and founder Rod Drury to describe a tectonic shift in the way small businesses manage their financials.
Small business owners, working in the cloud, can now do their bank reconciliation using any device in real-time, bringing to a close the end of the month cycle. They can see their complete financial picture in a single snapshot at any given moment and can grant access to their accountant and financial institution so that everyone is on the same page.
Eventually, other organizations will be able to gain entrance into the system, according to Drury.
“As we connect financial institutions … we believe there will be a myriad of opportunities to help grow small business including lending, insurance, factoring, currency services and much more,” Drury said in a blog post introducing the concept.
He explains the full ramifications of the financial Web in this video:
How the Financial Web Works
The key to making the financial Web work is interoperability — the ability for different technology platforms to connect, interact and share data in a secure cloud-based environment.
Data sharing is driven by an API, and creates a secure, tokenized “handshake” between the companies’ servers, the announcement said.
It is not unlike how some websites allow customers to log in with their social media accounts. The API eliminates the need for Xero customers to share their Wells Fargo usernames and passwords or for the accounting platform to store them to retrieve bank account data.
“You will be seamlessly sharing your accounting data with your bank and your banking data with your accounting system as easily as you’re syncing bookmarks between your smartphone and browser or your location from your rental car,” said a Xero blog post describing the data exchange’s inner-workings.
It takes just a few steps to connect the business’s bank (in this case Wells Fargo) to the accounting software.
- When Xero customers are logged into the service and wish to set up or add a Wells Fargo account, they will be directed to a Wells Fargo secure server to begin the enrollment process.
- After the customer logs in, a “Connect Accounts” page appears where the customer can select which accounts and data he wishes to share with Xero. This feature gives customers control over the data they want to share.
- After confirming the account information, the customer is then directed back to Xero. Data sharing between Wells Fargo’s servers and Xero’s servers takes place via a unique token that identifies the customer and the customer’s accounts.
Access to Capital Key Component of Financial Web
In a telephone interview with Small Business Trends, Russ Fujioka, president, Xero Americas, said that the new data exchange will speed up a small business’s access to capital.
“A small business gets a new contract, which stipulates that the client pays in 90 days, but the suppliers need their money in 30 days,” Fujioka said, citing an example. “Traditionally, when applying for a loan, the business would have to explain to the banker what it does, who it serves and the reason it needs the funds. The application process can be lengthy, putting the business at risk regarding cash flow.
“Conversely, when the bank connects to Xero, it can easily see the business’s full financials and make a decision more quickly, thus speeding up access to capital by order of magnitude. It also helps transform small businesses from what banks perceive to be a risky, fragmented market with a small yield, to one that is reachable, serviceable and profitable.”
Importance of Xero-Wells Fargo Relationship
Wells Fargo isn’t the first financial institution with which Xero has forged a relationship. Five of the top six banks in the UK already run direct feeds, as do 50 Australian financial institutions and all of New Zealand’s biggest banks.
What makes Wells Fargo important is that, with more than three million small business customers, it is, by far, the largest bank in Xero’s portfolio and a foundational block in building the financial Web across the U.S.
In citing Wells Fargo’s significance regarding the financial Web, Fujioka said, “We can’t enable the vision of the financial Web until we get major institutions like Wells Fargo to connect to us directly. That relationship, with their size, allows the capability of making the financial Web story a reality very quickly in the U.S.”
Xero recently surpassed more than 700,000 subscribers around the world. North America is the company’s fastest growing market with more than 62,000 subscribers. With Wells Fargo now on board, that number is likely to grow swiftly.
The new data exchange model will begin rolling out for new Xero customers who have Wells Fargo accounts in July. Wells Fargo customers who are currently using Xero will be moved to the new service starting in Q4 2016.