Silos are giving way to connected databases on a scale never seen before in the small business world. The results will transform how small businesses operate – with each other, with big business and with government.
It’s been an old saw in enterprise IT for eons that data sets are more valuable when they are connected for two reasons: one, insights; and two, less data entry. The classic example is updating email addresses or postal addresses in several programs, such as a sales team’s email clients, a CRM and the company’s email marketing platform. Tie these three together and you know that each time you send out a special offer all your best customers are guaranteed to receive it. When they’re not connected, and you’re forced to update them manually, standards slip, someone doesn’t get the email – and the company earns less money.
Financial reporting is another example. Enterprises need to consolidate stores and departments into one set of books to see their actual sales and financial position. Silo in this case equals death.
But who cares about a small business? Small data sets, small revenue – in millions of desktop accounting files. That changes when you bundle a million of them together in the cloud. Then you can do all sorts of extraordinary things. Cloud accounting software creates a massive database of very rich, highly categorised data. Intuit has more than one million small businesses, Xero is on 600,000. Each transaction imported into these programs is categorised against the general ledger by accountants, whose services are paid for by the small business.
The accounting software vendors can tell you whether small business in Australia spent more on advertising this month compared to last. Or office supplies, rent, capital purchases, telephone and internet, the list goes on. This big data is enormously valuable. The vendors are only just starting to monetise that value by connecting these massive databases to the financial services industry.
Here is a list of the types of databases that already connect to your standard small business accounting software.
- Peer-to-peer lenders
- Credit scoring agencies
- Foreign exchange
Each time a bank sends a quote for a loan to a small business, it pays the accounting software vendor a clip. Intuit is taking it a step further. It is offering its own money to small businesses and cutting out the banks. It has a lazy US$1 billion in the bank earning just 0.25 percent. Short-term lending to small business makes nine to 19 percent. Ka-ching!
But how does it work? Intuit has put US$100 million into a fund for small business called QuickBooks Financing Line of Credit. OnDeck, one of the new breed of analytics-driven lenders, has been using Intuit’s QuickBooks database to price quotes for lending to businesses for several years. Intuit is using OnDeck’s technology to come up with quotes for its own fund.
Xero has said it won’t set up its own fund. It is following Intuit’s lead by integrating with Moula (a peer-to-peer lender) and NAB. A business owner can request a quote from the latter within Xero’s interface itself. This changes the landscape permanently.
We are witnessing a shift in power towards the accounting software vendors. They will hold the keys to the gateway to all financial services for small businesses and will, of course, take a clip of any ticket. There will no doubt be other industries that want to sample the sweet data in Xero, Intuit, MYOB, Reckon, Sage, Saasu and the like.
Sholto Macpherson is a journalist and commentator who covers emerging technology in cloud.