Blink and it’s a Bank: Intuit Blurs Boundaries of Accounting Software

A funny thing happened on the way to the forum. Accounting software turned into a front-end for SME banking services.

The evidence was abundant at QuickBooks Connect 2018. CEO-elect Sasan Goodarzi outlined the three pillars of Intuit’s vision. The first? Smart Money.

“Cash flow is the lifeblood of success,” Intuit confirmed in the event press release. “New features help small businesses get access to more money when they need it, and keep more money in their pockets longer.”

The most important “new features” are not improvements in the accounting software. They are financial services baked into it. Eg.

• Next-day payment for online invoices. An SME that sends an online invoice through QuickBooks will receive the money the next day for credit card and Automatic Clearing House payments (usually two to three days for credit cards and more than five days for ACH).
• Same-day payroll. SMEs that subscribe to the separate QuickBooks Payroll service can deposit wages in their employees’ bank accounts the same day, rather than paying it five days (or apparently up to 14 days??) in advance.
• QuickBooks Capital Loans and credit score. QuickBooks Capital has funded $140 million in cumulative loans in the past year. Intuit has added “new lending limits” and access to businesses’ credit scores.

The two software features in that Smart Money category were definitely worth noting. Progress invoicing is a hard thing to get right in accounting software – Xero still isn’t there yet – and will be good news for SMEs that want to bill customers throughout a project or get paid incrementally.

Likewise, the upcoming self-service portal for 1099 contractors that lets them do their own W-9 forms with e-signatures is a neat feature.

But these two improvements didn’t get the same cheers as same-day payroll. It’s the banking services that create the biggest product differentiation with Xero in the US, show off the depth of Intuit’s ambition with big data, and demonstrate the threat of accounting software to conventional banks.    

Intuit isn’t pumping money over the US’ rickety banking network any faster than other financial institutions. American banks have to wait until the money arrives from a payer before they can send it onto the receiver, which takes at least a day each way. Intuit just sends the money to the employee or SME from its own funds as soon as it gets the signal from the accounting software, cutting the trip in half.

Intuit’s visibility of bank accounts and accounting data so complete, and its risk modelling now so powerful, that it knows the money will definitely arrive.

Intuit is using data to speed up banking activities. No-one else has the same quality of data: the banks have all the transactions but only accounting software vendors have an army of accountants coding them to a chart of accounts.

Follow the Money

If product releases are too subtle an indicator, you could just ask the incoming CEO. A guy who doesn’t mince words.

“Don’t call us an accounting platform. We’re not in the accounting business,” Goodarzi told Accountingweb.co.uk’s John Stokdyk, who spat his tea (Gd bless the Brits). “We are a platform to help small businesses succeed and a critical part of it is to make accountants successful.”

Goodarzi is charging hard towards a shared vision. Intuit and Xero both showed early interest in vertically integrating the collection, processing and reporting of accounting data with the assessment and delivery of financial services. But in its home market Intuit is several steps ahead of Xero and accelerating.   

Take a look at the points at which Intuit collects money from its SME customers.

1. The QuickBooks software subscription ($10-$30/month, consistently discounted from $20-$60/month)
2. A clip (10%-26% annualised) on QuickBooks Capital business loans promoted through QuickBooks
3. A clip on payments made through online invoices (2.8%-2.9%) sent through QuickBooks (Intuit Payments)
4. And soon, a clip on pre-payment of sales invoices sent through QuickBooks (the invoices are counted as assets for increasing limits in QuickBooks Capital, so same rate 10%-26% annualised)

Note that the SME pays the software subscription just once a month while the others are percentages of payments and loans. For many businesses the subscription price is likely to be significantly lower than the monthly totals of the other three.

Hence Intuit’s hell-for-leather discounting of the subscription price to $1 a month for a QuickBooks Online file in emerging (non-US) markets.

I would add insurance as the most obvious next step. Intuit is already measuring risk at a granular level for each SME through accounting data mixed with credit check and other databases.  

Now let’s take a look at the accounting software in the way that Intuit really sees it: as a funnel for financial services.

• Top of the funnel = pain awareness: promotions placed directly in front of SMEs in a highly trusted context (their accounting software) when they most need it (cashflow shortfall).
• Middle of the funnel = research/information: the SME most likely fires up a comparison site to see if they can get a loan as cheaply. What they can’t research easily is whether they would get approval.
• Bottom of funnel = purchase decision: If the SME sees the offer it means Intuit has already approved the loan. All the SME has to do is commit in a couple of clicks and the money is in their account the next day.

Take it from the trillion-dollar, one-click ordering expert, Amazon.
Convenience wins.

Attention Follows Opportunity

US banking infrastructure, with multiple-day payment windows, is still decades behind the leading countries. Australia is just rolling out instant payments between bank accounts, available 24×7. So QuickBooks Connect’s banner announcement of next-day payments for invoices was met with head-scratching by the Aussie contingent.

The UK and other European countries are similarly advanced. This all underscores the size of the opportunity for Intuit in the US market. Intuit can disrupt the socks off American banks; on lending, payments, payroll, etc. Two thirds of its 3.4 million subscriber base are in the US.

Goodarzi and crew must be eyeing the mountain of cash sitting on the table by upselling those 2+ million businesses. A publicly listed company looking to increase ARPU (average revenue per user) or top-line revenue will inevitably focus on the US first.

The opportunity is too great to ignore. What happens if Intuit decides to add retail banking accounts?

This all has interesting implications for Intuit’s plans for rest of the world. Yes, embedding lending into accounting software is still a great way to disrupt the small business market. But Intuit doesn’t have the same opportunity to improve banking infrastructure in the developed markets where it is most heavily investing.

My call: Rest of World is a slow burn for Intuit. The action is States-side.

Looks like it’s going to be a hell of a show.

Sholto Macpherson travelled to QuickBooks Connect in San Jose as a guest of Intuit.