One of the greatest innovations in accounting, bank feeds have heavily reduced the amount of data entry in a business. The method of collecting these feeds differs between software and banks; this chapter looks at what happens behind the scenes.
What is a Bank Feed?
A bank feed is an automatically created list of the transactions (spent and received) in your bank account. Bank feeds have been around for a while as part of desktop accounting software. They were integrated into online accounting software only in the past couple of years.
The impact of bank feeds for small businesses has been enormous. Accounting programs can automatically match a transaction in a bank feed with a sales invoice awaiting collection or a bill awaiting payment. This cuts out hours of manual data entry required to reconcile accounts.
Why are Bank Feeds So Important?
A large part of SME accounting is coding bank statements into revenue and expense categories so a business can track its sales and costs. A user can set up rules to automatically match transactions from certain suppliers (eg. a credit card transaction from an airline would be categorised as Travel). This coding occurs from within the bank reconciliation screen which is more efficient than older methods.
Online accounting software collects bank feeds in two ways.
1. The Direct Feed
Larger software companies pay the biggest banks to receive bank feeds for shared customers’ accounts. The bank’s IT department prepares its systems to export a daily feed of transactions from its banking system to the software company’s databases that run the online accounting program.
The software company can pay millions of dollars a year to a single bank for these feeds. These costs are usually absorbed by the software company and not passed directly to the customer.
2. The Indirect Feed
An online accounting program can also use a data aggregation service which collects bank feeds from thousands of banks.
The data aggregator used by most software companies is a US headquartered company called Yodlee. Yodlee sidesteps the cost of paying for fees by copying the list of transactions on the screen of users’ online banking portals.
Yodlee cleans up the list, removes duplicates and sends it to the user’s online accounting software as a bank feed.
This process is called “screen scraping” and initially created some controversy for two reasons.
The technology is not perfect and the occasional transaction is duplicated or omitted. Online accounting programs that use Yodlee recommend checking reconciled accounts against the balances in your online banking portal.
Secondly, Yodlee requires users to share their login details to access their online banking portal. Competing software companies have claimed that sharing login details breaches the terms and conditions for accessing an online banking portal.
Are Yodlee-Created Feeds Safe?
Yodlee says its processes for collecting bank data are widely accepted throughout the US, Australia and other parts of the world. It collects data from more than 100,000 bank accounts in 14,000 banks and other financial institutions, and hasn’t reported any security breaches in the past 15 years. (1)
Yodlee is registered as a tier one financial institution in the US which means it must comply with the same security and regulatory obligations as the largest American banks, such as Citibank and Bank of America, its first two customers. One of the largest twenty banks in the US uses Yodlee to compile bank feeds from their own systems to create a system of record for internal reporting. (1)
Should You Use Yodlee-Created Feeds?
Bank feeds can save an enormous amount of time and increase the speed of doing business by keeping your accounts up to date. It is worth setting up Yodlee feeds to understand how it can increase efficiency and cut down data entry.
Yodlee works better with some financial institutions than others. Best practice is to compare the reconciled balance in your online accounting program with your online banking statement to find omitted or duplicated transactions.
In most cases, particularly for the bigger banks, a Yodlee feed will work fine. If you are with a smaller institution and the number of inaccuracies is too high then you will need to weigh the cost versus the benefit. A good bookkeeper will know whether the bank feed is worth keeping.
It’s worth noting that Yodlee is working to improve the quality of its feeds with smaller banks. It may be worth checking every six months to see if accuracy has improved.
Alternatives to Yodlee Feeds
There are alternatives to Yodlee. In Australia and New Zealand MYOB has operated an identical service for the past 25 years called MYOB Bankfeeds (previously an acquisition known as BankLink). It claims to have an accuracy rate many times higher than Yodlee – the likelihood of an error is 0.0001% compared to 0.1%. MYOB says it uses algorithms to ensure near 100% accuracy and guarantees no duplications or missing transactions. (Yodlee says MYOB’s accuracy claims are not possible.)
MYOB has also signed agreements with all its banks – no user passwords required, allaying any concerns about breaching bank conditions. However, MYOB Bankfeeds are only available for financial institutions in Australia and New Zealand.
Intuit also operates a similar service to Yodlee for the US market.
Bank feeds take online accounting software from a system of record to a daily snapshot of your business. The efficiency in recording transactions is replicated in another key area of accounting software – payroll. Read on to see how much easier it is in Chapter 5: Paying Your Staff.
1. Yodlee Opens Up on Bank Feeds – Interview (Digital First)