Xero copped a lot of flak from users with the announcement this week that a major UK bank will charge an extra £3.50 per business account on top of their monthly Xero subscription for bank feeds.
Most of that flak is unfair. Xero is suffering because of an unfortunate reality: (Some) banks are bastards.
The Royal Bank of Scotland is acting old school – charge fees for every point of contact, even when it is just giving users access to their own data. And it also has online accounting software companies like Xero over a barrel.
Xero users are outraged at being charged for a service (bank feeds) that was previously included in the price of the software. Some even compared Xero to budget airline RyanAir, which whacks customers with extra fees at every point of the journey, a comparison which really riled Xero CEO Rod Drury.
“Xero has proven itself to be an ethical business that listens, responds and looks after it’s customers. Maybe you’re not used to that but we think it’s common sense and that is how we roll,” he snapped back at dissenters on the Xero company blog.
Although the problem isn’t of Xero’s creation, the pain is real, particularly for sole traders. A Xero Starter account only costs £9 a month. If the business holds two accounts it’s close to doubling the cost of the accounting software.
But the real problem is for Xero’s accounting partners, who are a crucial part of the company’s sales engine and meteoric growth. The highly promoted Xero Method™ of running an accounting firm is to bundle the cost of the accounting software into a monthly subscription that includes compliance (tax returns), advice and support.
If the average business has two business bank accounts and it’s a 50-business firm, that’s £4,200 in extra fees a year. Maybe not much in the overall revenues of a 50-customer firm, but accountants dislike paying fees as much as anyone else.
Why doesn’t Xero just pay the cost?
A common response among Xero users is that if Xero is no longer paying Yodlee to supply bank feeds, why doesn’t it just pay the bank instead?
The likely answer is that Xero can’t afford to. It is probably paying a much smaller amount per bank account to Yodlee for its 300,000 customers than the usurious Royal Bank Of Scotland wants to charge.
Some Xero users mistakenly believe that the bank is already charging Yodlee to supply it with bank feeds, and now it is charging Xero directly. If that were true then it would make sense for Xero to keep absorbing fees for feeds.
But it doesn’t work like that. Yodlee doesn’t collect transaction data with a bank’s permission; it automatically logs into a user’s internet banking account and “scrapes” the transactions from the screen. This way it can avoid paying the banks any fees at all.
The downside is that Yodlee isn’t really selling a “bank feed” but a recombined list of data based on screengrabs. Occasionally data is omitted or duplicated. (Xero added a recommendation to check balances against a bank statement after a campaign by Digital First about inconsistent feeds.)
Transaction feeds sent directly from the bank tend to have fewer errors and dropouts compared to Yodlee feeds.
The much larger UK banks have a poor reputation when it comes to technology adoption. It has taken years for them to introduce bank feeds for accounting software, and Drury claims these first steps are due to long-term lobbying by Xero which has cost the company time and money.
It certainly makes the New Zealand and Australian banks look nimble by comparison. And also fair – as far as I know none charge users to access their own feeds.
“Xero has been a pioneer in getting banking connected to accounting. We believe it’s one of the biggest contributions we’ve made to the accounting industry as it is such an improvement and gets small businesses up to date everyday eliminating the ‘catch up’ trying to process the books over the weekend,” Drury says.
He’s right. Cloud accounting software vendors all benefit from banks opening up access to their internal processes, something Xero calls Banking 2.0.
If banks start charging en masse for users to access their own data it will retard the revolution in integrated accounting and banking services. Businesses that shop with these old-school banks will miss out on productivity gains and lower transaction costs.
Today, two days after the Royal Bank of Scotland announcement, Xero appeared to back down by offering customers the option to keep their Yodlee feeds instead of paying for direct feeds.
A generous gesture, but it really should be unnecessary.
What can Xero users do?
Easy answer – change banks. The fact that the bank is willing to charge for users’ own data is not a good sign. Bank feeds are the first step in Banking 2.0. Xero is working with New Zealand banks on automated provisioning of feeds, payment web services and low or no cost bill payments.
Open access to your own information is a keystone of the new paradigm, the open platform. Intuit and Xero are building ecosystems of “add-on” cloud programs that work with their accounting programs, even if they’re owned by competing vendors.
Open platforms attract more users than platforms with price barriers; this is a truism of internet-based businesses, which includes pretty much everybody these days. More users equal more customers, which equal more revenue, etc.
The Royal Bank of Scotland might think it’s smart to charge £3.50 to Xero and every other accounting software vendor. Unfortunately it’s shortsighted and will cost the bank customers, revenue and reputation in the long term. Let’s hope no other banks are silly enough to follow suit.