UPDATED: Xero’s Australian tax platform will work with non-Xero users as well.
Xero’s plans to disrupt the accounting software and finance industries wouldn’t be worth much if they didn’t upset a few applecarts. Xero CEO Rod Drury and product managers gave a few hints as to which companies and professions were in Xero’s sights.
Payment gateway providers and credit card companies
With one hand Xero giveth, and the other it taketh away. Product manager Andrew Tokeley said online invoicing took off once Xero added payment gateway providers such as eWay and Payment Express. Businesses could receive payment for invoices immediately via credit card. Payment gateway providers must have sensed opportunity – eWay was one of the 50 exhibitors at Xerocon.
But Drury’s vision for the future of banking may cut out payment gateways entirely. Businesses sometimes sent out invoices for $5,000 or $50,000 and were charged large commissions on the transaction if the money was paid by credit card, Drury said. Banks were working on direct bank-to-bank payments – apparently within Xero – to eliminate the 2-3% commission charged on transactions.
Small business bankers
Progressive minded banks are considering portals for accountants to deliver banking products directly to their clients. As Drury pointed out, business owners can stick with one accountant their whole commercial life. Why should a bank try to win over a business owner when they can target the accountant?
But which banks are most likely? In Australia ANZ has had a close, ongoing relationship with Xero. BankWest and Macquarie Bank are exhibitors at Xerocon. I’m betting it’s one of those three. No doubt they’d be happy to outsource sales and customer management to accountants and give their in-house small business bankers the chop.
Tax-focused accountants
Xero is rushing to fill the biggest gap in its practice management software, tax. While tax specialists will always have a solid future, hundreds of accounting firms processing tax forms for the average income earner are going to be in trouble if they don’t diversify.
By June 2014 Xero plans to release the seven most common tax forms including company, self-managed superannuation fund, trust and individual. An accountant can lodge the form directly from Xero which will save a fair bit of time. But the bigger issue is that the forms can be automatically filled with the appropriate information in Xero and from the Australian Taxation Office.
Tax software vendors
MYOB, Reckon, Handisoft, etc. Today every accounting firm in Australia runs a server with one of those tax programs. Come July 2014 they won’t have to. Xero is integrating its tax platform for free into its practice management software, Workflow Max Practice Manager (soon to be rebadged as Practice Studio).
A saving grace for Xero’s rivals is that the tax platform will only work with businesses using Xero. (UPDATE: Oliver Furniss, Xero product manager for Australia, has clarified that Xero’s Australian tax solution is designed to work with both Xero and non-Xero clients. “We will not lock this down to only Xero customers but our partners will be able to use Xero Tax to lodge returns for all of their clients. Obviously for their Xero clients they will be able to take advantage of Xero integration and population of information but for all customers, for the supported return types, they will be able to use the ATO pre fill,” Furniss says.)
The key metric here is not number of Xero partners but the number of Xero Gold Partners – firms with over 100 clients on Xero, often because they refuse to deal with any other accounting package. Churn away from server-based tax software will only increase substantially if Xero can boost that ratio of Gold partners.
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