The State of Cloud Accounting – Part 1: Innovations in Banking
The past two years have proved to be big years for cloud accounting and fintech, full of innovation and disruption. As 2015 comes to a close, we started to look ahead thinking about what 2016 will have to offer. Our four-part blog series will focus on each area of innovation affecting cloud accounting – banking, software, security and data ownership – concluding with our predictions for 2016.
Cloud accounting has faced slower adoption in the US than it has in the UK or Australia – two countries also known for high cloud adoption rates. One of the major reasons stems from the deregulation of our banking system and the glacial pace at which our banks trend towards innovation.
What Does Banking Innovation Have to do With Cloud Accounting?
One of the many benefits of cloud accounting is the ability to integrate your systems to pull data from all of your financial sources to create a holistic view of company finances. The company bank and credit card accounts are a major source of that data.
Roadblocks of Banking Innovation in the US
Until recently, banks withheld access to their data from other software – making it impossible to pull data from the bank into accounting systems. However, banks quickly started to realize they needed to shape up or ship out. According to a survey recently conducted by Deloitte, “respondents in banking are 50 percent more likely to expect a major impact on their business from new entrants and disruptive trends.”
In 2014, major banks started to allow access to their data through the use of APIs (application program interface). However, as of June 2015, there were 5,441 different banks in the United States – all of which are using proprietary databases. The 2015 challenge for software companies became building a custom integration for each bank’s API. This has resulted in many services being limited in who they collect data from – services may only offer integrations with specific banks and credit cards.
How Banking is Continuing to Change
Since 1985, the number of banks in the US has been on a continuing decline as Federal laws and regulations change. This is lowering the amount of disparate data and the number of API integrations a software company needs to build.
New styles of banking, such as Seed.co which is centered around it’s ability to integrate with other systems and proudly touts it’s API, are starting to force existing banks to get behind the idea of innovation and make their data more readily available.
We’ve also started to see the popularity for the decentralized currency of Bitcoin rise. The idea of digital currency could be a (far away) future game-changer for banks, moving everything completely to a digital state.
As investments in the space grow and banks are forced to open their data, the adoption of cloud accounting will only increase. The deeper integration of accounting systems will result in better financial data, and the benefits of the cloud will be hard to argue against.
— Abacus (@abacus) October 1, 2015