​Xero to bridge the gap between small businesses and banks

Xero has announced the next focus for the business is to use the data it captures on its platform to help businesses secure bank loans.

Cloud accounting software firm Xero said its next focus will be to bridge the gap between small businesses and their access to getting funds from financial institutions.

Speaking at Xerocon 2015, Xero co-founder and CEO Rod Drury said the next step for the company is to address the "connectivity" between accounting software, accountants and bookkeepers, and large financial institutions.

He said now that the company has managed to help businesses get their accounting data into the cloud, they want to be able to use that data to open small business owners up to capital.

"Because if we can get money into small businesses it would really help them grow, and that's what we call the financial web. It is the next stage of where cloud accounting goes. It's the connectivity between accounting software," he said.

"The financial web is how can we take this electronic connectivity, this high integrity data sitting in Xero, this accounting trust relationship, and connect it with financial institutions to allow them to get more money," he said.

According to Drury, it will help address the current problem that small businesses face, highlighting that banks often only lend money to medium to large businesses with an annual turnover of AU$5 million-plus, and not to small businesses because it's too risky, costly, and slow.

He added that as a result of this hindrance, small businesses have branched out to non-bank lending options, such as peer-to-peer lending with likes of Kickstarter, but believe that's "risky capital".

Drury pointed out that Xero has access to data that can help banks and businesses price risk accurately.

"We have this history of information, and not just from one bank but multiple banks, and historical information, we can use to calculate risk; we can even change the pricing of risk over time," he said.

To help accountants and bookkeepers improve their tracking of necessary data to help businesses get loans, the company announced a preview of its Assurance Dashboard. Drury said the aim of the dashboard is to give explicit visibility of who has been on the platform, and an overview of all the bank accounts to determine if they are electronic or not, or whether any accounts have been deleted.

"It's about giving visibility to create confidence and integrity of the numbers," he said.

This step by Xero to focus on its financial web is in addition to its existing partnership with National Australia Bank. In April, NAB partnered with Xero to enable its small business customers to instantly access Xero's cloud accounting environment via the NAB internet banking function.

Speaking about the bank's relationship with Xero, Adam Bennett, NAB executive general manager digital and direct banking, said the company is committed to helping the small business community, and currently lends AU$1 billion a month to small businesses.

Bennett announced that to further grow the relationship, the bank plans to add a new lending feature so that small business customers can use Xero to "look ahead" in their profit and loss, balance sheet, and cashflow statements.

"At a push of the button that [information] will flow through NAB, and we can start a discussion about lending products and business growth," he said.

Disclosure: Aimee Chanthadavong travelled to Xerocon 2015 with Xero.