Last week, accounting software maker FreshBooks announced that it was receiving an undisclosed "strategic investment" from JPMorgan Chase.
The investment - from the standpoint of an accountant (that’s me) - is a good one. FreshBooks is an excellent cloud based accounting application that's giving its biggest rival - Intuit - a run for the money. FreshBooks has been around for a while and has grown its customer base to more than 24 million freelancers, agencies and users at small businesses and consulting firms as the company has carefully added more features to its initial invoicing capabilities and now handles accounts payable, double entry accounting and general ledger processing. If I was an investor looking for a good fintech company to back, FreshBooks would certainly be high on my list.
But that's not the reason why I believe JPMorgan Chase made this investment. It’s because banks like them are slowly realizing that the way to their small business customers' banking business is through their accounting systems.
My firm's 600 clients all, of course, use some type of accounting software. But are they fully integrated with their bank? Rarely. Even the more mature companies I work with who have setup online banking to enable quicker electronic processing of payments and receipts are still manually recording those entries into QuickBooks, FreshBooks, Xero, Sage 50 or whatever system they're using. Why the disconnect?
"It's a pain," one of my clients recently told me. "And I'm not sure I trust that the so-called "integration" between my accounting and banking systems are completely reliable."
She's right. Accounting software and banking systems operate on two different islands with makeshift connectors made by internal developers from the separate companies that are subject to failure anytime there's an upgrade or a blip in processing. This is not a trivial matter. Some integrations - like a customer relationship management app and email provider - can temporarily break and it's not the end of the world. For a small business, a problem transferring accounting and banking data could be disastrous. So most of my clients leave well enough alone.
But watch what happens with JPMorgan Chase and FreshBooks. I’m hoping that this initial investment is like a test run. The bank, according to Bill Clerico, Head of SMB Product for Chase Merchant Services and CEO of WePay (now owned by JPMorgan Chase) is going to market this software to its four million Chase for Business customers with an eye towards better integrating their small business customers' payments with accounting.
But a “strategic investment” isn’t going to cut it. To really solve the "integration" problem, a big bank like JPMorgan Chase will need to go all-in and ultimately buy an accounting software maker like FreshBooks. They'll then want to offer their accounting solution - be it FreshBooks or a rebranded product - completely free (along with services to get it up and running) to their customers.
Why? Because it will attract new customers who can save money on their accounting costs. More importantly, once a bank has that customer using its own accounting software it will make it very difficult for that customer to disentangle and walk away.
It’s simple. Banks have the money. Accounting systems track the money. Why shouldn’t it all just be in one place?