Why Xero's Boring Wells Fargo Announcement Is Actually a Big Deal

If you’re anything like me, you saw the headlines this week about Xero integrating with Wells Fargo and got really excited. Then you read the details of the new partnership — and felt kind of underwhelmed.

I think that’s because the biggest news is not what’s happening in the short term, but what is possible in the future as a result of this new relationship.

In case you haven’t heard the news, here’s what’s going on with Wells Fargo and Xero:

According to the press release, Wells Fargo is planning to work with Xero to set up a direct connection between Xero’s accounting software and Wells Fargo’s online banking product. This direct connection will allow Xero users to download their bank statement information into Xero for reconciliation.

We are delighted to integrate with Wells Fargo to connect small businesses to the financial services they need to grow and thrive. Xero, together with Wells Fargo, will help small businesses capture a true picture of their financial standing and empower our mutual customers to better access financial services, giving them greater control over their data. We believe this will fundamentally rewire how small businesses operate, and light a fire in the engine room of our economies.
— Rod Drury, CEO of Xero

Sound familiar? That’s because it is. Xero already has the capability to download transaction data from Wells Fargo (and most banks in the United States). The accounting app does this via a third party “data aggregator” service called Yodlee.

The way it works is that Yodlee uses the user’s online banking credentials to log in on their behalf and “screen scrape” transaction data from the online banking interface. Then Yodlee organizes that data and sends it nicely formatted into Xero. This is what Xero calls a “bank feed.”

Basically, Wells Fargo is planning to cut Yodlee out of the picture and will provide the bank feed directly to Xero instead. The touted benefit is improved security, since now users won’t have to provide their passwords to a third party to enable bank feeds.

That’s it. Pretty boring, right?

I thought so too — at first. But I don’t anymore, after digging in a bit further.

Let me explain why this partnership is a big deal, even though it doesn’t sound like one.

Actually, let’s let Gene Marks explain it. He wrote an article shortly after the announcement titled “Something Huge Just Happened to Your Bank This Week, and It Will Significantly Affect Your Business.”

As Marks points out in the article, this is “the first time ever a big bank (Wells Fargo) is enabling an accounting application (Xero) to seamlessly access its banking data.”

OK, that’s interesting. Not earth shattering, but interesting.

Marks also says that this is “only the beginning. The door is open.” The idea is that eventually more banks will follow the leadership of Wells Fargo, and instead of just bank feeds, we’ll have data going back and forth from the bank to the accounting system and vice versa.

Brett Pitts, head of digital for Wells Fargo, seemed to agree that more is to come. He was quoted in the Wall Street Journal as saying that this is a “very important first step.”

So if this is the first step, what’s next? That’s the question that gets me really excited about this new partnership.

Once Wells Fargo creates the API that allows Xero to connect directly to online banking, that API could be expanded and used for a lot more than just downloading transaction data. It could be used in ways that vastly improve the accounting/banking experience for both business owners and accountants.

Imagine logging into Online Bill Pay and seeing a list of all the bills that have been previously entered into your accounting software. To pay your vendors, you just select the bills you want to pay and enter the dates you want the payments to go out. The bills get marked as paid in your accounting software, and each transaction is automatically reconciled.

This futuristic workflow eliminates duplicate data entry in a typical small business accounts payable process and much of the potential for errors and fraud. It’s an accountant’s fantasy now, but could be a reality in the near future if Wells Fargo takes additional steps beyond this first one.

As another example, imagine that your bank syncs images of all of your statements, checks, and deposits automatically into your accounting system. No more having to log into online banking to view those documents when you’re trying to reconcile the books.

Or what if you could categorize all of your credit card spending in online banking using your expense categories from the accounting system, and have all of those categorized expenses sync automatically into Xero or QuickBooks?

On the finance side, imagine that you have the option to give your bank permission to examine the books via the API. Your bank can now use algorithms and the detailed transaction data to instantly determine if your business qualifies for a loan, and if so, for how much and on what terms. And you as the business owner don’t have to do any reporting for the loan because your bank already has access to all the financial data.

That last idea is already a reality for alternative lending platforms such as Kabbage, Fundbox, and BodeTree. Grabbing a share of this new type of finance activity is a good reason for banks to open up and join Xero’s “financial web.”

The possibility of stuff like this happening is what’s getting me excited about the Wells Fargo and Xero partnership. Right now, it isn’t much. But it has the potential to be a really big deal.

I’m hopeful that this first step turns into many more.