No major product announcements. Slowing expansion of the ecosystem (in Australia, at least), now at 700+ apps globally. Some subtle changes in marketing.

It’s almost too quiet.

In fact, we could be seeing the very beginning of a new wave of disruption in accounting software. This wave is breaking in three places, and threatens to chip away customers in each area.

The first is at the lower end of the SME market. The cost of making software is falling. Features which Xero released to great fanfare several years ago are now being given away.

The best example of this is the payments platform, Square. Square provides credit card readers to small businesses and also integrates with ecommerce platforms – its goal is to increase the number of transactions it processes.

Square recently launched a free, standalone invoices app called Square Invoices. The mobile app is well designed and it is tightly integrated with Square’s payments.

The payments platform already has a free point of sale app (Square POS). There are no monthly fees; users only pay for processing when they accept card payments, the standard rate of 2.2%.

The invoicing app includes premium features found in paid accounting software. For example it includes automatic payment reminders (which Xero added in 2015), tracks payment status of each invoice (opened, overdue and paid), and can attach documents and receipts to invoices.

If you are starting up a small business today as a field worker – say a plumber, carpenter or interior designer – why buy an accounting program for $25 or $50 a month if you can just use a free invoicing app?

Your accountant can track the transactions with a ledger, and everyone is happy.

The second area of disruption is in the killer feature of cloud accounting software, bank feeds. Xero’s stroke of genius that made everyone sit up was adding feeds directly to the general ledger. This opened the door to automated coding for small businesses and higher efficiencies for accounting firms.

Nowadays you can’t launch an accounting app without bank feeds.

Xero spent a lot of money firstly with Yodlee, a financial data integrator, to get feeds from all the banks without their permission. Then it spent a lot of money setting up direct connections with the banks.

The governments in Australia and the UK have both decided that banks don’t own that transactional data, businesses do. So the governments are forcing the banks to share those feeds for free. That’s a big barrier of entry that just disappeared in a poof of smoke.

There’s also disruption coming from the consumer end. Apple announced in March its Apple Card, a credit card that integrates with an iPhone app.

Apple Card works with Apple Pay on your iPhone like any other approved credit card, while the physical titanium card works in stores that don’t accept Apple Pay.

Xero will be most interested in the software. It automatically categorises payments, adds map locations and colour logos to transactions, shows monthly expenditure in graphs, and has a dial interface to select the level of repayment and interest.

Free transaction coding for consumers is not a direct threat to bank reconciliation for business today, but where is Apple going with this? Where could it go?

Microsoft once tried to take on Intuit in the US and failed miserably. Apple is unlikely to roll out accounting software tomorrow. And yet it changes expectations about what accounting software should do – and how much you should pay for it.

The third wave of disruption is coming from the big end of town. NetSuite is doing a lot of work to make its enterprise resource planning (ERP) software more appealing to smaller businesses. It has released best-practice blueprints for a number of industries, has much easier multi-entity and multi-department reporting than the Xero ecosystem, and will sell the accounting module on its own as a starter package.

Xero is rumoured to be releasing a more expensive edition targeting larger businesses, as Intuit did with QuickBooks Online Advanced. It will face a tougher fight as NetSuite learns to understand the SME market.

Xero will no doubt have plenty to say on each of those fronts. One major advantage that Xero has over all those challengers is its connection with the accounting profession.

Let’s hope for a strong counterattack that reinforces Xero as the best choice for accountants, and therefore their clients.

Just when you thought everything was settling down, it’s clear that disruption in accounting is far from over. We will be exploring these themes at Accountech.Live in Melbourne, Australia this November. Xero and the ecosystem will most definitely be striking back!

I look forward to seeing you there.

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