National Australia Bank is preparing to cede some control over its business customers to accounting software giant Xero
, by allowing payments to made from within the accounting platform rather than through its internet banking site.
The deal could be the first one globally that allows core banking activity to be conducted inside cloud accounting software, and comes after the World Economic Forum predicted banks will face more competition from technology platforms for customer relationships.
NAB and Xero are on a national roadshow this week to brief Xero customers on the innovation, ahead of a closed beta trial in February and roll-out to the broader market mid-year.
Xero's managing director in Australia, Trent Innes, said he hoped other banks would follow NAB. To pay an invoice, NAB customers using Xero will be able to push a button inside Xero rather than having to exit Xero, enter the bank website, insert the invoice data and then make the payment.
"I think we will look back one day and say 'I can't believe we used to take payment information from our desktop and import it manually into banking software'," Mr Innes said.
"Ultimately it comes down to customers being able to work in their channel of choice, and we should be removing the friction to make it as easy as possible to go about their daily business."
Jonathan Davey, executive general manager of digital and innovation at NAB, said even though some believed the move could make banking more like a utility, it was worth the risk to make life easier for customers.
"If the NAB customer is operating in the Xero ecosystem and we can provide value to that customer by making it easier for them, I can't see why you wouldn't do that," he said. "There are schools of thought that say there is a risk of NAB becoming a utility in that case, but I think what we re trying to do is deepen the relationships that we have, and if that means the customer, in some cases, will perform their banking through thirdparty channels, then that's fine."
NAB's own internet banking service is, however, being enhanced by the deal. NAB will get access to customer working capital levels held by Xero. "We are taking some of the data that currently only exists in Xero and providing a dashboard in our internet banking channel," Mr Davey said.
"Customers will use their platform of choice. That might not necessarily be one platform. It could be their banking platform, their accounting software, or another third-party platform. It will be what the customer choses it to be, and we will have to make sure we can provide services where our customers want to operate."
The deal follows a report by the World Economic Forum last year which showed the combination of "open banking" regimes and data migrating to the cloud will see more platforms distribute financial services and force banks to compete head-on to control customer relationships.
Traditional bank distribution models and economics "are at risk of being deeply disrupted by the drive towards platform models of banking", said the report, also authored by Deloitte, flagging the arrival of Amazon and Alibaba into financial services. "Banks have a competitive advantage given the size of their customer bases, but are also under threat from those tech players who could offer the platform."
Providing payments capability moves further than what is expected of the Australian 'open banking' regime, where data is expected to be 'read only'. But in Europe, open banking will allow third parties to make payment instructions. The Reserve Bank has suggested that Australia could ultimately move in that direction. "
What we are trying to do here is say let's step beyond what might be the regulations and actually understand how we deliver real customer value. If that goes beyond what the regulator says, then that's great," Mr Davey said.