Advance Your Knowledge with a Fintech 201 Guide

As many accounting professionals know, innovation in business often trails innovation in the consumer experience. Businesses typically make changes based on consumers’ expectations, but accountants must think about how to survive given that innovation is happening more quickly than their firms can change.

That’s according to Michael Ly, CEO of Reconciled, a full-service virtual bookkeeping firm. Ly built his online-only practice on the premise that innovation needs to be a priority. Moreover, using the right technologies, and foreseeing the impact on the profession and the clients he serves, was essential to the success of his business.

While Reconciled allows businesses to purchase subscriptions to its services directly on its website, Ly recognizes that most firms don’t operate that way. 

“That’s a huge transformation that still has to happen,” Ly said. 

In order to innovate, accountants and firms must consider consumer behavior and what consumers have come to expect when purchasing services, which is the ability to buy online. Although some firms have not shifted quickly enough to keep pace with consumer behavior, others are on the leading edge and want to take the next step toward competing in the new world of fintech. 

Ly said there are a few approaches a firm can take: building fintech from scratch, buying existing fintech and offering it to customers or partnering with a fintech company to meet shared goals. Choosing the right approach for your firm depends on its size and financial situation. While the top firms have the capacity to do all three, small and medium-sized firms should choose one that will not lead to financial strain on the business.

“Building fintech means literally hiring engineers and creating a mini fintech startup inside your firm. You can start with something as simple as a financial dashboard. You have to have an entrepreneurial environment and dedicated resources that can focus on that innovation, as well as realistic metrics of your desired outcomes,” Ly said. 

On the other hand, buying fintech allows a firm to rely on existing infrastructure and offer it to customers as an additional option in the firm’s suite of software. A firm can literally buy a fintech company or app or license the technology. 

“When buying, generally the biggest beneficiary is the company you’re buying from, but you’re leveraging the software to make your client relationships stronger,” Ly said.

The third option, partnering with a fintech company that already exists, allows the firm and the fintech company to align their goals and their customers. You can partner on market strategy, creating a “win-win” situation for both sides, Ly said. 

Before moving forward with any option, firms must be realistic about where they are in terms of innovation: in other words, is your firm “traditional,” or are you already using cloud-based services and ready for the next step?

Ly suggests that firms consider the following questions:

• Do you have the resources to dedicate to this next step, and who is going to lead the project?
• How much are you willing to commit financially?
• What problem are you trying to solve?

In answering the last question, Ly suggests surveying clients to find out whether they have any problems that fintech can actually solve. 

“If it happens that a fintech solution can solve their problems, then great, but maybe it’s not a fintech product; maybe it’s something else. This exercise will help prevent a lot of headaches in the future,” Ly said. 

If there really is a hole in the market and your clients aren’t being served well, consider whether your firm is the right firm to offer a solution. 

“If most of your customers have a hard time fundraising or getting access to capital, then that is actually a very easy lift because there are already partners and companies that will license their dashboard to you,” Ly said. 

Regardless of the approach taken, firms must do their due diligence to ensure they’re introducing their customers to a trusted solution. For example, most firms won’t want to introduce their clients to a startup unless it has enough backing to signal it will be around for a while and the founder has built up trust in the accounting arena, Ly explained.

“As a firm owner, you will want to consider the credibility of the fintech app, whether they have other accounting firm customers, whether they have been to accounting conferences, whether you can get access to the founder or the C-suite to ask them questions and whether their mission is aligned with yours,” Ly said.