A lack of automation in accounting and payroll systems has resulted in firms having difficulties reconciling data – and that could potentially lead to data and security issues, says Modulr CEO, Myles Stephenson.
“The fact that the end customer or the accountancy practice has to deal with that manual process, and that being extremely inefficient and time consuming, can lead to data and security issues. So not being able to reconcile, by easily getting that data back from the bank into the accounting platform or payroll platform,” says Stephenson.
Speaking about why companies have depended on systems such as Excel for their payroll and accounting needs, Stephenson says it has simply been because there has been no alternative, particularly in the SME space.
“If you think about what we are driving here in the large corporate space, a large corporate would automate this, but a large corporate has the teams of people, whether it is the finance teams, the IT teams, the implementation teams to actually manage the integration between their ERP system and their bank. They would have the banking relationships that would enable that to happen. If you are a small business you wouldn’t have all of those resources available, you are stuck with what exists,” says Stephenson.
The software aims to allow customers to eliminate manual payment processes, which they believe will prevent costly errors and the risk of payment data being compromised.
Time to embrace the revolution
For Seamus Smith, executive vice president of worldwide payments and banking for Sage, the UK has lagged behind European markets in terms of technology adoption, but it is necessary for small businesses to embrace the technology revolution.
“I think there is a tipping point though, when technology becomes trusted and easier to use – there’s no question that adoption rates will and should improve.
“And I think there are related technologies – for example, it is becoming increasingly difficult to manage payroll and related activity because some of the requirements and obligations like pensions enrolment. Making Tax Digital is another significant initiative affecting all businesses with a turnover greater than £85k,” says Smith.
“You need to have digital platforms to run your business, and I think we are seeing more and more adoption of that but there is a lot more to do, and I think when you come to market and say this platform product enables you to run your accounting in a trusted way with a trusted brand and you can run your salary and supplier payments from within that package…
“The timing for us is really good because it will help move the needle, and move the tipping point of a digital adoption by small and medium businesses in the UK,” he says.
Friction around integration in the market and establishing a relationship with banks or incumbent providers were some of the main reasons why Modulr was founded, according to Stephenson.
“The team that setup Modulr, we saw and experienced ourselves friction in the market. Two really big friction points were; one from a relationship point of view, if you wanted to do something like what we have done with Sage or with other partners, being able to have that conversation with a bank or incumbent providers was difficult, and you were pushing against a closed door. Even if you managed to get through that door, the technology and the ease of integration or even the ability to integrate was not there,” says Stephenson.
He says perceptions around cost, ease of use, and trust and security having been holding back the adoption of such technology.
“We are serving small and medium enterprises, whose main principle and focus is about running their business. Small and medium businesses are not populated with large accounting or finance departments,” says Smith.
“When you sit in a back office of a small business, and you realise the administration that has to go on: the management of the bank accounts is one task, the management of the accounting software package is another, and you say to the customer, ‘how about you could do both in one place?’ And they go, ‘that would be really neat, because it would save time, it will improve accuracy, and it will enable me to get on with doing what I love, which is running my business,’” says Smith.
Several years ago, the regulatory environment meant that a proposition such as the partnership between Sage and Modulr – the ability to conduct payment activities, banking-related, funds-related activity from within an accounting software platform – would not have existed, according to Sage’s Smith.
“The regulatory environment did not exist, and nor did the technology, the secure, API connections. Now they do, and Sage has been pleased to pioneer this development in accounting software,” says Smith.
“One thing that has happened is the emergence of challenger players, who have created a track record of success, and I think Modulr is so much in this mould. These challengers came to pass, as I mentioned earlier, really in connection with the regulatory permissions, which were opening up the banking and payment sector to non-banks, and I think Modulr has established its credentials as a leading fintech non-bank payment provider, taking advantage of the new regulatory permissions,” he says.