Xero’s Next Move: Bank Loans For SMEs

Financial services players have infiltrated the alternative lending market in hopes of connecting small businesses to new forms of finance. Major players like Alibaba and Amazon are some of the more notable companies that have included ways to connect SMEs to forms of alternative finance in their suite of financial services.

But alternative lending is on the decline, and traditional bank lending is up, according to recent figures from Biz2Credit. With that in mind, Xero is taking a different approach to help businesses access working capital.

Reports from ZDNet on Thursday (Aug. 13) said the cloud accounting firm is initiating a new goal for the business that will see bridges built between banks and small businesses. In a speech at Xerocon 2015, the company’s Cofounder and CEO Rod Drury said that Xero will begin focusing on the “connectivity” between financial services like accounting software and bookkeepers to traditional banking players.

Part of this focus, he added, will be to use the Big Data that Xero already aggregates through its platform and put it to good use by utilizing SMEs’ accounting data to secure bank loans.

“Because if we can get money into small businesses,” Drury said, “it would really help them grow, and that’s what we call the financial web. It is the next stage of where cloud accounting goes. It’s the connectivity between accounting software.”

He continued: “The financial web is how we can take this electronic connectivity, this high integrity data sitting in Xero, this accounting trust relationship and connect it with financial institutions to allow them to get more money.”

Xero’s latest play is part of a growing movement seen among alternative lenders, in which companies use Big Data to assess a small business’ creditworthiness — even if they don’t have a robust traditional credit history. But Xero is taking a new approach in using this Big Data to provide traditional banks with new insight into SMEs’ finances. According to reports, Drury highlighted the ability for Xero to provide these banks with hard data to back up the risk assessment of small business borrowers.

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