On August 25th, accounting software provider Xero announced that it will acquire Waddle, a cloud-based invoice lending platform, for A$80 million to help SMBs get access to working capital. Providing a lending platform to other lenders lets Xero enter lending without the regulatory burden and risk on its balance sheets.
Forrester’s Zhi-Ying Barry comments on what the acquisition means for SMB customers, banks, startups, and technology vendors:
“SMBs will experience expanded options for their financing needs. The acquisition signals Xero’s keen move to help SMBs not just with accounting, but their broader financial needs as well. We expect deeper integration between Waddle and Xero’s software, Xero to rapidly build partnerships with lenders (banks, non-banks, and fintech startups) to provide SMBs with more options, and a shift in perception as more SMBs start seeing accounting software as critical to accessing funds to run their business, not just for the back office.
Banks will find a new transformation partner. Xero is positioning itself to help lenders accelerate digital transformation by originating SMB loans digitally through the use of real-time data from invoices to assess the loans. Already, Waddle is partnering with NatWest and Scottish Pacific, and Xero will tap into existing partnerships with banks to extend the Waddle offering.
Startups will meet a more aggressive competitor. Fintech startups that already provide SMB loan origination software to lenders will compete with Waddle. Leveraging real-time data about SMBs, Xero will, in time, offer new forms of lending beyond invoice financing, eventually building a credit underwriting platform that taps into various asset classes, increasing the robustness of the platform. Accounting software providers will meet a new type of competitor that isn’t just a back-office provider, but one that has business-critical capabilities to help small businesses access capital.
Technology vendors can either compete or partner. Given the legacy systems that incumbent lenders struggle with, being able to integrate the Waddle platform within existing systems and processes might not be an easy feat for some lenders. Technology vendors can either build their own platform to compete with Waddle or partner with Waddle to integrate the platform into incumbent lenders’ systems. For traditional tech vendors, this is also an opportunity to position themselves as a business transformation partner in the SMB space.”
Zhi-Ying Barry is available for commentary.