It's Tax Season! In this episode, we talk about how much tax cheaters really cost everyone else, some IRS Free File updates, dealing with 1099s and how tax season might actually be the best time to boost your firm's business. We also examine a survey from AccountingWEB about implementing tech and advisory services, how Facebook lost its own employee data, Chase's directive to ban screen scraping, and the during and aftermath of the Thomson Reuters Virtual Office outage. All this and more cloud accounting news you need to know!
- 05:31 – Fresh back from the Sage Accountants Advisory Council, in Dallas, Blake is basking in brisket afterglow and ready to talk cloud accounting!
- 06:21 – David takes a field trip to a real accounting firm!
- 07:53 – It’s tax season! Yay … | Accounting Today
- 08:41 – Are IRS audits becoming an endangered activity? | CNBC
- 11:51 – When the IRS fails to collect from cheaters, it costs everyone else up to $3K | Accounting Today
- 15:25 – Wanna get new biz for your firm? Start during tax season! | CPA Trendlines
- 17:08 – IRS calls open season on tax-prep competition, and gives the Free File program a makeover | ProPublica
- 19:43 – Straight from the source - Free File: File Your Taxes Online for Free | IRS
- 23:16 – According to a recent survey, accountants are upping their tech game and their advising skills! | AccountingWEB
- 29:56 – Hello Pot, this is Kettle – Is Amazon feeling too much heat from Honey? | PYMNTS
- 31:28 – California – Land of Confusion – When it comes to the new privacy law | Fox and Hounds Daily
- 35:42 – Way to keep that private info safe, Facebook! | Bloomberg
- 37:35 – No time like the present – the California Board of Accountancy switches to email distribution of its newsletter, just in time to let everyone know they raised their fees | CBA
- 39:30 – New Year's Bug Takes NYC Parking Meters Offline | PYMNTS
- 41:53 – Virtually screwed –Thomson Reuters’ Virtual Office goes down for the count … But at least they’re providing status updates! | Thomson Reuters
- 47:49 – What’s your favorite way of dealing with client 1099s? | CPA Trendlines
- 49:51 – “Hey, you! Get off of my screen!” Chase just says no to screen-scrapers | Bank Innovation
- 51:51 – Do banking consumers really want to know who owns their bank data? | CNBC
- 54:43 – What is open banking, anyway? | American Banker
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Blake Oliver: Welcome to The Cloud Accounting Podcast. I'm Blake Oliver.
David Leary: And I'm David Leary. Blake, I saw you were doing some traveling. You're in Dallas?
Blake Oliver: I escaped. I got out of Dallas before the big storm hit. I was there for the Sage Accountants Advisory [00:02:00] Council. This is my first year being on that council.
David Leary: Who did I see that was there? Garrett Wagner.
Blake Oliver: Garrett Wagner. We recorded a little LinkedIn video about our takeaways from the conference. Trevor McCandless was there. Got to see Ed Kless, who was presenting on behalf of Sage, and Rafael was there from Sage, as well.
David Leary: Obviously, some of it's probably private, but what was the gist of the event?
Blake Oliver: Yeah, I can't recall exactly what I'm … You know, these NDAs - what I can say and what I can't. Basically, they were presenting [00:02:30] what they plan to do with the Sage Partner program over the next year and some different options and wanted to get feedback from the partners. I am not a Sage user, so you might be wondering, like, why …? What was I doing at that event? I think-
David Leary: That could be valuable, right? Like, why don't you use Sage products? That could be a good question to ask, right? No, it makes sense.
Blake Oliver: Yeah. At my previous firm, we were big Sage Intacct partners. Now, Sage Intacct and Sage [00:03:00] North America still are not combined. They're still separate groups in many respects. What I was hearing about was the Partner program for applications such as Sage Cloud Accounting- I think the full name is Sage Business Cloud Accounting, Sage 50, Sage 100 … The partners who were there, who are actual users and big partners of Sage North America are mostly those who have 200 clients on Sage 50. [crosstalk]
David Leary: When you had your bookkeeping practice, I remember [00:03:30] you said you started on QuickBooks Desktop, but then you discovered Xero, and you were doing Xero Cloud stuff. Did you have any Sage clients back then?
Blake Oliver: I never used the Sage Cloud product, but it was different at that time. It was called Sage One, and it did not have a reputation of being very good. They killed that product, so now there's a new one at-
David Leary: Even the Sage desktop products, you didn't …?
Blake Oliver: I had a client on MAS 90, I think was what it was called, which is a very old version of what is now Sage 100, I think. I could be wrong about that, but [00:04:00] it's basically in the same family.
David Leary: Okay.
Blake Oliver: I ended up converting that client not to a Sage Cloud product but to Xero in the past. So, I know the product that I was working with, at least an older version of it. By the way, these products used to also be called- Peachtree was the big one that, I think, became Sage 50. Again, I'm very ignorant about this.
David Leary: I think most people at Sage can't keep track of it. I mean, they've made so many acquisitions over time of different-
Blake Oliver: There's so many products, yeah.
David Leary: Yeah, so many products. It's very, very hard for anybody to- [00:04:30]
Blake Oliver: For me, it was great learning because I was very ignorant about, especially the on prem products, which are still very big. There's still a lot of users on those products, and the plan’s to get people to move to Cloud and give partners both Cloud and desktop options for their clients.
So, it was great. Thank you to Sage North America for bringing me out there. Again, I go to these events for the opportunity to hang out with other accountants because I work at home; I'm in my home office, right? This was great. We went out to amazing barbecue. I had the best [00:05:00] brisket at Hard Eight; it was the name of this barbecue place we went to in Dallas. It was like … You go in there, and you come out smelling like barbecue.
David Leary: Those are the best barbecue joints [crosstalk].
Blake Oliver: Because it's just a pit, and you wait in line to go to the pit and just get what you want. That was really cool. We don't have that in Southern California, as far as I know.
David Leary: I'm a little jealous. I’m a little jealous.
Blake Oliver: The brisket is pouring out of my pores. The smell of barbecue is still on me, and I'm ready to talk about what's new in cloud- cloud accounting. [00:05:30]
David Leary: I don't have a lot of articles, but I have some good ones. Maybe one big story to tease is remember all our talk about Free File?
Blake Oliver: Yes, we gotta do follow-up on Free File!
David Leary: There's follow-up on that. There's some news on that that came out. Then I have some small- kinda a funny follow-up on … Remember PayPal bought that app Honey, the browser extension?
Blake Oliver: Uh-huh.
David Leary: I have a little follow-up on that that I think's interesting and kind of funny. What about you?
Blake Oliver: I have lots of news about tax season and the IRS, which is very appropriate; 1099s; a survey [00:06:00] from AccountingWEB that's very interesting; follow-up about the California privacy law. Facebook lost something like 30,000 employees’ personal information. That kinda ties into privacy there. I don't know where to start. Should we start with tax season? Maybe that's the most relevant.
David Leary: Actually, I have some small news- a small news update of what I did this week.
Blake Oliver: Oh, yeah. What's new?
David Leary: I went to an accounting firm for only the second time in my whole entire life!
Blake Oliver: Like, [00:06:30] to their office?
David Leary: To their office. I went and visited a friend that's at BeachFleischman, here in Tucson.
Blake Oliver: Oh … What was your impression?
David Leary: It was funny. He actually noticed I was talking like I was in a museum.
Blake Oliver: Looking for the calculators on the desks and stuff like that?
David Leary: No, it didn’t … It felt like a typical company office environment, but they're a little bit more forward-thinking. They built the buildings at BeachFleischman; they're leasing out the whole bottom floor; a bank is leasing space from them in the building.
Then there's [00:07:00] something called the Sun Corridor, which is like a technology leadership … Almost like a commerce- like how the cities have commerce centers trying to bring business into the city. It's kind of like that. I think it's a collaboration between Phoenix and Tucson. They call that the Sun Corridor to bring …
All these are California companies. They're luring them away from California. They rent space there. So, it's a little bit more forward-thinking of a firm. Yeah, I just thought it was funny that … I was in the lobby and I was like, "This is the second time I've ever been in an accounting firm," and I've been in this space for 20 years [crosstalk]
Blake Oliver: That’s great, because you’re always … It's [00:07:30] not that you don't talk with lots of accountants, but you do it at conferences.
David Leary: Exactly.
Blake Oliver: When you were at Intuit, you went to … I mean, how many conferences did you go to every year?
David Leary: Lots. It's just that it's just really, really funny that I've just never stepped foot in an actual accounting firm …
Blake Oliver: Well, I'm glad you got to before they all- all the physical offices disappear.
David Leary: Well, that's what he talked about. A lot of people work remotely.
Blake Oliver: Well, let's talk about tax season, shall we?
David Leary: Yeah.
Blake Oliver: Tax season begins for individual filers on Monday, January 27, 2020, when the IRS will begin [00:08:00] accepting and processing 2019 returns. I spotted some information from CNBC, an article in CNBC about how your chances of getting audited have fallen significantly. David, do you wanna hazard a guess about what your odds are of getting audited this year by the IRS as an individual taxpayer?
David Leary: Just straight up, not like, "Oh, if I do the home office [crosstalk] it increases by X"?
Blake Oliver: Just overall.
David Leary: Overall? Slim [00:08:30] to none … Super-low? One-third of a percentage point? One-third of a percentage point.
Blake Oliver: You're actually really close. The agency audited 0.45 percent of individual tax returns in fiscal 2019, and that's through September 30 of last year. That figure is down by more than half from what it was in 2010. So, 10 years ago, slightly over one percent - 1.11 percent - [00:09:00] of taxpayers were audited. In other words, you have a one in 220 chance of getting audited, and a decade ago those odds were closer to one in 90. You may be asking why have the odds gone down?
David Leary: Why have the odds gone down?
Blake Oliver: Budget cuts. This is specifically called out by a government report. The IRS budget of $11.4 billion in 2018 is 20 percent less than it was in 2010 when adjusted for inflation. [00:09:30] Meanwhile, we have more tax returns than ever. These are the biggest budget cuts the IRS has ever had, and they've been over the past two decades. They lost nearly 30,000 full-time jobs at the IRS, including among enforcement personnel, between 2010 and 2019. To put that in perspective, they lost 30,000 people. They only employ 78,000 people, right now.
David Leary: It seems insane because this is your revenue-generating department.
Blake Oliver: Yeah. [00:10:00]
David Leary: If anything … In private enterprise, you'd be like, "Let's double the size of that department!”
Blake Oliver: Right.
David Leary: "Triple the size of that department!" You'd be investing as much as possible in the only revenue-generating portion of your business.
Blake Oliver: I think there's previous reports out there that say that every dollar invested in the IRS has significant multiple times ROI.
David Leary: The IRS should just go out and get some VC money because that has the opportunity [00:10:30] to be billion-dollar returns … Trillion-dollar returns!
Blake Oliver: Yeah, if we privatized the IRS, I bet you audit rates and collections would go up dramatically.
David Leary: I think we talked about this, though, six months ago or so, that this lack of staff and lack of audits is causing a disproportionate amount of low-income earners getting audited because it's easier to audit them, and nobody has the time, the effort, or the skillset to audit the one-percenters who might be …
Blake Oliver: Yeah, so that's actually … I'm [00:11:00] not sure- I remember we talked about that before, but, according to this article, that's not what's happening. Maybe it is happening within a narrow band of income, but people who make a lot of money are much more likely to get audited. About half a percent of people between $50,000 and $75,000 in income get audited, but, if you make over $10 million dollars, 6.66 percent of returns are audited, which [00:11:30] is a huge difference, right? Still kind of not bad odds. Less than a 10-percent chance; closer to five-percent chance of getting audited if you make over $10 million.
This all has actual real-world consequences, like you said. We're not collecting as much revenue. A report from the Taxpayer Advocate, which is an independent branch of the IRS, has quantified that for us. Per person- per [00:12:00] household, I should say, in the United States, it is costing each household $3,000 to subsidize taxpayers who aren't paying all they owe, according to the Taxpayer Advocate service. The gap between what they should be collecting and what they are collecting comes out to $3,000 per household. Basically, we're paying for people who are cheating.
David Leary: Yeah.
Blake Oliver: The actual total amount of uncollected tax that they should be collecting is $381 billion dollars, on [00:12:30] average, each year, from 2011 to 2013, which is 14 percent of taxes never being submitted to the agency. It's kinda crazy that we are not funding the IRS properly. We should be doing it. To me, this is just dumb.
David Leary: But this is what makes America great, right? We [00:13:00] don't fund the tax [crosstalk]
Blake Oliver: Right. The odds of getting audited are so low that cheating has very little consequence, or you’ve got very low odds of actually getting caught when you cheat, and the penalties are - unless you get accused of fraud, if you just get a penalty for … Let me find this. The penalties are- there's accuracy related, and there's fraud.
Accuracy related, the penalty is only 20 percent on an underpayment of tax [00:13:30] due to negligence or disregard of rules. Basically, you can be really, really aggressive, and the IRS can come back, and there's a tiny chance they'll audit you. If they do audit you - that 0.5-percent chance - they're only gonna penalize you 20 percent. If you're just doing the numbers there, right?
David Leary: Yeah. You could run this like a hedge fund, your personal- your tax returns.
Blake Oliver: Yeah, it makes sense to cheat. I mean, if you're unethical, it makes sense to cheat every year a little bit, in different places, because [00:14:00] the odds that they catch you are slim and, if they do, they only penalize you 20 percent. Then, if you haven't done it consistently, year after year, they're probably not gonna accuse you of fraud.
Oh, and by the way, the penalty for fraud is only 75 percent of an underpayment. Even if you get accused of fraud, as long as you don't go to jail, you're only gonna pay 75-percent penalty. With the accuracy, really, of penalties, they can only go back so many years, but for fraud, they can go back forever. So, you just don't wanna get accused of fraud. That's [00:14:30] why people are cheating so much. 14 percent of taxes never get collected. I think, to tie this back to a previous discussion, we talked about … What was that tax retail franchise group that got in trouble?
David Leary: Liberty Tax.
Blake Oliver: Right, so Liberty Tax … They had a bunch of their biggest franchisees doing this systematically - cheating on taxes. Why would they do that? Well, because the odds of getting caught are so low, and the penalties are very low. Kinda sad [00:15:00] news about tax season, right? Because if you're an ethical accountant, and you're doing things the right way, you know that your clients are paying more than all of these clients that are- or all these tax pros who are cheating; their clients are paying less. It’s sad that this situation is this way.
David Leary: Well, it makes it hard for you to value bill, right?
Blake Oliver: Yeah … I do have one positive story about tax season.
David Leary: Okay.
Blake Oliver: This is from Ed Mendlowitz. It's an article he wrote on CPA Trendlines. We've talked [00:15:30] about some articles that he's written in the past; partnered with him; very, very prolific writer. I've never seen anybody churn out so many articles every week.
David Leary: AI. He's the AI … .
Blake Oliver: He says that tax time … I'll just read the headline, “Why Tax Time is the Best Time to Get New Business.” He says, "Tax season has always been the best time of the year for me to get new business. The reason is there is much less competition." He says that if you are a partner, or an owner [00:16:00] of a tax firm, or just want to get more business for your firm, clients who need our services, they don't care about taxes season, especially if they need something right away. They don't understand why their call is being put on a queue. They don't understand that we're busy. The best thing to do is to simply, even if you're busy, don't appear busy. Respond ASAP in your normal manner, as if you weren't in tax season, and then they're happy because the other guy is not getting back to them.
David Leary: That's very smart.
Blake Oliver: Showing up is the best way to get new business and keep an existing client happy, and I agree with that. I think [00:16:30] way more important than tech, or anything, is just being responsive.
David Leary: That makes a lot of sense, right? Just invest in having somebody for … During the busy season, just pay somebody on your staff to do nothing but keep that front-facing "we're not busy" look.
Blake Oliver: Yeah.
David Leary: Right? Even though, behind the scenes, there could be a big fire, but on that front end … Because I'm sure that, you're right, they call other firms … "Hey, we can't take new clients right now,” [click] You get hung up on, right? Yeah, that's a really good strategy. That's really, really smart. [00:17:00]
Blake Oliver: That's my tax season update for this episode. What else?
David Leary: I think we should jump into the TurboTax thing, then, since we've been talking tax.
Blake Oliver: The Free File.
David Leary: The Free File. For those of you who've not listened to the podcast the last year, there has been a lot of chatter and exposure. There's a propublica.org- there's a writer on ProPublica who has been really digging into the Free File program and really going after Intuit the most because Intuit's the biggest horse in the show. Almost [00:17:30] two decades ago, the tax-preparer software companies - this is the H&R Block, and Tax Slayer, and Tax Cut, and-
Blake Oliver: TurboTax.
David Leary: TurboTax. There's about 20 of them, and they came to an agreement with the IRS to, "Hey, we will offer, for lower-income earners, a free service. They could use TurboTax for free," and in exchange, the IRS said, "We're not gonna build tax software." So, this agreement was there two decades ago.
What [00:18:00] happened over time, at all these companies - H&R Block, Intuit - they got a little confusing in their marketing, where you could get TurboTax free, but there's also this thing called TurboTax Free File. The free is not the Free File. The free kind of pumps you into a funnel to … It's like a ‘freemium’ model, right? You use it for free and then you upgrade. It puts you into an upgrade channel, where you're gonna spend money. The Free File, you have to get to through the IRS website through a special link. It's [00:18:30] a little bit of a dance [crosstalk 18:32]
Blake Oliver: Very confusing from a marketing standpoint
David Leary: Very confusing. As it's evolved over 20 years, obviously, these companies got very good at understanding how to confuse people the most. It got as far as they would hide things in search results. They would tell Google not to find the sites. It got a little ugly, and it got exposed by ProPublica.
What this has resulted in is there's a new deal. The IRS has came out and said that if they want to create something, they can. Now, Blake just [00:19:00] said they don't have any resources, so it probably won't happen, but they can do that. That's off the table. The other thing they specifically expressed that they bar them from engaging any practices that hides this.
Blake Oliver: Right, can't put that code on your site that hides it from Google or any other search engine.
David Leary: What I noticed, just between social media, and some blogs, and even a commercial from H&R Block, all these companies are now going out of their way to really drive people to the correct products. [00:19:30] I think I saw TurboTax said military families is free, and … Don't quote me on this. You see these things come through in social media, but there's a reaction to this investigation that took place the last eight or nine months for this tax season.
Blake Oliver: I saw another article about this on Accounting Today, just recently, about how these vendors have agreed to redirect taxpayers to the correct Free File program at the earliest feasible point in the preparation process if they don't qualify [00:20:00] for a different free program. It's just all about making it less confusing; being more honest in [inaudible].
David Leary: Well, and doing the … Yeah, I get there's marketers; there's people that have bottom-line business results to deliver at every company, and it's very tempting to … It’s not super-unethical, but it's just not keeping things clear. Then, somebody thought they were signing up for the free, and [00:20:30] next thing you know, they're spending $150 to get their simple tax return done that they thought they were doing for free.
Blake Oliver: This is just ethically wrong. I mean, it was wrong to be doing this. I understand why it ended up happening because there's always pressure from above to get more and more revenue, but we're talking about people … By the way, we should remind everyone, the people who qualify for this Free File program have to make adjusted gross income less than $69,000 in 2019 – $69K or less. These [00:21:00] are not people that are generally going to CPA firms to get their taxes done. They don't have the money to pay for tax preparation, and they generally don't have a complicated situation. It's like a W-2 and some deductions; some standard deduction.
David Leary: I was kind of thinking about it; let's say the IRS does get in and builds their own product of some type, right? It actually could be better for somebody like Intuit because Intuit could just offer a TurboTax Live type service for the government program; because, if it's anything like the healthcare sites [00:21:30] that were buggy, and hard to use, and nobody could navigate them, I imagine the IRS’s tax one would be the same way. They would just, “Hey, pay us $200, and we'll walk you through the process," using their site. Everybody could still make money, even if the government built their own website.
Blake Oliver: I'm gonna revise my predictions from our last episode. My prediction is that the IRS will not build their own Free File program this year because they don't have the money.
David Leary: They still don't have the resources to do it. Yeah, exactly.
Blake Oliver: One more thing [00:22:00] to add to this story is, existentially, this is … Let’s say the IRS were to do that, which we know they're not, but if they were eventually to do that, this is a significant threat to Intuit's profits at TurboTax because a good chunk of their revenue is from the people who do qualify for Free File. It's unlikely, but, if the IRS did get its act together and make this thing, it would be a problem. I bring it up because an analyst at J.P. Morgan mentioned this specifically [00:22:30] in a report from JP Morgan to investors.
David Leary: Well, it gets people in the door, right? It's free. The word ‘free’ - it gets people in the door. Then, there's also confusion because I think as soon as you have business income, or you have a 1099, or you have stock, or anything like that, you don't qualify for that program.
I think there's just a lot of confusion because I think people go in … That's the problem, right? You go in thinking you're gonna get something for free, and when it's done, you're paying 160 bucks. What [00:23:00] if accounting firms were like, "Come do your taxes here for free," and then they do your taxes; then they’re like, "Sorry, you gotta pay to take this paper out the door. You gotta pay now for that.”
Blake Oliver: Hey, so survey time. AccountingWEB-
David Leary: Good, because I have a survey, too. Oh, you [crosstalk]
Blake Oliver: Okay, cool. Yeah, so AccountingWEB did a survey of their readers. 500 responses were received, and the majority of the audience either own or manage a firm with 10 staffers or fewer; 82 percent [00:23:30] of readers are in small firms, and they either own or manage them. They asked some questions. I’ll just go through those results and talk about them.
What services does your firm offer? Select all that apply … Over 80 percent of firms offer, no surprise, bookkeeping and tax preparation. About 75 percent of firms, three-quarters, offer tax planning; payroll is almost 70 percent; and financial reporting, it's 65 percent [00:24:00] or so offer financial reporting. Which, I'm not sure exactly what that means, but I take that to mean more than the bookkeeping; like the controller-level financials/reports.
Now, what is surprising- that's not really surprising to me … What is surprising is that 60 percent of the respondents said they offer or perform business planning. Only 36 percent do cash flow forecasting, and only 27 percent perform some form of technology consulting.
Lots of opportunity, for [00:24:30] most firms, to grow that cash flow forecasting aspect of the business, and even the business planning; because I hear stats every single year from all of the vendors talking about how businesses are always having trouble with cash flow. Cash flow is what puts 80 percent of businesses out of business. Even though they may be profitable, they just can't handle their cash. That is what services firms are offering.
David Leary: Seth Feinberg, who is the managing editor at AccountingWEB, he was actually surprised, I think. He admittedly was surprised about [00:25:00] the results because people were a little more technologically advanced - his readers - than he even thought they were. One of the indications was that almost 80 percent are claiming they're using some sort of online accounting software in their firm-
Blake Oliver: Right, but the question I have is how many clients are on the online accounting software? If it's just one client and the rest are all on desktop, then is that really meaningful?
David Leary: Well, that's what … There's a secondary question a little deeper. About 18 percent [00:25:30] of the firms are 100-percent cloud; 60 percent are a mix; but still, 25 percent are 100-percent desktop still.
Blake Oliver: What percentage are desktop?
David Leary: He doesn't have exact number, but I followed the graph and made … Eyeballed it as straight as I could, and it looks like just almost 25 percent; maybe 24.9 or something.
Blake Oliver: Are still all desktop.
David Leary: 100-percent desktop.
Blake Oliver: Fewer than 20 percent. Yeah, I'm looking at the chart here, too. It looks- could be 18 percent or so are fully cloud, but [00:26:00] then 60 percent are a mix. Let's talk, before we move on, about the tech- the specific technologies that firms are using.
David Leary: Yes, yes, all right …
Blake Oliver: We could take turns with this. It looks like … We're looking at a chart here. We don't have the exact numbers, but it looks like slightly over 80 percent are using tax preparation technology. I don't know what they're doing if they don't use tax prep tech. Does that mean they're doing it on paper?
David Leary: What was the percentage of that?
Blake Oliver: Like over 80 percent, slightly; somewhere [00:26:30] between 80 and 90 percent.
David Leary: I mean, maybe they don't do any tax at all and that's why-
Blake Oliver: Maybe that's what that means.
David Leary: - that's a no answer, but you're right. What is the option here?
Blake Oliver: You mentioned that something like 80 percent are using online accounting, but a mix, obviously, of online and desktop is the primary situation. Expense management is just 30 percent.
David Leary: Yeah. I was shaking my head, like, how are accounts tracking their own internal expenses?
Blake Oliver: Excel spreadsheets, probably. That's my guess. [00:27:00]
David Leary: Just 30 percent? Like this seems so- it seems crazy low!
Blake Oliver: We're talking Expensify, or Receipt Bank for expense reports, or whatever- Abacus; whatever you're using for that. Another one that is kind of shocking is workflow. Only 30 percent use a workflow technology. Although, if you're a sole proprietor, you can get away without having workflow software.
David Leary: Well, they have practice management, too; so, yeah, I think that's a gray one. I think if people are answering that, it's gray, right? Because I think there's workflow practice [00:27:30] management for your team, but then there's workflow to … Data capture, OCR-type tools.
Blake Oliver: Right, right.
David Leary: It's gray. I don't think those were very easily answered questions. One that was very clear, though, is CRM, and only 20 percent say they used a CRM-
Blake Oliver: Less than 20 percent are using a CRM.
David Leary: How do they track their customers? What are people …? If you have an accounting firm, how are you tracking your customers? Just in your practice management tool, maybe?
Blake Oliver: Yeah, probably. I mean, again, I think it would be interesting to segment these responses by the size of the firm because, if [00:28:00] you're a sole proprietor, a lot of this stuff's unnecessary. You generally don't need a CRM if it's just you. You can keep track of that in a spreadsheet, or in your contacts, or whatever [crosstalk]
David Leary: - I can look at the Intuit Accountants Edition, or QuickBooks Accountant’s Edition
Blake Oliver: Yeah, exactly.
David Leary: It has just good enough … Everything you need to know about your client, you just keep in there, yeah.
Blake Oliver: Portals, less than 50 percent of clients- of accounting firms use a portal.
David Leary: I would love to see the number of what percentage of their clients use the portal.
Blake Oliver: It's probably 10 percent. Then, reporting [00:28:30] in dashboards - just over 30 percent are using reporting/dashboards, which, actually, I think that's kind of exciting given that I work at Jirav, where we make reports, and dashboards because it shows there's room to grow.
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David Leary: Wanna do a kinda funny story?
Blake Oliver: Yeah, let's-
David Leary: To lighten the mood a little?
Blake Oliver: Yeah, let's lighten the mood.
David Leary: Okay, so remember we talked about PayPal bought Honey, and [00:30:00] we discussed that. Honey is a browser add-on to your browser. When you go anywhere shop- actually, every website you go to, if you're shopping, it goes and finds a code for a discount and automatically sticks it in the shopping cart for you, so you get that code. At some level, hey, great. In order for an app to do that, they have to watch every single thing you do on the internet, right? Everywhere you shop, et cetera.
Blake Oliver: Yeah, they scrape all of your data. They know so much about you.
David Leary: Yes, and it's [00:30:30] okay, if you and I on our podcast are like, "Hey, maybe Honey's not a great idea,” because we aren't in that business, but I think it's very funny when Amazon told users of Honey to uninstall it because obviously Amazon's the only one who's allowed to track how we shop on the face of the earth. I just was shocked by this.
Blake Oliver: Why is Amazon not a fan of Honey?
David Leary: The obvious reason why is Amazon [00:31:00] has their own Alexa plugin. They have plugins for browsers to track what you're shopping for on the internet already.
Blake Oliver: Right.
David Leary: That's the real reason. They're in Amazon's game, and Amazon doesn't want them in the game. Now, they played it up as security, which, yes, if any browser extension you install, you have security risks, and we talked about that with the Honey thing. If you're using that and then you're doing your client's books, Honey can see every web page you go to.
Blake Oliver: Let's keep on this privacy thing, this topic.
David Leary: Okay.
Blake Oliver: Last week, or [00:31:30] two weeks ago, I should say, we talked about California's new privacy law. In our first episode of 2020, we talked about the new privacy law, the California Consumer Privacy Act, that took effect January 1, and we talked about the potential confusion because it's super-super-broad, and businesses aren't really sure what exactly they're gonna have to provide, and what the restrictions are on selling data, and what even selling data means.
Because, now, the law says that a consumer in California should be able [00:32:00] to go to a website for your business and click a button that allows them to opt out of having their information sold. That's one of the provisions, among many. We're not really sure what it means to sell information because it doesn't mean just exchanging it for money. It could also be exchanging it for some other benefit that is non-financial.
One sign this is very confusing is that both Facebook and Google have taken completely different responses and interpretations of the law. [00:32:30] Facebook says it's not gonna change anything about how it acts. The information that they share with third parties, they say, “We're not selling it so, therefore, we can continue to do that even if somebody opts out of it because we're not selling it.”
Google has said they're gonna completely agree to this, and they're limiting the information that advertisers can reuse. They can only use the information to advertise on Google's platform. They can't take that info, and then add it to their own databases, or something like that. That's, at least, what I took out of this [00:33:00] article that was on Fox and Hounds by Chris Reed.
David Leary: I saw another article related to the California Privacy Act, but I cut it. I didn't bring it with me this week. Essentially, it was really talking about the amount of money companies are spending to comply.
Blake Oliver: Oh, yeah. It's gotta be huge, right?
David Leary: It's huge numbers. The interesting line in the article is nobody really knows what the compliance means, so some companies are just opting out. They're gonna wait until there's enforcement of it. They're just like, "We're not gonna do anything until [00:33:30] they start busting companies, and we start seeing what it really means." Then, on top of that, the article also talks about how the state of California, it just doesn't even have the resources to chase and enforce this, at this point. So, everybody's gonna do whatever they wanna do at this … It's a Wild West.
Blake Oliver: What we really need is for the attorney general, Xavier Becerra, to create an enforcement framework, and they haven't even done that yet. So, kind of, probably, take a wait-and-see approach is gonna be good. To reiterate what we talked about [00:34:00] at the beginning of the year, this is pretty big.
Any business with $25 million or more in revenue, or personal information on at least 50,000 people in California has to comply with this law, even if they're not in California. If you're an accounting firm and you've got data, or if you've got more than $25 million in revenues, and you've got information on Californians, if I ask you to provide me the information that you have on me, you have to send it to me – and, theoretically, everything you've got on me.
Then, if [00:34:30] I ask you to not- if I opt out of you sharing that information with other people, or selling that information … I don't even know if you can do that with CPA regulations, but let's say you did; you can't do that anymore, and you've gotta have a way for me to opt out of that. So, big implications, and we still don't know.
David Leary: You cannot be in a business and your biggest user base will be in California.
Blake Oliver: Right. Pretty much.
David Leary: Everybody is subject to this [crosstalk]
Blake Oliver: -if you're a national business, you're gonna have a lot of California users.
David Leary: Even ours, right? Obviously, our number one market [00:35:00] is United States, but California, our number of downloads we get from the state of California is bigger than any other country [crosstalk]
Blake Oliver: Yeah, it's like 20 percent of total downloads or something, right? It's a lot.
David Leary: Yeah. If you had any other business that is broad, you're gonna have a huge amount of people in California. So, it's 50,000, right? Hitting that 50,000 number in California is very realistic for a lot of businesses.
Blake Oliver: I'm hoping that, eventually, California does force Facebook to comply with this because I definitely do not trust Facebook with my personal information. [00:35:30] You wanna know why? It's because of a specific incident that occurred last year that was reported in December in Bloomberg.
Apparently, personal banking information for tens of thousands of Facebook workers was compromised last month when a thief stole several corporate hard drives from an employee's car. The hard drives, which were unencrypted, included payroll data, like employee names, bank account numbers, and the last four digits of employees' social security numbers. This is according to an [00:36:00] email that Facebook sent out to its own staff last year.
David Leary: They'll put them in credit report monitoring [crosstalk] At least they'll get that-
Blake Oliver: It also included compensation information, including salaries, bonus amounts, and some equity details. 29,000 employees who worked at Facebook in 2018 … This is all because an employee decided to take home these hard drives that are supposed to stay in the office, and they were not encrypted.
David Leary: It's funny. The HR departments roll out these trainings at these big corporations about all the security, and all this stuff to make sure [00:36:30] they're in compliance. The biggest offenders, based on my observation, are the people that work in the HR departments. They're sending unencrypted spreadsheets around with people's socials … Because they actually are the ones with the sensitive data. At a vast corporation, most people don't have access to sensitive data in any big way.
Blake Oliver: Right.
David Leary: It's the HR department that does, and they're the weakest link in this. They should just worry about their own department, and then that'll secure the whole company. The company will be at less risk.
Blake Oliver: Oh, God. It's just- it’s so bad.
David Leary: Just to be clueless and just [00:37:00] take hard drives home like that like. “Yeah, I'm gonna bring these home and work on them …"
Blake Oliver: If that is the impact of Facebook's policies that they can't protect the personal information of their own employees, imagine how loose they treat our data as their users.
David Leary: You know, you can get Firefox, and out of the box, Firefox just blocks Facebook everywhere you go.
Blake Oliver: It blocks their tracking?
David Leary: It just blocks it. Blocks it now, everywhere you go.
Blake Oliver: Well, one more California follow up, and then I'll turn [00:37:30] it over to you for our next topic.
David Leary: I'll jump to New York City. It'll be a big swing to the other end of the coast. We'll do it.
Blake Oliver: The California Board of Accountancy is making some changes due to a new assembly bill that changed how they have to do business. I guess we have to pass a law for the California Board of Accountancy to do anything.
It's pretty revolutionary, David, I have to tell you, starting in 2020, the newsletter that the CBA puts out, called Update, must be posted to the CBA website, and an email notification must be distributed to all licensees, and [00:38:00] applicants regarding its availability. I guess, previously, we didn't have an online form of the newsletter. It was only sent out by postal mail or something. I didn't even know that we had a newsletter. Here's the next bit. Well, in order to make that happen, apparently, we haven't been collecting email addresses, so now the CBA is going to request that by February 28th, 2020, everyone licensed or seeking to get a license in California visit cba.ca.gov/email and enters your license number, PIN, and [00:38:30] register your email, so that they can actually contact us via email because it's all been done by postal mail.
David Leary: Well, this explains the lack of CRM usage when the CAL CPAs don't have CRM with email addresses in them. Wow, that's shocking. So, you've been a member?
Blake Oliver: Yeah.
David Leary: But you had no idea they were sending out this paper- I guess it's a little trifold newsletter that's stapled in half or something.
Blake Oliver: I don't even know. I've never received it. Oh, by the way, they raised [00:39:00] the annual fee; so now, it's $250 a year just to stay registered and licensed.
David Leary: You should do a demand. Your back newsletters are missing.
Blake Oliver: I know.
David Leary: You paid for those.
Blake Oliver: Well, you know, I wonder if the CBA is subject to the California Consumer Privacy Act. I can just request all the information they have on me. I don't know.
David Leary: Which, obviously, is nothing because they don't have your mailing address to send you the newsletter, so it's nice and safe that way.
Blake Oliver: All right, David, what's next?
David Leary: We can jump over to New York City.
Blake Oliver: Okay.
David Leary: New [00:39:30] York City, as of January 1, 2020, all the parking meters in York City stopped taking credit cards.
Blake Oliver: Why did they stop taking credit cards?
David Leary: Parkeon, who's a mobility company, they basically build the software that these parking meters are running on. The good thing is – this is what I noticed in the article - they did not say it was a glitch. There was good reporting, actually. You know, usually people are like, "It's a glitch," and I've talked about this before [crosstalk] stop using ‘glitch …’
Blake Oliver: Yeah, there are no glitches.
David Leary: There's not glitches. They said it was caused by an anti-fraud security setting that disabled card [00:40:00] payments beyond January 1, 2020.
Blake Oliver: This security measure, which didn't allow you to process cards beyond a certain expiration date, they forgot to update it, and all the meters stopped working. Is that what happened?
David Leary: That's what happened. They have to manually update one meter at a time. These meters aren't Wi-Fi or connected to the cloud.
Blake Oliver: But they have to be because they process credit cards, right? I guess they don't have a wireless way to update the software?
David Leary: Update, yeah.
Blake Oliver: Oh, God.
David Leary: Which is possibly good, right, because then people would hack [00:40:30] them and update the parking meters, right-
Blake Oliver: Right.
David Leary: -from afar, so it's probably good that they're not connected at that level and only the payments part's connected, but completely, just to total brain fart, it's crazy.
Blake Oliver: Good news for New Yorkers, right, because they all got free parking for a while.
David Leary: Oh, no. People got tickets!
Blake Oliver: Oh, no.
David Leary: Because if you didn't have cash with you … Maybe we're getting to a point in our society where you almost need to have some cash just hidden in your car, some emergency cash, because [00:41:00] when things do go down, I think … I'm not sure we talked about it, but I think Venmo was down right after the first of the year.
Blake Oliver: Yep.
David Leary: A lot of people that use Venmo to pay their rent couldn't pay the rent, and it just had a lot of ripple effects. So, yeah, it might be smart to start keeping some extra cash in the mattress.
Blake Oliver: Oh, God. Talking about glitches, right, staying on that for a moment and then also going back to that AccountingWEB survey, there was an interesting bit at the end of the survey, which we didn't mention earlier.
Of those [00:41:30] folks that are still using desktop applications, only 32 percent of them are hosting desktop. The rest are using it local. Desktop hosting is … Less than a third of firms are using desktop hosting at this point. I started thinking to myself, "Well, that makes no sense. Why wouldn't you, if you're gonna stay on desktop apps, at least get the benefit of having it hosted in the cloud?"
Then, I saw what's been happening at Thompson Reuters over the last few weeks, and I understand [00:42:00] why. Because, starting on December 31 - I believe this is when this started, maybe as early as December 30 - users of their virtual office service, which is a … I'm not that familiar with it, but it sounds like a just a way to host desktop applications that Thomson Reuters provides.
David Leary: Maybe because with the term ‘Office,’ you get access to a couple different Thompson Reuters products all under one virtual terminal of some type-
Blake Oliver: Exactly, so you host all your Thompson Reuters stuff, maybe some other stuff too, in Virtual [00:42:30] Office, and you log in, and your computer acts like a terminal to this Virtual Office; to this hosted solution.
Well, starting December 30 - I'm on the status page, which we'll link to in the show notes - they started having problems where it was either unresponsive, or people couldn't log in. It wasn't working very well. I just- scrolling up this status page, which is like a blog for problems that they're investigating and then updates - which, by the way, every single app should have to update people on the status …
[00:43:00] Scrolling up, they've continued to have problems and incidents almost every day from December 30 to today. Currently, applications are not launching on Virtual Office, yes. So, that is like two weeks of downtime, and this is tax season! Completely mind-blowing that this could be happening.
I want to give credit to Jacob Oberlander for letting us know about this because he's a Thomson Reuters Virtual [00:43:30] Office user, and he said that it's just a disaster. I don't know if those were exactly his words, but it sounds like a disaster to me. He can't use UltraTax, File Cabinet, Outlook, Excel, Word; can't work for the past two weeks. It's outrageous, he says.
David Leary: He's 100 -percent down because his hosting- It was not just … He was using to get his Microsoft Office hosted [crosstalk] and everything else.
Blake Oliver: Everything, yeah.
David Leary: Oh, boy.
Blake Oliver: He says, "Thomson Reuters is a big company that has lost touch. They increase the price every year just by emailing you [00:44:00] that the price is up. No innovation whatsoever. They did start some new program, Onvio, but that will not be usable for another few years.”
Thank you, Jacob, for notifying us of this. If you're also a user of Thomson Reuters Virtual Office, and you have been having issues, I want to know what's been the impact on your firm? This doesn't surprise me that firms are continuing to host applications locally because this is a risk that you just can't take. I could not take this risk, as a firm, if I were hosting apps. I couldn't. I just couldn't. [00:44:30] I couldn’t work-
David Leary: Are you saying that if you … Just like with anything, you should have a contingency plan?
Blake Oliver: Yeah.
David Leary: You’d need to keep one machine, at least, at your office, at a minimum, that has all your apps ready to go. They're patched; they're ready in case you need to fire that up and do client work.
Blake Oliver: Or work with a provider where you have a guaranteed backup system where they can … They've copied; they've got mirrored copies of everything so that if they start having problems, you can just go to this other server.
David Leary: Is [00:45:00] there any indication of what's going on? I mean, is this a ransomware thing and the word's not out yet?
Blake Oliver: No, it looks like configuration issues. It's not really clear what is going on. Here's an email that Jacob Oberlander forwarded me. It says … This was back on January 5. By the way, ‘valued customer’ is a terrible way to greet your customers! "We have found the root cause of the Virtual Office CS service degradation and are confident that the actions we've implemented will ensure normal service and [00:45:30] performance moving forward."
Also, overconfident, because this was January 5, and they're still having problems January 11. "We understand and regret the disruption that this service degradation may have caused you. We appreciate your patience during the time our teams and technology partners spent working together investigating the root cause and implementing the solution.”
“What we know: we encountered an unexpected and sporadic network performance issue that was not detected by our usual monitoring systems. It was difficult to identify this issue without a comprehensive troubleshooting exercise, which [00:46:00] has now been completed.”
“What we are doing: we are working with our technology partners to implement additional monitoring that would proactively detect, and alert based on this network issue. As always, we will continue to perform network system and architectural analysis to further enhance your user experience and avoid further disruptions."
Then they close it out with stuff like, "We're committed to helping you; we're grateful for your business," and then points people to the status update page, which is the only good thing about that communication is the … Well, the fact that they [00:46:30] are proactive, and they are communicating is good, and it comes from a specific person, and they have a status update page is good; but two weeks of downtime is just crazy.
David Leary: I'm surprised there's not more rumbling about this.
Blake Oliver: Well, you know, it would surprise me, except when CCH went down for all that time, it was pretty darned quiet online. Accountants are really nice to software vendors when there are problems.
David Leary: Is it just, maybe personality, as well? Maybe people that are using those products, their [00:47:00] firms, they're just not out there on the social media sites and other places, where all the cloud accountants are hanging out.
Blake Oliver: Right. Where we get upset, and we know that if we make a lot of rumblings online, then the vendors will take note because they'll be like, "Oh, crap, we can't let the press get a wind of this … " So, yeah, I think it probably … The folks that are using this product, probably not as many online, so they're complaining to each other, perhaps, but we just don't hear about it. It's like the silent [00:47:30] firms.
David Leary: No, agree. Do you have anything … I have three articles on fintech versus banks, but I think maybe you jump into anything else you have first, and then I can get into that mess.
Blake Oliver: Let's see. Since we're on the topic of taxes, and tax season, 1099s are the big in January. CPA Trendlines did a survey asking how firms handle client 1099s. Some takeaways, some things I found interesting: solo practitioners, 25 percent of them don't do 1099s [00:48:00] at all for their clients. So, I wonder, "Well, how do your clients get their 1099s done?"
David Leary: They don't provide it as a service? They just tell them, "Sorry, I don't do that. Go find someone else."
Blake Oliver: I guess, yeah.
David Leary: Okay.
Blake Oliver: Which, to me, is kind of crazy because it's actually really a pretty easy service to provide, and you can charge a good amount for it. It was always very profitable for me.
David Leary: Well, especially if you utilize some sort of app or technology stack, and you just market whatever you're paying for that technology stack and just pump it through the system.
Blake Oliver: A [00:48:30] lot of payroll software does it. 42 percent of firms in 2019 used payroll software; seven percent used income tax software; 36 percent used standalone W-2, and 1099 software; and only 15 percent used an online W-2, and 1099 filing platform. Examples include Tax 1099, Track 1099. Those are the ones I've used. They work great.
David Leary: I think I can do it from inside of QuickBooks Online this year. I only have [00:49:00] to do two, so I'm going to give it a run … Because I feel like, if it's only two, it doesn't make sense to try to get data to a separate app to do it somewhere else. I'll just do- whatever QuickBooks will charge me to do it, I'm just gonna do it inside of QuickBooks.
Blake Oliver: I'm one of them, right?
David Leary: Yes.
Blake Oliver: So, I'm gonna get to see this as the recipient.
David Leary: Yeah, but I need your W-9. I still need your W-9, sir.
Blake Oliver: You can request it via QuickBooks, right?
David Leary: I think I did months, and months, and months ago, Blake [crosstalk]
Blake Oliver: I did not respond?
David Leary: You did not respond. I think it still says pending.
Blake Oliver: Oh, no. Okay. Send me that again, and I'll fill it out.
David Leary: I'll see if there's a reminder; I'll see if there's a reminder, yep. [00:49:30]
Blake Oliver: Okay. All right, so why don't we talk about the fintech stuff?
David Leary: Fintech. Obviously, this story every week, it's like my beat, right?
Blake Oliver: Yeah, you're the fintech beat [crosstalk]
David Leary: -is fintech. I have three articles. The reason I really got into these articles was the titles. The first one I'm gonna read is, “Inside the Chase Plan to Ban Screen Scraping.”
Blake Oliver: Uh-oh. That would be very bad.
David Leary: Very bad. This is an article on Bank Innovation. I actually clicked through, thinking this is gonna be this juicy, [00:50:00] behind-the-scenes drama thing. No! Basically, it's very straightforward. It's the managing director of digital platforms at Chase said that they're tokenizing the customers’ data in order to protect their financial information, and they're striking deals.
We talked about this, how they struck a deal with Yodlee a few weeks back. They've done deals with Intuit. Right now, I think if you're on QuickBooks Online, or using Intuit's Mint product, you've already gone through this transition where you've had to- you’ve been disconnected completely, and you've had to connect through the Chase's [00:50:30] API, and that now you're tokened in. In theory, you won't get disconnected, as well. Apparently, there's already 3.8 million customers using this API.
Ultimately, the reason they're banning it - because they don't want to have third parties screen-scraping; they don't wanna have third parties copying and saving people's login information … Which, essentially, Plaid; these other services that exist. Intuit has their own banking feeds. You have Yodlee. They're very clear [00:51:00] about this. They're gonna keep banning these companies and blocking them. It's a little bit of a- there's a war here; a propaganda war, right?
Blake Oliver: So, I can expect my Hubdoc account to stop fetching my bank statements from Chase this year, at some point, right? That's what it sounds like because it already doesn't work for Wells Fargo anymore.
David Leary: That’s correct. Yeah. I actually think in Mint … Bank of America and Wells Fargo, Mint's very clear, like, "You have to reconnect in the next 10 more days," I think I have to [00:51:30] use the new API connection, or however it is. You're gonna see more disconnects in the next five to six months than you've ever seen before because Chase is not the only one that's blocking. Well, let me ask you this.
Blake Oliver: Okay.
David Leary: If I told you, "Hey, go watch this 15-minute video," and the title of the video was “The Open Banking Movement is Inspiring Consumers to Ask Who Owns Their Banking Data?”
Blake Oliver: Uh, I would watch that because I'm a fintech nerd. [00:52:00]
David Leary: What would you expect to see in that video? Would you expect to see a consumer wondering about their fintech data?
Blake Oliver: I guess. Most consumers probably don't think about that, though.
David Leary: Or anybody questioning that? No. This video, and this is where I said we're in a propaganda war. This is on CNBC. There's a 15-minute video, which is essentially a long infomercial for Plaid.
Blake Oliver: Oh, God.
David Leary: It's spun up as this … [00:52:30] Under the guise of open banking, and consumers, but really, when you watch it, this is just propaganda for Plaid.
Blake Oliver: Maybe propaganda's a bit of a strong word. Maybe Plaid just has a really good PR team that pitched to a reporter on this because it doesn't say paid content or anything. I really looked [crosstalk]
David Leary: No, I checked. I checked. I checked for paid content.
Blake Oliver: Okay.
David Leary: Yeah, so obviously it was pitched. But, for 15 minutes, couldn't you find one consumer that says, "I'm upset that I can't get my own bank data out of my bank"? [crosstalk] It's all from Plaid. Basically interviewed the Plaid founder. [00:53:00]
Blake Oliver: Oh.
David Leary: Then they interviewed somebody, an investor in Plaid. Then they interviewed some Harvard fellow that is in the bank industry of some type who probably is on the board at Plaid. I did not investigate that, but it's propaganda. Both sides are in this fight, right? The banks – “We’re gonna ban you,” and on the other side, the people getting banned are, you know, "We're defending you."
Blake Oliver: This is all inside baseball because the consumer, the end user, has [00:53:30] no clue what's going on other than, oh [crosstalk] doesn’t work.
David Leary: Exactly, until their software gets turned off.
Blake Oliver: Same thing with accountants, right? We really … Most accountants who are using QuickBooks Online or Xero or online accounting, when we connect the bank feed, we don't know what's going on behind the scenes. We don't really think about Plaid or-
David Leary: No, but you, as the accountant or bookkeeper, look like the jackass when it disconnects because then you have to go back to your client and say, "I need you to log in again. Do-do-do …” and then you look like the incompetent accountant. It's horrible.
Blake Oliver: Well, and that's why my [00:54:00] solution was always- I never had my clients connect the feeds. I would have them create a read-only login for me. Then I would use that login to connect whatever feeds I needed, so that way, if it broke, I could just go in and reconnect it myself.
David Leary: Yes, but that's a bank that lets you do that.
Blake Oliver: Well, and what I had to do, which was kind of painful, is I had to stop working with clients who didn't have a bank that would create a read-only login. If they couldn't do that, I wouldn't even take their administrator login. I wouldn't let them give me their login because [00:54:30] I couldn't take the chance that that gets stolen.
David Leary: I know there's accountants or bookkeepers that, you know, they have this in a Quick Base; they're storing this for their clients. It's definitely a broken system, and that brings me to my third article. This is an article in americanbanker.com. The title of the articles is, “It's Time to Go All in on Open Banking.” This article is part one of a four-part series, so I'll summarize each one as they come out. I'd argue this article, right now, it's like an APIs 101 doc for somebody that's a banking [00:55:00] executive or a banking manager.
Blake Oliver: Which would make sense because that's who the audience is for American Banker, right?
David Leary: Yeah, but I think our audience, like, if you wanna understand more of how this works and how, in theory, it could be solved, I think this article is a very lightweight- for you to understand APIs, in general, I thought it was pretty good.
They talk about micro services. An example of micro services would be when you go to Amazon, maybe you can still shop, but maybe the reviews aren't working. The whole website is built from small pieces called micro services. [00:55:30] Then they reference in the article about Jeff Bezos’ famous mandate from the early 2000s. Are you aware of what this mandate is?
Blake Oliver: Oh, that everything at Amazon had to be billed as its own service with an API.
David Leary: So another team could use it. So, whatever piece of the product you built, you'd build it in a way so other teams could consume it. Then, eventually, you'd have it consumable externally.
Blake Oliver: Well, in the modern way of building apps, if you want that, is you build the API first, and then you build your [00:56:00] app as sitting on top of that API-
David Leary: Yes.
Blake Oliver: - rather than the other way around.
David Leary: Which would be- we've talked about that before; that's how Twitter was mad, and that's how Square was built on- Square was built that way, right?
Blake Oliver: It was an API first, and then the interface was added.
David Leary: He lays out in the article about, like, this is just a simple plan. This is how they transition to open banking. It's very clear, right? He talks about how if you don't open up to APIs, you're gonna go obsolete. But my experience, this [00:56:30] takes a long, long, long, long, long, long, long time, especially if whatever it is you have was never designed to be open to begin with.
An example I can give on this was PayCycle … Bill.com, Rene Lacerte, he had a payroll company called PayCycle. Intuit purchased it – it’s probably going on a dozen years ago, maybe 13 years ago; could be 14 now. Time's flying, right? It was never designed to have an API. 13 years later, guess what QuickBooks [00:57:00] still doesn't have available as a public API? There is no payroll API still.
Blake Oliver: Oh, because PayCycle became QuickBooks Online Payroll?
David Leary: That's correct, but if something wasn't built from day one to have APIs, it's very hard to add an API on top of it.
Blake Oliver: It's like trying to add plumbing to a building that never had it put in, in the first place?
David Leary: Exactly, because there's security … There's just so much involved. This simple plan- just do what Jeff Bezos told his Amazon employees to do. I don't know. Will we ever have [00:57:30] open banking?
Blake Oliver: In Europe, they're starting to have it because of the legislation. I think that unless we have some sort of legislation … Not that I'm a big fan of legislation, given what's happened in California, but maybe something to force portability of information would inspire the banks to actually build it.
David Leary: Or an easier way is just to loosen up who can get a bank charter and let the free market figure it out.
Blake Oliver: Yeah.
David Leary: That's the best scenario.
Blake Oliver: Let the challenger banks come in and build this from the ground up and have [00:58:00] all these connections. That's great. Hey, well, David, we're running out of time.
David Leary: That's it.
Blake Oliver: If people wanna catch up with you, get to know you, talk to you, send you stuff like Jacob did to me, where can they reach you?
David Leary: The easiest place is on Twitter. I'm just @DavidLeary there, but you can also, on Facebook, find me the same way, and on LinkedIn, the same way.
Blake Oliver: Yep, and I am @BlakeTOliver. For those of you who are not on the socials, feel free to email me at Blake@blakeoliver.com.
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