Is accounting tech about to have its renaissance?

It’s no secret that a lot is going on in the accountancy world, both in the UK and around the globe. Almost every day seems to herald a new development, from reforms to tax policy and compliance to wider debates about the future of the profession and the market (particularly in terms of audit). Often mysteriously left behind, though, in this march toward the future – at least from the mainstream media narrative – seems to be the role of, and opportunity for, technology.

In that sense, an informative juxtaposition can be made with the legaltech space, very much heralded as one of the future pillars of the legal sector since the market reforms introduced in 2007. One needs to only look at the numbers when it comes to media coverage of both legaltech and accountancy tech to see the glaring gap between these two similar eco-systems. According to a search of the Cision media intelligence database since the start of 2018 (until mid-March 2021), there were 1,470 UK media stories mentioning legaltech, but just one-tenth (164) of that number for accountancy tech over the exact same period.

So what could be driving this glaring visibility gap? A few initial thoughts come to mind:

Investment momentum

It has been well documented, through wider market research, that there is a steady and growing tsunami of investment funds being piled into legaltech start-ups. Bloomberg noted that 2019 was a record year for legaltech investment, topping over $1 billion for the first time ever – it’s likely grown further since then, despite any disruption from the pandemic. At least in the UK, it’s also received significant government support through bodies such as Innovate UK’s Sustainable Innovation Fund and a major grant to Tech Nation specifically for legaltech innovation.

The same cannot be said, really, for similar investments in the accountancy tech space. When a marketplace is treated as a distinct investment class by the major analysts, banks, industry pundits and influential funders, it sends a powerful message to the wider market about legitimacy – which then gets reflected (and amplified) by the press.

Fintech fudging?

The accountancy tech space is understandably broad and varied, with solutions focused on both the professional and consumer side of the equation. The areas of innovation range from AI-driven forensics and audit automation tools to software solutions that enable seamless filing of tax returns by consumers, as well as the software on which accounting firms themselves run their businesses.

In that way, it’s not dissimilar to the wider fintech landscape – which accountancy tech has, very likely, been lumped in with. In terms of profile, that’s almost certainly been profoundly unhelpful – a bit like having a more attractive and more gregarious older sibling who hogs the limelight. Perhaps accountancy tech was always going to struggle for attention amongst the sexier and often consumer-focused areas of fintech such as digital banking, mobile payments and regtech.

Market vs regulatory reform

The integration of technology into the legal sector has, to a large extent been driven by the market itself, and players within it, pursuing innovation and efficiency to better compete and differentiate – delivering more for less, as the age-old ruthless business adage goes. Contrast this with the accountancy space, where regulatory change plays an arguably bigger role in how the profession evolves, and where there has been far greater market consolidation and concentration of resources (ie within the Big Four) than in the legal sector. When governments make the jump into digital tax, so too must the accounting firms, for example. In the UK, HMRC is clearly going full steam ahead on the tech front, with its digitization reforms a major focus – including Making Tax Digital, use of the Connect system and consultation on third party data acquisition.

This is already starting to take effect. According to research by HSBC, investment by law firms in technology peaked in 2017 but has since started to drop off. It still averages at around 5% of revenue, though, compared to the average 1.8% of fee income invested in technology by the 50+50 accountancy firms. Those firms who have invested have seen a corresponding uptick in fee income – which will likely stimulate further activity from the fast followers.

As filing a tax return or completing an audit becomes a more digital process and in many cases automated altogether, both the landscape for solutions and the role of the traditional accountant are poised for significant change.

Media eco-system

Lastly, but certainly not least, legaltech has – over many years – built up its own, rather vibrant media eco-system which has eyes firmly on this marketplace. This includes stand-alone publications within wider stables of trusted industry media (such as ALM’s Legaltech News) as well as dedicated media platforms that clearly aim to demonstrate that they are on top of who is buying – and investing – in what, such as Legal IT Insider and Legal IT Professionals. There are also prominent influencers and online commentators that either focus purely on the legaltech market, or the wider technological transformation of the sector, like Richard Tromans (Artificial Lawyer) while influential special reports such as the FT’s Innovative Lawyers give prominence to those leading the charge on disruptive and tech-enabled solutions.

The same cannot be said of the current media landscape for accountancy tech, which is largely reliant on traditional accountancy press to cover technology issues within their existing editorial remits. Just a quick look at several of the key accountancy trades in the UK and US shows that, of 10 major titles, less than half of these have a primary editorial section of their websites dedicated to coverage of technology issues. The last (and only) dedicated print publication on accounting technology ceased publication in 2009, after getting folded into Accountancy Today in the US. No wonder that accountancy tech isn’t getting the same traction.

But there are many reasons to believe that we’re on the verge of a renaissance for accountancy tech, in the same way we saw for legaltech just a few years ago. This is not least because of growing momentum behind the digitalization of tax globally, as well as relentless pressure for reforms to the audit marketplace that will put a premium on efficiency and automation to (further) reduce human error or spot suspicious activity or trends in company accounts.

The good news for the players in the accountancy tech space – which span both innovative start-ups such as Canopy, Taxjar and Pilot as well as major global players like Sage, Intuit and Xero – is that your day may finally be arriving in terms of attention. The challenge will be how best to lead, rather than just follow, the conversation once it does. For those willing to step forward, the potential rewards – both in terms of visibility and commercial impact – are great.