INTERMEDIATE OUTCOMES 2 (EXPERIENCE)

Headlines

For the Third Impact Report, we undertook direct end user research with 904 users of cloud accounting packages to understand the experience of businesses using these propositions.
45% of businesses in the pilot survey used these services although use was heavily skewed towards businesses with more employees and those that are VAT-registered.
75% of businesses have been using cloud accounting services for no more than three years.
Based on several measures, we can see that small businesses tended to have positive experiences of using cloud accounting services: the overall Net Promoter Score of the services was +19 and 87% of users describe themselves as likely to continue to use the services.
79% of users feel the service they are using represents good value for money, which is another measure of satisfaction.

Background and methodology

This section covers the intermediate outcomes stage as defined in the Theory of Change, which refers to the adoption of products and services which, “are suited to [end-user] needs and circumstances, and [end-users] have positive experiences of them”. The Framework defines ‘experience’ as a positive experience of open banking-enabled products and services that meet their needs. This is distinct from outcomes which result from their use, and which are covered in Section 6. The Expert Advisory Group agreed that the primary focus of the third Open Banking Impact Report should be panel-based research on small business use of open-banking enabled cloud accounting propositions. The objective was to better understand small business experience of these services, how this is changing the way in which they manage their business, and whether this is leading to improved outcomes. Research published by KPMG in November 2018 concluded that as many as 47% of the small businesses surveyed would not adopt open banking. Those who would, were only willing to do so if it made their lives easier, and if it freed up time to focus on core activities12. However, a conclusion of the Kalifa Review was that open banking can help small businesses become more resilient, productive and profitable by adopting cloud accounting and sophisticated cash flow management.13 One hypothesis we wanted to test was whether open banking was a significant factor in the adoption of cloud accounting. However, it was important to consider broader contextual changes, such as the trend towards digitisation and HMRC’s Making Tax Digital initiative. Making Tax Digital and open banking both launched at a similar time in 2019, making it hard to unpick the different motivations for adoption.

The research in which business users of cloud accounting services were recruited via an online panel, ran from 8 to 28 April 2022. A total of 904 small businesses completed the on-line survey.

"The Kalifa Review concluded that open banking can help small businesses become more resilient, productive and profitable by adopting cloud accounting and sophisticated cash flow management"

Composition of the study

One of the research design decisions was on the composition of this study, and whether to mirror the UK’s small business population. 76% of UK small businesses are sole traders: if we reflected the UK small business population in our survey, we would get limited insights into other business sizes.

Industry feedback also suggested that larger small businesses (with 10 employees or more) are likely to have more complex and bespoke accounting needs that may not be catered for by the TPPs offering cloud accounting packages. These two factors led to our research recruitment which focused on three populations, defined by the number of employees:

302

300

Full details of the research methodology are included in Appendix 3.

To our knowledge this is the first time any quantitative research has sought to understand small business attitudes to these open banking-enabled services, which is possible for the first time given the growth in adoption.

Use of cloud accounting across small business sub-groups

In the preliminary pilot, we surveyed 50 small businesses in each of the size bands, 150 in all. This was a small sample size, so the results should be treated cautiously. To verify the accuracy of results we asked them to confirm their cloud accounting package provider. 45% of respondents indicated that they were current users of a cloud accounting package.

As we expected, larger businesses, with more employees and a higher turnover, are more likely to use cloud accounting services to manage their accounting requirements. A significant proportion of those which are VAT-registered also use these services. Only 12% of small businesses with no employees were VAT-registered.

The estimated penetration of cloud accounting within different categories of small businesses is set out in figure 14.

Figure 14: Estimated penetration of cloud accounting across small businesses by type

Source: Marketing Means pilot study (150 respondents). Small sample size, data should be used with caution.

Main motivation for using cloud accounting

In the main survey 904 users were asked to state the single most important reason why they first decided to use cloud accounting. The responses are set out in figure 15.

Figure 15: Main original motivation for use of cloud accounting

Source: Marketing Means Survey. 904 respondents.

Some cloud accounting providers indicated that a significant proportion of adoption by new users was encouraged by their accountant. These results corroborate this, with 41% of respondents adopting cloud accounting because their accountant required or recommended it, although there are clearly other motivations. There was no significant difference between the sub-groups in this regard. The other key motivation was a desire to improve the efficiency of accounting processes (23%).

Important features of cloud accounting

Respondents were asked to rate on a scale from 0=Not at all important at all to 5=Very important, the value of 10 key attributes of cloud accounting packages. The results, ordered by mean score for each feature, are set out in figure 16. The functionality to compute and manage VAT and tax returns is ranked as the most important and a significant proportion of respondents (48%) rated this as very important.

Do open banking data feeds improve cloud accounting propositions?

One of our key hypotheses, that had been validated in pre-research conversations with providers, is that the integration of open banking data feeds has significantly improved the cloud accounting proposition by facilitating accurate, real-time insights which provide a live, up-to-date view of business performance. We were particularly interested in how users rated the ability to connect securely to their bank (facilitated by open banking) and the real-time availability of transactions. 72% of respondents rated connection to their bank as important or very important (4 or 5) with a mean score of 4.10. Fewer respondents (58%) rated the real-time availability of transactions as important or very important (4 or 5), but the mean score was 3.85.

Figure 16: Important features for users of cloud accounting

Source: Marketing Means Survey. Rating on a scale from 0=Not at all important to 5=Very important (number of responses given after each feature).

As shown in figure 17, there were some important differences when this data set is reviewed by size of business. Unsurprisingly larger small businesses rated VAT and tax calculations and payroll functionality as more important than smaller businesses. Over 80% of small businesses with employees were VAT-registered compared with 66% of small businesses with no employees. This suggests that HMRC’s Making Tax Digital initiative, under which all VAT-registered companies must use compatible software to keep digital records and make VAT submissions to HMRC, is an important driver of adoption. It also appears that larger small businesses with more complex accounting needs value the ability to share information with their accountant, real-time availability of transactions, automated invoicing and access for multiple users more highly than smaller small businesses.

"Larger businesses with more complex accounting needs value the ability to share information with their accountant, real-time availability of transactions, and automated invoicing more highly than smaller businesses"

Figure 17: Important features – mean scores across small business segments

Source: Marketing Means Survey. Rating on a scale from 0=Not at all important to 5 = Very important (number of responses given after each feature).

We were keen to explore the extent to which the ability to automatically import banking transactions was considered an integral component of the cloud accounting service. Consequently, we asked respondents to hypothetically consider their response to removal of this feature, requiring them to manually import banking transactions instead. Responses are set out in figure 18. The majority (61%) indicate that they would cease using the service or look for an alternative. However, a smaller proportion of sole proprietors (52%) indicated they would take such action.

Figure 18: Response to the removal of live bank feeds: action taken

Source: Marketing Means Survey. Question: “If your cloud accounting package required you to manually import transactions before using it, would you…” 904 respondents.

Experience of using cloud accounting services

All users were asked how long they had been using their named cloud accounting service. The results in figure 19 show the splits across each of the three key groups of small businesses. The sample contained a reasonable proportion of recent adopters of cloud accounting services.

Figure 19: Research findings – duration of use

Source: Marketing Means Survey. Question: “How long have you been using your cloud accounting package?” 904 respondents.

Nearly one in five respondents (19%) had been using the service for no more than six months, while over one third (36%) had used it for no more than 12 months. A slightly higher proportion of sole proprietors had used their service for over a year (69%) compared with the other two groups (both 61%). 90% of respondents reported that this was the first cloud accounting package they had used.

Net Promoter Score

Respondents were asked how likely they would be to recommend their cloud accounting service to others, and to rate on a scale from 0=Not at all likely to 10=Definitely would. Figure 20 below summarises the results, broken down into the conventional grouping of Detractors (rating 0 to 6), Passives (rating 7 or 8), and Promoters (rating 9 or 10). Overall, we see propositions receiving positive scores from current users, albeit some way from best-in-class. Larger small businesses, with more complex business needs, are more positive than smaller businesses.

Figure 20: Research findings: Net Promoter Score for current users

Source: Marketing Means question: “How likely would you be to recommend your cloud accounting package to other businesses”. Rating on a scale from 0=Not to 10=Definitely would. 891 respondents. Mean score = 7.81.

Planning to continue to use the service

Users were asked how likely they would be to continue to use their cloud accounting package on a scale from 0=Not at all likely to 5=Very likely. Encouragingly, a clear majority of respondents (87%) said they would be likely to continue using the service, scoring 4 or 5 out of 5. In fact, 48% gave the top score of very likely.

"How likely are you to continue using your cloud accounting package?"

Intermediate outcome measure 1

(Mean score 4.31)

Source: Marketing Means survey. 894 respondents.

Probably or definitely would

A small minority (2%) were pessimistic, giving ratings of only 0-2 for their likelihood to continue. Figure 22 summarises the results by small business sub-groups.

Figure 22: research findings: “How likely are you to continue using your cloud accounting package?”

Source: Marketing Means Survey. Rating on a scale from 0=Not at all likely to 5=Very Likely. 894 respondents (10 'Don’t knows' excluded) Mean score = 4.31.

Value for money

Perceived customer value is a key marker of satisfaction, and we were keen to explore whether users were satisfied with the benefits delivered by their accounting package, relative to price. This is also an intermediate outcome under the Consumer Evaluation Framework. Users were asked whether they considered their service represented value for money, and the results show a clear majority of respondents (79%) felt their accounting package was good value for money. 40% gave the top score of very good value.

"How would you rate the value for money of the service you get from your cloud accounting package?"

Intermediate outcome measure 2

% Rating 4-5 (mean score 4.13)

Rating on a scale from 0= very poor to 5= very good.

Source: Marketing Means survey. 892 respondents.

Good or very good

A minority (5%) were less satisfied, giving ratings of only 0-2. Figure 23 below summarises the results by small business sub-groups.

Figure 23: Research findings: “How would you rate the value for money of the service you get from your cloud accounting package?”

Source: Marketing Means Survey. Rating on a scale from 0=Very poor to 5=Very good. Respondents 892. Mean 4.13

Problems encountered by users

We also asked respondents to rate how much of a problem different factors had been since they had started using their cloud accounting service on a six-point scale, where 0=Not a problem at all/ Not experienced, to 5=Major problem.

Their responses are set out in the table in figure 24.

Figure 24: Research findings: problems encountered

Source: Marketing Means Survey. 904 respondents. Rating on a scale from 0=Not a problem at all/ Not experienced, to 5=Major.

58% of users, across all business sizes, encountered some issues since adopting the service. However, new users encounter a larger range of problems than established users, suggesting that they encounter onboarding problems. Firms who have used the software for longer have more opportunity to experience problems, but actually report less. A considerable number of respondents also encountered multiple problems. 44% of respondents had encountered major problems with more than three aspects.

Figure 25: Research findings: “How much of a problem have the following factors been since you started using your cloud accounting package?”

Source: Marketing Means Survey. 842 respondents. Scoring any as 4 or 5 (where 5=Major problem)

More frequently-reported problems relate to the complexity of the service, the requirement to reconnect every 90 days14 and the cost. However, in relation to cost, the findings here contradict our findings on value for money (described above), where 79% of respondents said they were obtaining good value. And, despite most respondents encountering some problems, they are still satisfied that they see positive outcomes from the service and recommend it to others. In the absence of follow-on qualitative research, it is difficult to precisely understand the how material these problems are. However, the fact that many respondents reported high levels of satisfaction and intend to continue to use the service, suggests these issues are not affecting the underlying utility of the service.

12KPMG - Is Open Banking open for business? November 2018 13Kalifa Review of UK Fintech February 2021

14An issue which is set to be resolved as a result of the FCA’s policy statement PS21/19, where TPPs will be able to obtain reconfirmation from their customers every 90 days, without the need to reauthenticate at their bank. It also introduces the ability for a customer to delegate reconfirmation to another party such as an accountant. This is expected to be rolled out later in 2022.