BankLink takeover will 'open floodgates,' says Xero

Xero and MYOB are at odds over who will benefit from MYOB's $136 million acquisition of Auckland software firm BankLink

Accounting software rivals Xero and MYOB are at odds again, this time over who will benefit from MYOB's $136 million acquisition of Auckland software firm BankLink.

MYOB yesterday prevailed in its second attempt to buy BankLink from the three entrepreneurs that founded the successful but low-profile firm 27 years ago.

MYOB sells accounting software in Australia and New Zealand, in competition to the likes of Wellington-based Xero. But Xero founder Rod Drury said he was delighted, forecasting the takeover would drive BankLink customers into Xero's arms.

"We expect this is going to be a real boost to us. We are flipping lots of BankLink customers at the moment," Drury said. "But this really opens up the floodgates."

MYOB chief executive Tim Reed responded that BankLink was an "extraordinarily strong and healthy business that has grown through its life and is loved by accountants in Australia and New Zealand".

"I think this is a win for BankLink and MYOB clients I can't understand how it could be seen through a different lens," he said.

BankLink employs 150 staff and sells software that automates the provision of bank feeds, so accountants in New Zealand, Australia and Britain do not need to manually rekey the details of bank transactions when preparing accounts for their clients.

It can also automatically feed transactions into MYOB's cloud-based accounting software packages, which are used by small businesses that want to put together their accounts themselves.

Reed said the purchase of BankLink was a "strategic move" that would position MYOB to lead the next wave of industry growth in cloud accounting. "Having the most secure and accurate bank feeds available is a distinct competitive advantage," he said.

Xero still relied on "screen-scraping" software to input transactions from some bank account types into its cloud-based software, he said. Screen-scraping resulted in lower quality information with a risk of duplicating transactions, he said.

If a third party such as an accounting firm was preparing those accounts, screen-scraping also required small businesses hand over their online banking user name and password. "We consider that a security risk," Reed said.

"The moment a business owner gives up their user name and password, generally they have breached their online banking agreement and that puts them in danger the banks won't cover them if there is fraud."

Drury said that was "misinformation" as Xero customers were able to directly feed bank transactions into Xero in 95 per cent of cases. The option was available for "all major Australian and New Zealand banks", but Xero provided a screen-scraping option, which had "never been hacked", for use with smaller financial institutions.

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Xero had spent a few years matching BankLink's capabilities and while BankLink's feeds were probably still slightly more comprehensive, Xero was about to leap-frog ahead, Drury said.

"We are working with most of the major banks on the next generation of banking web services which will provide much more than bank feeds. I think is one of the reasons BankLink sold. The founders of BankLink have chosen to take the money while they can."

BankLink was principally owned by founders Malcolm MacDonald, Derek Jones and Steve Agnew. MYOB had agreed to buy its business in New Zealand and Australia, Reed said, but Jones would retain and run BankLink's British offshoot.

The Australian Financial Review reported in 2011 that MYOB's then majority owner, Australian private equity firm Archer Capital, planned to buy BankLink and fold it into MYOB. But it said the deal broke down because Archer was only willing to pay $100m. Archer subsequently sold its stake in MYOB. Xero shares closed down 2.9 per cent at $13.40.

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