The Accounting Podcast

We're covering lots of ground in this episode, with news about how ScaleFactor, the "accounting firm with software engineers" that raised $100 million from A-list venture capital firms, is abruptly shutting down, and how Wirecard's future in doubt after revealing missing $2.1B; Wirecard's CEO, Markus Braun, is arrested, and why EY failed to ask Wirecard for bank statements for three years. We'll also examine NASDAQ's suspension of trading of Luckin Coffee after its massive fraud. In other news, GE swaps KPMG for Deloitte, the SBA has exempted lawmakers, and federal officials from ethics rules for the Paycheck Protection Program, PPP recipients can now apply early for forgiveness, and the Treasury sent more than one million coronavirus stimulus payments to dead people. We've got app news, including how Intuit changed its tech development focus, while laying of 715, and much more!

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ADP has your back with Accountant Connect. Their award-winning multi-client payroll management and analytics platform is a remarkably effective tool for adding value to every client engagement. Stay tuned to hear more from our sponsor, ADP Accountant Connect, later in the episode.
 
Blake Oliver: [00:00:20] One of the questions I had immediately was where did all the money go? What happened to the $100 million? Because there's no way, with 100 employees, that they burned through $100 million in a year. Not possible.
 
David Leary: [00:00:32] That's a lot of money, but they got 1,000 clients. That's $100,000 per client. I texted somebody who is a leader at a Top-100 accounting firm, and I said, "Hey, can I buy your firm for $100 million?" I got a text back, "Sure ..." So, you could ... If you wanted clients, you could've just bought a big old accounting firm.

Blake Oliver: [00:00:48] Right. They could've just bought a firm.

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This episode of The Cloud Accounting Podcast is sponsored by Synder. If you've ever tried to get your clients' Stripe, Square, or PayPal transactions into QuickBooks or Xero, you've probably pulled your hair out a few times trying to get income and fees recorded correctly so that the deposit amounts match the bank statement so you can reconcile. Did you know that you could be using Synder to automatically do this for you? Synder can auto-categorize these transactions, adding additional data, like classes, and locations, and accurately post them into the accounting system. 

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This episode of The Cloud Accounting Podcast is sponsored by Smansha. The line between a successful business and a bankrupt one is often how much cash they have in the bank and how long they are able to remain cashflow positive during challenging times.  Keeping an eye on your clients' cashflow is now more important than ever. Smansha integrates with QuickBooks Online, and Xero to help put an end to cashflow problems.

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Blake Oliver: [00:03:03] Welcome to The Cloud Accounting Podcast. I'm Blake Oliver.
 
David Leary: [00:03:07] And I'm David Leary.
 
Blake Oliver: [00:03:08] Oh, my God- 
 
David Leary: [00:03:09] Blake, I had to pour a big old IPA for this episode. It's been a long week. 
 
Blake Oliver: [00:03:14] I'm drinking a glass of wine right now. It is a little after 5:00 p.m. on Friday, June 26. It has been quite a week. ScaleFactor is probably the biggest news in the cloud accounting world in, I don't know ... Since QuickBooks Live was announced?
 
David Leary: [00:03:29] Or since Intuit laid off people on Monday?
 
Blake Oliver: [00:03:33] Yeah. 
 
David Leary: [00:03:33] I thought that was gonna be the biggest story of the week! 
 
Blake Oliver: [00:03:36] I know, right? So, ScaleFactor laid off 100 of their employees or plans to lay off all of their employees, eventually, because they are shutting down completely. We'll talk about that; ScaleFactor, one of those software/accounting firms. You like to call them accounting firms with developers, I think is the term you use? 
 
David Leary: [00:03:55] Yeah, yeah, yeah. 
 
Blake Oliver: [00:03:55] I've got follow-up on Luckin Coffee, and Wirecard, and Ernst & Young, which- 
 
David Leary: [00:04:03] Oh, that's right. The Wirecard guy got arrested, or something. I totally forgot about that. 
 
Blake Oliver: [00:04:05] He did, yes. Gone. The former chief executive of Wirecard, who liked to dress up like Steve Jobs - he liked to play dress-up like Steve Jobs - was arrested in Germany, in Munich. Ernst & Young was the auditor in both those cases, so not looking good for Ernst & Young this year. PPP, some new guidance on early forgiveness; some more PPP transparency news about how the SBA exempted lawmakers from ethics rules, apparently. The Treasury sent more than one million coronavirus stimulus payments to dead people. That's from a new government watchdog report. You mentioned that Intuit laid off 700 people; more than 700 people. So, yeah, a lot's happened this week.
 
David Leary: [00:04:50] Mastercard owns a company that creates bank feeds, so, now, MasterCard and Visa essentially own all bank feeds.
 
Blake Oliver: [00:04:56] Oh, that's, uh, worrisome.
 
David Leary: [00:04:59] All the bank feed APIs. Yeah, we've had a very crazy week. There's just been a lot. We could jump in, but before we jump in, I wanna tell you a little story I have had. 
 
Blake Oliver: [00:05:09] Mm-hmm. 
 
David Leary: [00:05:09] You know how we've talked about in the past, plenty of times, tech companies that are human-powered. Apple/Siri. We've talked about even apps in our own industry, where there's humans powering the tech.
 
Blake Oliver: [00:05:20] Yeah, it's the Mechanical Turk.
 
David Leary: [00:05:22] Mechanical Turk. 
 
Blake Oliver: [00:05:22] It is a machine that looks like it is automatic, but really, there's a small, tiny person inside making the gears move. 
 
David Leary: [00:05:30] Which is interesting because I was just really thinking about this a lot. You go back in time to desktop computers, and desktop software ... Your computer did what you did. You installed it ... Your computer wasn't phoning home somewhere, and it wasn't some human doing something. Coders had to code the code to make shit actually do things. I'm starting to feel like everything's fake.
 
Blake Oliver: [00:05:50] You're sounding an old man, Leary! 
 
David Leary: [00:05:52] I know! 
 
Blake Oliver: [00:05:52] Old Man Leary sitting out on his lawn, yelling at the kids. "You know, back in my day with the desktop computers ..." 
 
David Leary: [00:05:59] I know! I cannot believe I'm doing this ... So, everybody's heard of Grubhub, or Uber Eats, right? There are just so many [crosstalk] 
 
Blake Oliver: [00:06:06] Postmates, yes ... 
 
David Leary: [00:06:10] I use Seamless. That's what I'm using. Last night, or two nights ago, I decided, hey, we're at the dog park ... I'm like, all right, let's get some Korean food. Great. So, I pull up Seamless, put in the order, we send the order. About five minutes later, I get to the car, and I'm like, hey, we're driving by there. Why don't we just pick it up, right? So, I call the restaurant and I say, "Hey, can I pick up my food. I just ordered it on Seamless." She's like, "Yes, what's your phone number?" I give her my phone number. She's like, "Yeah, you can come pick it up." So, I drive over there. She said it'd be ready in about 25 minutes. I didn't wanna wait 80 minutes for a delivery, right? 
 
Blake Oliver: [00:06:43] Okay.
 
David Leary: [00:06:44] I drive over there; I pick it up. She's super-super-helpful. Goes through my whole order, boxes it up, etc., then, hands me a ticket. Just to take a step back, any of you, if you've never used Grubhub, or Uber Eats, or any of these type of services, you pay for your food in the app, when you order the food.
 
Blake Oliver: [00:07:05] Right. 
 
David Leary: [00:07:05] She's like, "Seamless didn't pay me. You gotta pay me." 
 
Blake Oliver: [00:07:05] Hmm? 
 
David Leary: [00:07:05] I'm like, "This doesn't make any sense!" I'm very, very confused. 
 
Blake Oliver: [00:07:10] Right. Your card was already charged.
 
David Leary: [00:07:14] So, I'm not gonna argue with her. I'm like, "All right, I'll figure it out with Seamless later." So, I just paid the food. I paid for the food. The very next person who's standing in back to the line is apparently the delivery driver who was gonna come pick up my food and pay for my food. I paid for my meal twice and tipped the guy because I felt bad that he went there when the order should have been canceled.
 
Blake Oliver: [00:07:34] Right. You messed with the system. The app is just an intermediary between a restaurant that has its traditional process, where you pay in the restaurant, and automating it ... It's not actually-
 
David Leary: [00:07:51] But it's not automated. This is the amazing part that I learned. Now, apparently, some restaurants can get a tablet in the restaurant, a Seamless tablet, or a Grubhub tablet, and the orders come through on there. It's a little bit more integrated with their point-of-sale. But a lot of restaurants, like smaller independent ones - like this Korean restaurant I went to - don't. Here's how this works, Blake. I put an order in on the phone. Somebody in India calls the restaurant and says, "This is David." Gives them my phone number and puts in my order. Then, they tell a driver to go pick up my food, say they're David. They pull out a credit card that's like a Grubhub instant spun-up credit card, like we've talked about these services with these instant Visa/instant Mastercard's. Pays for the food, pretending they're me, and then they would drive it to my house. The whole thing is fake! There's no technology moving data around. This is completely ridiculous! It's so insane! 
 
Blake Oliver: [00:08:42] It seems automatic to you. So, the experience for the end user is automated, but the entire process is manual. Yes, you're right, and a lot of things work that way. In our profession, when it comes to all of these apps that talk about using AI, but really, it's people doing the work, and we're just calling them bots. It's the same thing. 
 
David Leary: [00:09:05] I was just so shocked. I felt so bad. I tipped her first, and then, I tipped the driver. It was the most expensive meal I've bought in the whole COVID time. But I learned, though, so much. I came home. I told the wife, I was like, "Oh, don't worry about how much I spent. I learned so much!" 
 
Blake Oliver: [00:09:20] Here's the thing that really kind of is bad about this, is that these services, to create convenience for us so that we don't have to call the restaurant, they charge huge margins; 30-percent fees. 
 
David Leary: [00:09:32] To the restaurants. 
 
Blake Oliver: [00:09:32] Uber Eats, I think, is the worst. It can be up to 40 percent that the restaurant pays just because of our resistance to picking up the phone and calling people.
 
David Leary: [00:09:43] Yeah, so the thing is, it's [inaudible] because ... We've talked about this before that these tech companies are really just a service company, but they're getting multiples on their valuations, like a software play that has 90-percent margins, but they don't have 90-percent margins because they have these people involved, and it kind of ties back to ScaleFactor, ultimately. 
 
Blake Oliver: [00:09:59] That brings us right to ScaleFactor, so let's talk about it. Let's talk about the fintech startup that raised $100 million in the space of 12 months from investors - big-name investors such as Bessemer Venture Partners, and Coatue Management. They were launched in 2014. They graduated from Techstars Austin in 2017. If you go to their website, and you look at the services they offer, which, we'll go there right now, and we'll look.
 
[00:10:26] ScaleFactor does a few basic things. They'll do cash, or accrual accounting. They will do your bill pay powered by Bill.com. They'll do payroll that's powered by Gusto for an additional add-on fee - for both the bill pay and the payroll. They're a cash-accounting service. They use QBO or Xero. You get 24/7 on-demand view of your books, automated daily bookkeeping, transactions classified daily; bank, credit card, loan, and payroll reconciliations; annual tax depreciation; expert-checked monthly P&L, and expert-checked monthly balance sheet. Pretty standard bookkeeping services, and that is $399 per month, if paid annually.
 
David Leary: [00:11:08] I think there's some add-ons. I think we've talked about them before, and we've done some math. Maybe their average customer is between $700 to $1,000 a month, depending on what extra services they've sold them. 
 
Blake Oliver: [00:11:19] Yeah, and I think if one of these articles, they say that it goes from $6,000 a year to $30,000 a year, depending on the size of the business, which makes sense, right? $6,000 a year is 500 bucks a month. That's kind of these starter packages we're seeing on their pricing page. Then, the bigger you are, the more they're gonna charge you. They're not gonna charge you $500 a month if you're a $10 million-a-year business.
 
[00:11:41] They also have accrual accounting, but it's pretty much similar, other than that. They'll record your prepaid expenses, do your AP/AR, do AP/AR reporting. It's not that complicated. The thing about ScaleFactor, though, is that they are not marketed, at least to the VC world, as a bookkeeping company, or an accounting firm- 
 
David Leary: [00:12:03] Or, as I like to say, an accounting firm with engineers.
 
Blake Oliver: [00:12:06] Yeah. Back in August, when they raised their Series C, which was $60 million, Forbes described ScaleFactor as this: "ScaleFactor makes online financial software that enables small-, and medium-sized businesses to automate back-office tasks, including bookkeeping and payroll." But ScaleFactor, the only software that they make that I am aware of is the dashboard, which is ... It looks beautiful. It aggregates all of your accounting, and bill pay, and payroll information from QuickBooks, Bill.com, and Gusto, but they're still- 
 
David Leary: [00:12:43] Let's pause there. They basically built a dashboard. Two weeks ago, we just talked about SumAll, who basically built a dashboard, and they went under, right? 
 
Blake Oliver: [00:12:49] Exactly. So,  ScaleFactor is a company that built a dashboard; but behind that dashboard, they're just a bookkeeping/accounting firm, like the kind that I built. We did exactly the same thing. We didn't raise $60 million. We raised more like $80,000 and grew organically the rest of the way. ScaleFactor raised money; raised $100 million, like a tech company. Clearly, there's been a problem now that they're shutting down. They announced this week that they are laying off half of their 100 employees immediately and that the other half will be gone by the end of August. They're winding things down. 
 
David Leary: [00:13:30] That follows the layoffs a couple months back; three months ago. 
 
Blake Oliver: [00:13:37] That was the sign that there were problems before this whole COVID thing happened. I wanna talk about that, but let's just talk about what happened this week. In a blog post, the founder, Kurt Rathmann, announced that they are letting go of half of their employees immediately. They're gonna wind down operations, transition clients away to some other as-yet-unspecified provider. Ten people are gonna remain to wind down the company. The employees are getting 12 weeks of severance and health care until the end of 2020.
 
[00:14:05] What's crazy about this is how quickly it happened. Just last week, ScaleFactor said it was hiring on LinkedIn. They had new people joining. What is the rationale for this? Why did this happen? In the Forbes article, and in an article in the Austin Business Journal, Kurt Rathmann, the CEO, says that they lost half their revenue as a result of COVID-19. Half of their clients went away. They had about $7 million in ARR. I think, David, you have said they had about 1,000 clients.
 
David Leary: [00:14:36] I don't know if they ever hit 1,000. They talked about having 750 when they did the reorg a couple months back. They said it was 750, but they were on pace to get 1,000. My understanding is they also, when they restructured, they actually let some clients go. So, if they hit 1,000, I'd be truly amazed.
 
Blake Oliver: [00:14:57] Right. 
 
David Leary: [00:14:57] Because my understanding of this space, and all the competitors, etc., they raised the most and got the least amount of customers.
 
Blake Oliver: [00:15:04] Yeah, so they had raised $100 million with fewer than 1,000 customers. We've talked about this before, back when they raised the money. We were both skeptical about that. They had a $360-million valuation after that Series C in August; $360 million, with only $7 million in annual recurring revenue. So, they lost half their clients, according to Kurt. Here's the quote from Forbes. "Business owners went into fight-or-flight mode. You don't necessarily need all the planning tools, high-end gadgets. You just get back to the simple pen and paper."
 
[00:15:37] I don't really understand this because, when I look at what ScaleFactor offers, they don't offer planning. They don't offer high-end gadgets. This is pretty basic stuff - the dashboard, the bookkeeping, the payroll, the bill pay. Clearly, some of their clients decided that they didn't need the service, but it's not like bookkeeping is unprofitable. In fact, as we have discussed many times on this show, it's more profitable than it's ever been, which is why more and more accounting firms and CPA firms are getting into the whole client-accounting services game-
 
David Leary: [00:16:11] Yeah, before we go down all these other paths, I wanna just talk about this blaming COVID. 
 
Blake Oliver: [00:16:15] Well, yeah ... 
 
David Leary: [00:16:15] Somebody argued with me on Twitter about this, some Austin startup guy from some other startup. He's like, "Well, if all your clients are in the restaurant or service industry, you're gonna lose them." I think that's a bunch of bullcrap, because I know accountants and bookkeepers that are in this- in our space that are only take on restaurant clients. They don't have 100 million bucks, and they didn't have to fold.
 
Blake Oliver: [00:16:37] Right. 
 
David Leary: [00:16:37] Then, I think about how busy accountants and bookkeepers are. They're the busiest they've been in 30 years. They didn't offer other services ... It doesn't seem like these guys offered, like, "Hey, we'll help you get your PPP loans." They didn't offer any other services.
 
Blake Oliver: [00:16:50] No. 
 
David Leary: [00:16:50] There's no- it's just hard to buy into. I think COVID's an easy out. It's an easy way to get out.
 
Blake Oliver: [00:16:58] Yeah, I agree with you. What happened in February, which you've mentioned already, is a clue. Back in February, ScaleFactor announced a pivot. They said that they were creating ScaleFactor 2.020 - a play on 2020 - and they were gonna create a marketplace, an on-demand financial solutions marketplace. They were going to do an internal restructuring for the ScaleFactor team, where a portion of ScaleFactor's finance professionals would be retained to foster the new marketplace from within, while ScaleFactor would make assistance available to those who wished to start independent businesses as certified pros within its marketplace ecosystem, basically taking their internal bookkeepers, and accountants and letting them go and then, becoming a marketplace provider. "We're gonna hook up businesses with these accountants who are no longer on our payroll and just facilitate that whole thing," which, that's a big pivot from what they were doing, which was doing all the work in-house.
 
David Leary: [00:18:00] Yeah, they were trying to switch over to more like a QuickBooks Live model, or an Uber model, where they just play middleman.
 
Blake Oliver: [00:18:07] Exactly. That must have been driven by the Series C. Now, I'm just hypothesizing here. We don't know exactly what happened, but let's try to figure this out. They get the $60 million Series C last summer, and they raised that money based on some crazy growth metrics that they say they can hit. They've got their CAC, and their LTV, and they're gonna grow double every year, and all that stuff.
 
[00:18:35] Then, it doesn't happen because everybody who has run an online bookkeeping company, or a cash practice knows that you cannot grow that fast. Nobody grows that quickly in the real world. A good growth rate for a people-heavy business like this is 20 percent; maybe 50 percent, but usually, that's when you're really tiny. If you're big, if you're getting big, 20 percent is a fantastic growth rate for an accounting firm. VCs, though, they're asking for double, triple, quadruple. They wanna see you grow 10X every year if you can, right?
 
[00:19:11] So, that clearly wasn't happening, and I think these VCs were seeing that play out. Then, they say, "Well, what can we do to actually make this company grow like a tech company? Well, let's get rid of the people, and let's pivot to a marketplace, and let's just make tech." That's how you scale. If you're gonna raise money like a tech company, you gotta be a tech company. That's what they were pivoting to in February. So, in February, they laid off 40 of their customer-service people. Now, I don't know if those customer-service people were bookkeepers, or accountants, or what, but they let them go, and they started pivoting to this marketplace. Then, COVID hit in March.
 
David Leary: [00:19:45] I think there've been signs along the way. I mean, we've questioned the numbers, way early. We've been questioning this ... I went back. We did episode 70. We're now in episode- This'll be episode 181. So, episode 70, when they raised money, we started talking, like this is a lot of money. They don't have ... To people in the space ... It's been questioned the whole time, right?
 
Blake Oliver: [00:20:08] Yeah. 
 
David Leary: [00:20:08] Some part of me, I've seen ... There's been breadcrumbs along the way; there were questionable behaviors. The interesting thing is, I've heard interviews with Kurt - other podcasts, etc.; he's a CPA first. I actually think he's probably even a good CEO, from a people perspective. Even his letter, or his blog post talked about how they really took care of their employees when this was all said and done. I think there's some money left that they might be giving back to investors. I think he's totally a legit, straight-up dude. There's no doubt there.
 
[00:20:36] But in one of the podcasts I was listening to, he was talking about how they were growing, and they had three offices. They'd drive people around, and they had this bus that constantly ... They put the engineers in one office, and people in this other office, and they're driving in circles, driving people ... It just feels like there's a lot of waste. They're in Austin, which is right behind San Francisco. It's completely overpriced real estate, right now. They couldn't get office space to have everybody in the same building, and he was talking about how it created culture clashes. They have this TV show they did ... There's just been a lot of chaos. I feel like there's been lot of chaos, and it was hard to manage. 
 
[00:21:11] Then, I look at- I don't know if you remember, when we were at QuickBooks Connect this past year, in November. This is going back to November. So, QuickBooks Connect, most of our listeners have been there. They know of QuickBooks Connect. It is possibly the biggest, most important event in our space, and the booths are very expensive. If you rent a booth, it's because you want to be there. 
 
Blake Oliver: [00:21:28] Right. 
 
David Leary: [00:21:30] ScaleFactor rented a booth and made a conscious decision to not go there the first day. They never showed up. There was just boxes sitting in their booth. Didn't have one employee they could've sent to just represent ScaleFactor properly in front of 2,500 accountants and bookkeepers? They blew off the Accountants and Bookkeepers Day to just to focus on the Small Business Day. You see these little questionable decisions, and it kind of makes sense. That is an insane decision. Why even go to QuickBooks Connect? They looked dumb! I'll put the picture up. That'll probably be our cover art. It's their booth with cardboard boxes. It's a [crosstalk] 
 
Blake Oliver: [00:22:08] They just had the boxes delivered by the union people, who just dumped it there. It looked like garbage. It was awful. Yeah, with their logo right there.
 
David Leary: [00:22:17] But they made a conscious decision not to do that, which is crazy, which tells me they didn't understand this industry at all.
 
David Leary: [00:22:22] Yeah. So, one of the questions I had immediately was where did all the money go? What happened to the $100 million? Because there's no way, with 100 employees, that they burned through $100 million in a year. Not possible.
 
David Leary: [00:22:53] That's a lot of money, but they got 1,000 clients. That's $100,000 per client. I texted somebody who is a leader at a Top-100 accounting firm, and I said, "Hey, can I buy your firm for $100 million?" I got a text back, "Sure ..." So, you could ... If you wanted clients, you could've just bought a big old accounting firm.
 
Blake Oliver: [00:22:54] Right. They could've just bought a firm. So, clearly, they didn't spend the money. They didn't spend all that money. In one of these articles, Kurt says they're returning some of the money, although he did not disclose how much money is being returned to the VCs. I suspect a lot of money is going back, and I wonder if the VCs forced it. They saw that this restructuring, this 2.020 wasn't gonna happen, and they needed the cash because of COVID, and they said, "We're cutting our losses. We're just gonna take the money back. You guys shut down; lay off your employees." 
 
[00:23:29] If that is true, that is pretty shitty, don't you think? All these people, hundreds of people that joined ScaleFactor, which had its problems, like any firm has its challenges, but they could have survived. They only lost half of their revenue. They could have cut half of their workforce and kept going, or they could've tightened their belts, and taken pay cuts, and kept going like everybody else. Instead, you have VCs that say ... Rich VCs, by the way, who say, "I want my money back. Lay everyone off." Yeah, they got 12 weeks of severance, but that's not much comfort in three months, when you can't get a job because this recession is gonna take years for us to get out of.
 
David Leary: [00:24:07] Well, that's confusing, then. Do VCs believe that this is possible - to automate all the bookkeeping work - or don't they? Because you're speculating that maybe they got scared and backed out of this, but just a week ago- last week, we talked about how VCs put $25 million, or was it more than that? 
 
Blake Oliver: [00:24:23] $25 million, yeah. 
 
David Leary: [00:24:23] No, it was $25 million into Botkeeper, which is very kind of, in a way, a little similar, or not similar, but ... They're trying to automate the bookkeeping process.
 
Blake Oliver: [00:24:32] I think the VCs bought into the vision of automating bookkeeping and accounting so that you didn't need the people. I think that's what they were sold, and I think what they learned is that it is way, way harder to do that than anyone imagined. I mean, an accountant, or bookkeeper would tell you, "There's a lot of stuff that I do that's really hard to automate because just coding transactions is only a tiny part of the value that I create for my clients." But, you know, these are VCs. How much due diligence did they do? Probably not enough.
 
[00:25:02] I have been speaking off the record with a fractional CFO in this industry who has raised half a billion dollars for his clients. I can't use his name because he has a lot of relationships. Here's what he said, though, anonymously. "The place where the VCs may look bad is the quality of their due diligence. It's totally normal for a VC to take a bet and lose. It's not good to take a bet and have your thesis fall apart so quickly. I think the COVID thing is just cover for everyone to try to save face from what was a really, really poor business model in an obviously bad investment decision." You know who's gonna pay for that? It's the people who took a risk on ScaleFactor, the employees. 
 
David Leary: [00:25:43] And Kurt. I actually think Kurt's legit.
 
Blake Oliver: [00:25:45] What happened is I imagine that when he took all that money, he gave up control. So, when the VCs wanted their money back, there really wasn't much he could do.
 
David Leary: [00:25:52] Well, I think I've heard that the Whole Foods founder, I heard him, on a podcast, talk about that. He's like, "Here's the deal with VCs. It's like you're driving, and you pick up a hitchhiker, and he's like, 'I got a credit card. I'm gonna buy gas everywhere we go!' You're like, 'Sweet.' The second you take the wrong turn, or you switch lanes, and he doesn't like it, he pulls out a gun and holds it to your head. From that point forward, you have to do whatever he says." That's where he described the VC market a little bit. That's the Whole Foods founder. 
 
Blake Oliver: [00:26:17] Yeah, it makes sense. So, there's one thing I wanna tie this off with is this discussion about what you can automate in bookkeeping, and is it possible to automate it? I will tell you, having thought about this, I had this idea ... My company was a potential ScaleFactor. When we created our company, Cloudsourced Accounting, back in 2014-2015, around the same time as ScaleFactor, I had this idea that it would be this big, fast-growing online bookkeeping company that would do software, and we would do the same thing. It was the same idea, right? 
 
David Leary: [00:26:51] Now, you're a podcaster [crosstalk] 
 
Blake Oliver: [00:26:51] Now, I'm a podcaster. Clearly, I made it! What I realized is, and the reason I didn't pursue that, is because I realized, after three years, that it is impossible to automate what bookkeepers do, because so much of what we do is talking to people. Business owners don't want a dashboard, okay? That was ScaleFactor's product. They don't want a dashboard. They don't wanna look at a dashboard. Dashboards are tools; they have their place, but that is not the product. That is not what the business owner wants.
 
[00:27:20] What they want is an accountant who knows business, who they can call, who will help them with their problems. Those problems, you can't plan for that. Like the PPP thing, you cannot create software that's gonna do that for people in advance. That just happens. They need help with getting business licenses. They need help with local tax issues. They need help with this weird payroll thing that nobody's ever seen. It's not- 
 
David Leary: [00:27:43] Or the daily changing PPP. You need help with that. 
 
Blake Oliver: [00:27:46] Yeah, exactly.
 
David Leary: [00:27:48] You can't automate a thing that changes every single hour, or week. 
 
Blake Oliver: [00:27:51] Yeah, so I think the folks who invest in automating a service business are taking a really big leap of faith because nobody's ever done this before in our industry. You can automate the bank-coding, and stuff, but that's just a small part of what we do. In the end, the problem with scaling of a business like this is that it is so people-intensive, and it's really hard to hire and retain good people. That's the big barrier to growth - churn in your own employees - and the cost to acquire these customers and get them onboarded. It takes months, and months, and months. It's not a software business. It's a services business.
 
David Leary: [00:28:29] So, one thing ... It kinda ties into this. We talked about where'd the money go. One thing ScaleFactor did is they spent a lot on advertising. A lot. They were very aggressive, the way they advertised. I mean, considering how many clients they got, you could argue their advertising failed, but they were very, very aggressive. They attacked Facebook. They attacked Google AdWords. They attacked other accounting firms. So, it's really interesting, like he who got the last laugh ... Actually, I was searching for, "ScaleFactor Forbes," and I noticed Cruz Consulting has some AdWords focused on ScaleFactor in the Forbes article. So, they're running ads against that. Then, Acuity ... We actually did an episode at their site, about mid-fall, right? 
 
Blake Oliver: [00:29:12] Yep. Good friends of the show. 
 
David Leary: [00:29:16] Acuity put out a beautiful blog post that actually looks like a news article; it's like, "ScaleFactor News." They basically made a statement about ScaleFactor, and they're targeting the ScaleFactor customers to come to them. They did take time to put in a little dig at the end because Acuity was one of the people they were purposely targeting.
 
[00:29:36] They were targeting cloud accounting - forward-thinking accounting firms - and trying to steal their clients, essentially, ScaleFactor was. It was a little dirty, I think. I mean, there's so much work- abundance for everybody in this industry. We're all competing with spreadsheets and Post-it notes still, and QuickBooks Desktop, right? There's so much room for everybody to win, and they were going after people who were doing well.
 
[00:30:03] So, there's a blog post from Acuity. At the very end, it says, "A little bit about Acuity. We're 100-percent bootstrapped by our two founders, who are both still active in the business. We've been around since 2004. We're about the same size as ScaleFactor. Throughout our history, our specialty and largest customer segment has been SaaS companies." So, here's another accounting firm, took no money, and they're the same size.
 
Blake Oliver: [00:30:26] Yeah, that really doesn't make ScaleFactor look great, does it? Which makes me think that, actually, unless they somehow burned all that money on Facebook ads, a lot went back to the VCs. I can't see them burning more than a million a month. It's been 12 months, right? That's $12 million out of the $100 million. Obviously, they spent more before that, but I bet like 80 percent of the money went back to the VCs. All right, so that's enough on that. I've got follow-up on Luckin and Wirecard. Do you wanna hit those stories?
 
David Leary: [00:30:53] The arrest? Yeah. I saw the arrest, and I totally forgot about that. I'm glad you put it in your pile, here. 
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Blake Oliver: [00:32:18] Wirecard's former chief executive officer, Braun- what was his first name? Was it Markus? Markus Braun; Steve Jobs wannabe, was arrested by Munich prosecutors for his role, or alleged role, in faking $2 billion of cash that was supposedly held at Singapore's OCBC Bank. But that is not the big story this week. The big story this week is about the auditors, who ... David, you questioned why- how auditors could possibly have missed this for a decade, because Ernst & Young has been auditing Wirecard for 10 years.
 
David Leary: [00:32:58] Apparently, KPMG came in, and in eight weeks figured it out- 
 
Blake Oliver: [00:33:03] Apparently, The Financial Times has been doing a longstanding investigation of Wirecard, and people have been saying, "This is not possible. They're faking their books." Ernst & Young had been signing off flawless audit, unqualified opinion, year after year after year. KPMG came in and figured out that, between 2016 and 2018, for three years, EY did not check directly with Singapore's OCBC bank to confirm the over $2 billion of cash held on behalf of Wirecard that we now have learned is most likely fake; doesn't exist because the bank said they've never even had an account for Wirecard.
 
[00:33:42] So Wirecard file for bankruptcy. That's another big thing that happened this week. All of their loan covenants are out of compliance, now that they're ... They have no way to survive this, apparently, in terms of liquidity. Softbank is going to sue Ernst & Young because they were an investor in Wirecard. There's multiple lawsuits. There's a lawsuit from a German business group of investors.
 
[00:34:08] Some of the quotes in this story in the Financial Times are really great. Here they are. "A big question for me is what on earth did EY do when they signed off the accounts?" said a senior banker at a lender with credit exposure to Wirecard. A senior auditor at another firm said that obtaining independent confirmation of bank balances was, "equivalent to day-one training at audit school." The head of audit at a rival accounting firm to EY said, "It is beyond the realms of reality that EY wouldn't have had the bank-balance confirmations unless they did a very poor audit. Cash is easy to audit. If investors can't trust the cash number, what can they trust?"
 
[00:34:45] Here's what EY is saying about this. They're saying, "There were clear indications that this was an elaborate and sophisticated fraud involving multiple parties around the world and different institutions with a deliberate aim of deception." The company argued that, "Even the most robust audit procedures may not uncover this kind of fraud." Of course, the robust audit procedures that we're talking about are simply calling the bank to ask, "Do you have an account for Wirecard?"
 
[00:35:15] Now, here's the crazy thing - five different EY partners signed off on Wirecard's audit over the past five years, and one of them is now the chief accounting officer at none other than Deutsche Bank, which, giant international financial institution, Deutsche Bank ... Their chief accounting officer signed off on these Wirecard audits. It's just a total freaking disaster.
 
David Leary: [00:35:39] We've talked about this before, how people that are in the audit space, then they move ... They kinda flip flop positions, but they're really just an insider ... The PCAOB in this in the U.S.- people there don't wanna bag on any of the audits, or really audit anything because they go back into the practice and go back to the Big Four firms, and switch back up there. It's beyond belief.
 
Blake Oliver: [00:36:03] Yeah. Real quick, I just wanna hit on Luckin Coffee. So, Luckin Coffee, the other fraud that we talked about- 
 
David Leary: [00:36:09] Before you jump into that, did they say why they arrested the guy. Are they saying he purposely did some sort of fraud, or did they just kind of arrest him to arrest him? That's what was not clear to me.
 
Blake Oliver: [00:36:19] Well, it's hard to imagine that he didn't have something to do with this, given that he's the CEO, and, you know, they faked $2 billion of cash.
 
David Leary: [00:36:30] The Luckin Coffee that you talked about last week, we have some details on how they did it, or what they did, but we just don't have any ... Other than Wirecard, the money doesn't exist. We have no details. 
 
Blake Oliver: [00:36:38] Wirecard was faking bank statements. So, what happened was that EY was simply relying on bank statements and screenshots that Wirecard sent to them, rather than doing their own confirmation of the bank balances.
 
David Leary: [00:36:53] Ohhh ... So, they had the balance sheet, and they're like, "Hey, there's a billion dollars in this bank account. You have a bank statement that proves this?" Somebody hacked up a fake bank statement, and said, "Yep, here you go." 
 
Blake Oliver: [00:37:01] Yep. Not hard to do- 
 
David Leary: [00:37:01] I did not know that. Okay, now I know how they did it. All right. 
 
Blake Oliver: [00:37:06] I can make you a fake bank statement in two minutes with Snagit, David. It's the easiest thing to do in the world. Then, you just print it out, and then, you copy it. Any auditor who relies on that ... Well, that's the thing is it was probably some first-year auditor who's doing this confirmation because this is the job you give to the lowest person on the totem pole.
 
David Leary: [00:37:26] I would love to see these, too. You're right, it's probably really poor, like PaintShop 101. 
 
Blake Oliver: [00:37:32] Yeah, and these people are too young and inexperienced to know any better. Then, the audit partners are too cozy with the execs at Wirecard to ever even bother to look because why would they suspect it? It is kind of an outrageous fraud. Who would ever think that somebody would fabricate $2 billion of cash on the balance sheet? Yes, fake receivables, like what Luckin did, where they had fake gift cards, essentially. That is a-
 
David Leary: [00:38:02] So, is this gonna take down EY, like how Enron took down Andersen? 
 
Blake Oliver: [00:38:06] I don't know. It's the German office, obviously. So, all the Big Four, they have national offices. I think they're  insulated from each other, legally, and they're getting sued, but I don't know what ... This could be a lot of money. We're talking billions of dollars of shareholder value wiped out here.
 
David Leary: [00:38:27] Yeah. 
 
Blake Oliver: [00:38:27] EY was also the auditor of Luckin Coffee in China. They have not had a good few weeks. So, what happened with Luckin is the chairman, Charles Lu, has been removed by the board. Charles Lu was the founder of Car Inc. in China and is worth $2 billion or something like that. That's some of the news there. Their stock is down 54 percent on Friday and their shares have been suspended from trading on Nasdaq; so no longer gonna be tradable in the United States, which is bad news for the investors there. That's my follow up in the fraud world. Oh, in audit-related news, you found this. General Electric is firing KPMG, and Deloitte is gonna be their new auditor, starting in 2021 fiscal year.
 
David Leary: [00:39:20] That was after 100 years or some ridiculous number? 
 
Blake Oliver: [00:39:23] Yes. I forget exactly the details, but I think KPMG got in trouble because GE had a bunch of accounting irregularities that KPMG never caught and caused a bunch of shareholder losses in the markets. So, the shareholders voted fairly overwhelmingly - I don't remember the exact percent, but it was a lot - to ask the board to replace KPMG. Now, they've hired Deloitte. Going Concern was curious, so they went back to the 2019 filings and found out just what that engagement is worth. It looks like, in 2019, GE paid KPMG $79 million in fees. In previous years it's been more; it's been over $100 million in 2018 and 2017. So, that's a big engagement in tax, too. So, what you got this week, David?
 
David Leary: [00:40:24] I think we should talk about Intuit, which, in theory, on Monday or whenever this happened, Monday or Tuesday, this would have been the biggest news of the week, but it's unbelievable the week we've had. 
 
Blake Oliver: [00:40:34] It's been pushed down below the fold, but it's still a big story. 
 
David Leary: [00:40:38] It i[inaudible]     big story. Intuit had an announcement, and they put it out in a blog post from Sasan Goodarzi, about how they had a reorg; unfortunately, as part of this reorg, they had to eliminate 715 positions. I know people that got let go. It sucks. These are friends, right? Still ... Even though I haven't been at Intuit for two years, they're friends that have got- they lost their jobs.
 
[00:41:00] The blog post goes on to talk about how they have 700 more roles that they currently are trying to hire for. So, 715 are gone, and 700 roles ... People are very confused by this. People are on Facebook posts; people put it on comment threads on posts; I put about it. People are very confused. I can kind of give some insights to that a little bit for any listeners that don't understand this.
 
[00:41:21] Let's take Intuit out of the picture, and let's just look at third-party app developers, or app developers. Moving from desktop to SaaS is very hard. If you have a company that has a desktop app, and all of your cash and your revenue is tied to that app, and your engineering skill set is in that app, and your sales and your support, they're all in that desktop app, it's very hard to transition to cloud. There are only a handful of companies that have done it. I can look at LivePlan; I can look at BQE Core. I think we've even talked to Shafat about this, about how they had to do it. SalesPad has done it. Not a lot of companies have done it, but when you start talking to them, the way they've had to do it is you either have to create a separate division that's completely separate from your company, or you have to burn the boats. You just have to burn them. 
 
[00:42:09] That's what Shafat did. As soon as they built their SaaS product, he stopped selling their desktop product. LivePlan, I've talked to them. Basically, over a four-, or five-year period, they had to replace all their engineers and product managers with cloud-based ones, and Intuit has done the same thing. Five, six, seven, eight years ago, about four or five years in a row, Intuit would lay off 400, rehire 400; lay off 800, rehire 700. This has happened before, and it's a transition of talents is what's happening to match the new talent set. Intuit would've never made the transition from desktop to cloud if they did not replace thousands of jobs over a three-year period. There are a lot of desktop apps that have died now because they never made the transition to cloud.
 
[00:42:49] So, that's what's happening here is Intuit has its next big bets. They talked about how they need to invest more in technology; customer success is being rethought about; sales is being rethought about; how they're doing in ... Really, how they're moving forward the next five, six, seven years into the future. In order to do that, they have different job needs. This is a shift of strategy for Intuit, and Intuit's done it before. This is not a surprise. Intuit does it around this time of the year, right before August. Hasn't been this big in a while, and I think that's what's really shocking for most people. I don't feel Intuit's ever put the numbers out the way they have, in a blog post like this, so it's causing confusion because it's ... It feels illogical. 700 people are being laid off, but you're hiring 700 people.
 
Blake Oliver: [00:43:33] Right. I see the term "AI" is actually in this article quite a lot. There are four mentions of it in Accounting Today story.
 
David Leary: [00:43:44] Does that mean they're gonna have to hire a lot of people for AI?
 
Blake Oliver: [00:43:46] Well, I'm curious, are they leaning into it, or are they pulling back from it?
 
David Leary: [00:43:51] I think they're leaning into it harder is my understanding, because they wanna build that, "expert AI-driven platform." They're still gonna have people involved, but they might have people involved in the QB Live sense, or the TurboTax Live sense of the world.
 
Blake Oliver: [00:44:05] Well, you know, who could have used some AI, or just some regular old intelligence? The IRS.
 
David Leary: [00:44:13] Okay ... What'd they do now? 
 
Blake Oliver: [00:44:14] So, I'm not talking PPP. I'm not talking Main Street Lending Program. I'm talking just those vanilla stimulus payments that went to individuals for $1,200.
 
David Leary: [00:44:26] In theory, the part of the stimulus package that accountants and bookkeepers probably didn't have to worry too much about.
 
Blake Oliver: [00:44:31] Yeah, but of course, if you do individual tax, I'm sure your clients were pestering you, wondering, "Hey, where's my stimulus payment? Where's my stimulus payment?" Then, you just have to tell them, "I don't know, because I'm not the IRS." Well, the federal government apparently sent coronavirus stimulus payments to almost 1.1 million dead people at a total value of nearly $1.4 billion, according to Congress's independent watchdog on Thursday. The GAO said that the payments to dead people came as the Treasury and the IRS rushed to disperse some 160.4 million payments totaling $269 billion after the CARES Act was passed in March. So, let's put this in perspective. $1.4 billion out of $269 billion. I guess that's not too bad an error rate, but a million dead people is a lot. 
 
David Leary: [00:45:23] At the same time, it's only a billion out of 2.6 trillion, if you take all the stimulus stuff together. 
 
Blake Oliver: [00:45:29] Right. I mean, these numbers are big-
 
David Leary: [00:45:34] It's nominal.
 
Blake Oliver: [00:45:35] -but they're small in the totality of it all. The interesting thing to me is how this happened. Apparently, the problem is that while the IRS has access to the Social Security Administration's full set of death records, the Treasury Department, and its Bureau of the Fiscal Service, which actually issue the payments, don't have access. So, they don't have any way- the Treasury Department doesn't have any way to verify or to cross-check to make sure these people aren't dead. The GAO says that Congress should authorize Treasury to have access to Social Security records - death records, anyway - and then require that they use it.
 
[00:46:15] The IRS, you may recall, said that people should return the stimulus payments issued to dead people. There was a question as to would that happen, and would there be penalties for people if they didn't? Apparently, other than making that announcement, the IRS has no plans to actually get the money back. Just a $1.4 billion leak in the CARES Act. That's all. You know, it's funny because [crosstalk] this would have been a huge number in the past, and now, we just are like, "Oh, well ..." 
 
David Leary: [00:46:46] Because there's this delay, and the systems are not talking to each other, when you have a spouse that dies, can you file your taxes for three more years and just deduct them? Just claim them ... [crosstalk] 
 
Blake Oliver: [00:46:59] I think it's a common fraud, right? People claiming dependents they don't have that don't exist. How would anyone know? They don't confirm this stuff. Where are they gonna figure it out?
 
David Leary: [00:47:12] If you spend the money, it makes it seem like, "Oh, they cashed the check. They must still be alive." 
 
Blake Oliver: [00:47:16] I think actually that's one of the big Social Security frauds at the individual level is your spouse dies, you don't tell Social Security, and they keep sending the check.
 
David Leary: [00:47:25] How many billions of ...? If you know this data, somebody please send it to us. I imagine it's way more than the amount of this, per month.
 
Blake Oliver: [00:47:33] Yeah, it's probably a lot, every month. I've got PPP news.
 
David Leary: [00:47:39] Yeah, jump in.
 
Blake Oliver: [00:47:42] We had some new guidance. Instead of coming out on Friday, it came out on Monday, now, just to keep us on our toes, David. So, Monday night, the Treasury said that PPP recipients may now apply for loan forgiveness early, but that doing so could cost them money. I guess the issue is that you can apply for loan forgiveness early, but if you do that, you forfeit the safe harbor provision that allows you to restore salaries or wages by December 31, and avoid reductions in the loan forgiveness they receive. For example, if a borrower has a 24-week period that ends in November but wants to apply in September, any wage reduction in excess of 25 percent, as of September, would be calculated for the entire 24-week period, even if the borrower restores salaries by December 31.
 
[00:48:31] The last bit on the PPP is the SBA exempting lawmakers and federal officials from ethics rules around the PPP program. Back on April 13, the Trump administration disclosed that the SBA had blanket-suspended the rule that lawmakers and federal employees who apply for small business funds have to get approval of a Standards of Conduct Committee. This is a normal process. If you are in Congress, or you work for the SBA, you may have a conflict of interest, so you have to go before a special committee that says it's okay for you to get this SBA loan because it's taxpayer money, and you work here. They blanket-suspended this rule, apparently, for everybody. So, even if you worked at the SBA, you could hook up your friends and family with PPP loans all day long, and that wasn't, apparently, against the rules. 
 
David Leary: [00:49:26] That's like when Old Navy and GAP have that Friends and Family discount weekend. It's kinda the same thing, but for the SBA. I get it. I get it. Do we wanna talk- go ahead- 
 
Blake Oliver: [00:49:35] Well, what's kind of interesting about this is that the SBA has said that they're gonna make all the loans over $150,000  public, but everything under that is completely secret; it's not gonna be released at an individual level. So, I wonder how many of those loans were friends and family, or even individuals who worked at the SBA? I mean, without transparency in that regard, how are we gonna know? It's potentially a bonanza for insiders.
 
David Leary: [00:50:04] Good gig, if you got it, right? I don't know if we need to talk about this, but there's the tax deadline, July 15. Mnuchin [crosstalk] 
 
Blake Oliver: [00:50:12] Oh, crap! David, thank you for reminding me! I haven't done my taxes yet! 
 
David Leary: [00:50:16] Okay ... So, they're hinting at moving it again, but then, there are arguments online about this. The AICPA is taking a stance - don't move it. My prediction is we'll have to talk about this next week, because, if they do move it, they're going to wait til July 3. People are going to their July 4th holiday weekend. Accountants and bookkeepers probably have canceled their plans for July 4th weekend so they can work because of the tax deadline. Then, they're gonna announce that it's been moved, that weekend, and ruin everybody's holiday weekend. We'll be talking about this next week, so we don't have to discuss it this week. 
 
Blake Oliver: [00:50:47] Even though there was that article with the headline saying that Mnuchin is thinking about moving the deadline, I think he's leaning toward not. It was like, "We might move it, but more likely than not, we won't." So, slim chances, probably. But, hey, you never know, right? At the last minute, they might do it. I think an argument against that, on the government side, is that the longer they delay it, the later the payments come in, and the Treasury really needs that money. Who knows? I think the tax people are gonna kill people if this gets extended again. It's gonna be bad because it's the tax season that never ends if that's the case. Because then you come into September, and you're pushing up the deadline for individuals up against the corporate deadline and all that stuff. It's just gonna be a whole year of tax season.
 
David Leary: [00:51:44] It's like COVID. It never ends. It seems appropriate.
 
Blake Oliver: [00:51:49] I just feel so sorry for the people who work in tax, who are at home with kids, who are not in school, trying to work, trying to get stuff from clients, and the tax season just doesn't end. It's like an unending nightmare is just the way I imagine it to be. 
 
David Leary: [00:52:08] Every day- 
 
Blake Oliver: [00:52:09] Every day.
 
David Leary: [00:52:11] Same as it was the day before. Basically, the only difference is there's new PPP news. That's about the only difference [crosstalk] 
 
Blake Oliver: [00:52:15] It's the worst Groundhog Day ever. Yeah.
 
David Leary: [00:52:18] Should we jump into app news quickly?
 
Blake Oliver: [00:52:19] Yes, let's do that.
 
David Leary: [00:52:26] Mastercard is to purchase open-banking company- I can never say this right ... Take the word "financial" and take the word "city" and mush them together. It's Finicity- 
 
Blake Oliver: [00:52:33] Finicity?
 
David Leary: [00:52:33] Finicity. 
 
Blake Oliver: [00:52:33] Oh, God. That's terrible.
 
David Leary: [00:52:39] It's very hard to say. I've known about them for years, and I've never said it right in a bunch of years. Mastercard's purchasing them for $825 million, which is deal of the century, if you compare to what Visa paid for Plaid. What? $5.2 billion, or something?
 
Blake Oliver: [00:52:54] Oh, wow ... It was that much? Wow.
 
David Leary: [00:52:56] Well, so this is nothing. What's bad about this ... Plaid- all those bank feeds you get in all these apps, many times, an app is paying Plaid to go get the data from the banks. Visa owns that. Intuit, I think, builds their own bank feeds. They're not using a third-party service. Intuit has their own bank feeds. They actually had a bank feed API at one time, and they shut it down. They decided to use it as their secret sauce inside of QuickBooks, etc. Now, Finicity, they just got bought by MasterCard; so, now, Visa and MasterCard essentially owned the bank feed APIs.
 
Blake Oliver: [00:53:33] I don't know. Is that a good thing? Is that a bad thing?
 
David Leary: [00:53:36] I think it's kind of bad in a way, because they also have APIs for their own apps. So, that's why you're seeing all these startups that have instant credit cards, these startup banks that are showing up; even consumer ones. They're using the Visa or MasterCard APIs; they're accessing people's bank accounts via either Stripe or Finicity [crosstalk] They're either accessing it through the services, and now, they control the whole thing. I think, long term, there's- consumer freedom and consumer choice in competition is not there.
 
Blake Oliver: [00:54:14] It makes sense why they would do this, because-
 
David Leary: [00:54:16] Oh, I get why. Yes, absolutely.
 
Blake Oliver: [00:54:18] Credit card fees ultimately are going away. There are gonna be disruptors that figure out how to transfer money without the need for all of this, or they're gonna get put under pressure to reduce those. So, where can they stay involved in all of this transacting and still be able to extract value? It's the data. That's what these feeds provide is just access to enormous amounts of transaction data that they can then sell; they can use themselves; they can mine.
 
David Leary: [00:54:47] Which is more valuable than the swipe fee, etc.
 
Blake Oliver: [00:54:50] Potentially, in the end. That's why Facebook's were so much because it knows so much about us.
 
David Leary: [00:54:56] We've talked about how, before, like Starbucks, and even Square, with their Square app, they're taking Visa and MasterCard out of the game because they're just keeping the money within their own systems. So, yeah, Visa and MasterCard have to diversify- 
 
Blake Oliver: [00:55:10] Well, and long term, you know, Bitcoin- blockchain is gonna get rid of that, long term. It will happen eventually.
 
David Leary: [00:55:17] Maybe this explains why Amex bank feeds are so horrible. They're always going down and breaking. 
 
Blake Oliver: [00:55:25] That they don't have any of these-
 
David Leary: [00:55:25] Well, no, because Amex's competitors are Visa, are MasterCard. So, yeah, make those bank feeds a little less reliable. 
 
Blake Oliver: [00:55:36] It's like Trump with the testing. "Let's go a little slow on that."
 
David Leary: [00:55:40] Yeah, just screw up that bank feed fifth day or so [crosstalk] Just to tie into last week ... I really don't have more app new, but remember last week, we talked about Square. That one article kind of hinted at possibly a Square-Intuit deal; Intuit buying Square, or a Square merger. We talked about this loosely, last week.
 
Blake Oliver: [00:55:57] It suggested it would make sense.
 
David Leary: [00:55:59] I've thought about this a lot over the last week. Then, out of the blue, Hector Garcia, he sent me a Facebook message, and he was just talking about Shopify. He's like, "Shopify buying FreshBooks could be really interesting." They're both in Toronto, right? They're both Canadian. That's why all these companies are making moves. The banks are getting general ledgers; general ledgers are becoming- the accounting apps are becoming banks. Shopify's really big competition for Square, right now, and Shopify's competition for Amazon, right now. If Shopify bought an accounting system, like FreshBooks, that a huge move.
 
Blake Oliver: [00:56:34] Yeah.
 
David Leary: [00:56:35] They can afford to buy them, as well. I actually think, if that was to happen, for sure, Intuit and Square would do a deal. There could be signs of that. I noticed this week that there was a blog post out from TurboTax. TurboTax is doing events with Square. They're doing a week long of events, and these events are actually listed on Square's website, if you go to Squareup.com/us/en/events. Maybe they're dating. I don't know, but it's really interesting to think about that Shopify/FreshBooks thing. When Hector Garcia brought that up, I was just like, "Wow, that makes a lot of sense." They're right in each other's backyard; Shopify has the money to do it; FreshBooks is finally, truly a GL.
 
Blake Oliver: [00:57:18] The only reason why that wouldn't happen, in my opinion, is that FreshBooks primarily targets not e-commerce. Their customers are professional services providers, like freelancers, designers, all that sort of thing; people who track time; where Shopify is obviously e-commerce. That would be the only reason why not. But maybe it doesn't matter, if you have need of the GL engine, that would be worth it. 
 
David Leary: [00:57:44] Yeah, or maybe Shopify wants to go both directions. 
 
Blake Oliver: [00:57:47] It would actually be interesting if you could use Shopify to set up your website for your professional services firm and then all the e-commerce stuff, like productizing your services was already there. Actually, that would be brilliant.
 
David Leary: [00:57:58] Yeah, you could hire your designer right through there; the whole end-to-end. 
 
Blake Oliver: [00:58:02] That'd be really interesting because the trend is let's productize our services. Let's not charge for our time. Let's create a product, and sell it, like an e-commerce company.
 
David Leary: [00:58:11] It's just a little speculation, but I think, as we watch consolidation happen in this industry, you're probably gonna see more of it. If companies are going under, there's gonna be consolidation because companies are going to eat up other companies. We're probably gonna see a lot of that in the next 18 to 24 months. But I truly believe Shopify buying FreshBooks would be massive news, and it would cause huge ripple effects; way bigger than H&R Block getting Wave. 
 
Blake Oliver: [00:58:35] Well, David, that's all the time we have today. If people wanna connect with you online, where should they do that?
 
David Leary: [00:58:43] Probably easiest on Twitter. I'm @DavidLeary, but I'm also on LinkedIn, @DavidLeary, on Facebook, @DavidLeary. Apparently, I'm in TikTok, @TheDavidLeary, but I don't put anything on TikTok yet. 
 
Blake Oliver: [00:58:53] I am @BlakeTOliver; connect with me on Twitter. Until next time, David, have a good one. Stay safe.
 
David Leary: [00:59:02] Yeah. Hopefully, it's an easier week next; a little less news. 
 
Blake Oliver: [00:59:02] Every time you say that, it ends up being more, so don't jinx us! 
 
David Leary: [00:59:09] All right. Bye, everybody. 
 
Blake Oliver: [00:59:09] Bye. 
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Creators & Guests

Host
Blake Oliver
Founder and CEO of Earmark CPE
Host
David Leary
President and Founder, Sombrero Apps Company

What is The Accounting Podcast?

The Accounting Podcast (formerly the Cloud Accounting Podcast) is the world's #1 accounting, bookkeeping, and tax podcast! Join us weekly for a roundup of accounting news, analysis, and interviews. Plus, earn free NASBA-approved CPE credits for listening with the Earmark app. Learn more at https://earmarkcpe.com.