The Covid Era Spikes Fintech Fever

Here’s my occasional roundup of the top accounting stories you may have missed. If you enjoy this post, subscribe to my newsletter to get these updates sent directly to your email inbox.

Key Points:

  • Oracle is the victor of a federally mandated bidding war for TikTok, which Trump wants to ban over security concerns. But with a Chinese parent company, is TikTok really secure?

  • According to a Yelp survey, more businesses than ever are permanently closing. What does this mean about the efficacy, and the future, of PPP loans?

  • Square’s new payroll feature leverages its mega-profitable cash app. It’s a genius concept for users, businesses –– and the company itself. 

On Episode 193 of the Cloud Accounting Podcast, we talk about dozens of virtual banks, services and other ways to move money around digitally. Just five years ago, #fintech was mostly a hashtag, but now it's blowing up as a smart solution to our new pandemic normal. 

Plus, we break down the TikTok/Oracle/Trump saga. Sure, the enterprise accounting/business software giant and Gen-Z’s favorite video-sharing social app are strange bedfellows. But it’s 2020 — and Oracle isn’t actually buying anything.

📲 Oracle’s TikTok dance moves

Oracle is the victor of a federally mandated bidding war to acquire TikTok, which the Trump administration has been threatening to ban from the U.S. due to security concerns. TikTok’s Beijing-based parent company, ByteDance, will spin off a new company based in the U.S. called TikTok Global, while Oracle will serve as the cloud hosting provider for the new entity. The deal is pending approval by the Treasury Department. Meanwhile, a federal judge granted TikTok's request for a temporary injunction just before Trump’s ban was set to take effect on September 27.

The bottom line: Under the proposed deal, ByteDance will remain TikTok's majority shareholder and control its code. So even though Oracle will host data in the U.S., it’s doubtful it will be out of reach of the Chinese government. That might be a deal-breaker for Trump. However, Oracle founder and chairman Larry Ellison is a prominent ally of his administration, and Treasury Secretary Steve Mnuchin is making the rounds on cable news to tell us he’s on the case (as if he’s not busy with the IRS).

🗄️ CCH e-filing system crashes on 9/15 IRS deadline

On September 15, the deadline for 1120 S Corp and 1065 partnership tax returns, the e-filing system used by Wolters Kluwer’s CCH Axcess software crashed. Cue silent screams from tax accountants at firms around the nation, who couldn’t file their clients’ returns on time. CCH says it was a technical glitch, not a hack (or a ransomware attack like the one that disrupted operations at a Wyoming hospital in 2019).

The bottom line: The good news is that CCH is working with the IRS and has pledged to work with its customers to address the potential impact of late fees. But even if the IRS offers penalty waivers, it’s a headache for the accountants who have to deal with angry clients, penalty notices and filing those waivers. 

Update: CCH worked with the IRS to get a reprieve on late filed returns due to the outage.

🦠 IRS penalty relief for COVID?

Speaking of penalty abatement, “Accounting Today” reports that the AICPA confabbed with IRS officials about penalty relief due to COVID-related administrative delays. AICPA was told informally that practitioners who have made a good-faith effort to meet filing deadlines on behalf of their clients, but were unable to do so because of the pandemic, can write “COVID-19” at the top of each tax return to indicate the need for penalty relief. 

The bottom line: Without official word from the IRS, we can’t guarantee it’ll work, but we’re going to start writing “COVID-19” on belated birthday cards and anything else we don’t send on time.

🧾 A dream come true: digital case management at the IRS

Miracles never cease: The IRS is rolling out a new case management system. That’s right, the agency with computers that date back to the Kennedy administration is making an update. The COVID era has been a struggle for the IRS and its stubbornly paper-based workflow. Now, as part of the Taxpayer First Act, the IRS will implement a system developed by Cambridge, Massachusetts-based Pegasystems. Starting with the tax-exempt and government entities division, its customer support team will be able to scan and copy documents, research case records, send requests for tax-exempt exemption letters, and resolve problems — online.

The bottom line: Finally, staff at tax-exempt and government entities won’t have to fax or post requests for copies of the documentation they need — there will be a digital option. If all goes well, the IRS plans to roll out similar solutions across the agency. Perhaps it’s another silver lining to the pandemic: We can imagine a day when we can eliminate paper correspondence with our tax authority.

⭐️ Yelp survey: almost 60% of restaurant closures are permanent

According to the Q2 2020 Yelp Economic Average report, the amount of businesses that have permanently closed due to the pandemic is rising. The restaurant industry is the hardest hit: About 60% of shuttered restaurants nationwide are closed for good. We see it as evidence that the Paycheck Protection Program worked — at first. But since mid-July, there’s been a 23% increase in permanent business closures. That tracks, considering that those who got PPP loans in the first tranche would run out of money about eight weeks later. 

The bottom line: For many small businesses, PPP loans delayed closing — but didn't save them in the long run. If the government offers a new round of loans, it may be too late for even those who’ve survived thus far.

🐘 House GOP pushes to reopen PPP amid COVID-relief gridlock

A bill sponsored by House Republicans would allow small businesses that have already taken a loan to apply for a second. Another bill, sponsored by Chrissy Houlahan (D-Pa.) with bipartisan support, aims to streamline the loan forgiveness process. It proposes that those with loans of less than $150,000 can have their debt forgiven with a one-page application that states the funds were used in accordance with PPP guidelines — no detailed accounting needed. 

The bottom line:  We think many small businesses haven’t applied because they don’t have accountants to help them work through the governmental red tape. But these developments might encourage more people to take out loans. However, if the pandemic wears on and businesses continue to fail, a number of PPP recipients may not ever pay them back.

💵 Square’s new payroll feature leverages its hero cash app

Square may be best known for its point-of-sale terminals for small businesses. So we were initially surprised to learn the company is flourishing during the pandemic. That’s because of the massive growth of its Cash App, which allows users to send and receive money sans physical contact or grubby cash. Gross profit for the app rose 167% compared to last year’s Q2, to $281 million. Now, the company is rolling out an integration between Square payroll and the Cash App. Employees can request $200 of a paycheck in advance of their normal bi-weekly schedule — and Square will handle all of it.

The bottom line: This is a genius move by Square, which will increase usage and adoption of the app. And it’s allowing businesses to fund payroll immediately using the money in their Square balance instead of waiting to pay through their external bank accounts. The cash stays in the Square ecosystem, which will improve Square’s bottom line.

📈 $14.5 billion Chime surges past Robinhood as #1 U.S. fintech 

App-based bank Chime, founded in 2013, is now worth $14.5 billion, surpassing Robinhood as the most valuable U.S. consumer fintech. Its latest fundraising round (a Series F!) raised $485 million, which doubled its valuation since December. Chime’s CEO reports that the company is planning to be IPO-ready within the next 12 months.

The bottom line: Though it has almost a billion dollars in cash in the bank, Chime sees itself as consumer-centric, so we don’t see them making a play for enterprise in the near term. They're adding hundreds of thousands of accounts a month — and when you see growth like that, stick with what’s working.

I hope you enjoyed this news roundup by The Cloud Accounting Podcast, the #1 accounting and bookkeeping podcast in the world. What do you think of this new format? Should I keep it going? Let me know in the comments, and be sure to subscribe and listen on Apple Podcasts or Spotify.

Source: blakeoliver

The Covid Era Spikes Fintech Fever