Over the past several years, emerging technologies have had a significant impact on finance organizations. Companies feel increasing pressure to let go of their traditional financial practices and follow a more agile and innovative approach so as to get a competitive advantage. Going into the new decade, more and more companies will leverage Financial Technologies (FinTech) in order to build new business models.
This trend is not surprising, however, as the Financial Technology market is continuously growing. In fact, according to recent reports, the market was valued at $127.66 billion in 2018 and is expected to reach $309.98 billion by 2022. In addition, the adoption rate of FinTech around the world in 2019 was at around 64%. Below is a rundown of some of the most successful emerging technologies that lead to digital transformation in finance.
Top Emerging Technologies in the Financial Services Industry
The following are the most noteworthy finance technology trends to look out for in 2020 and beyond. They are set to help finance organizations deal with existing issues, as well as tackle new challenges. These financial service trends will be able to help all types of financial institutions implement security, deliver convenience, build trust with customers, and improve accessibility, among other such benefits.
Artificial Intelligence (AI) and Machine Learning (ML) cover multiple aspects of the financial service business and will find plenty of uses in the industry. By 2035, Artificial Intelligence technology is expected to increase productivity by up to 40% and profitability by 39%. Thanks to its cognitive abilities, AI can help financial organizations detect frauds, identify data patterns, manage risk, and help stakeholders make more informed strategic decisions. In addition, Artificial Intelligence can also help consumers customize their financial products, perform budget analysis, and realize the best digital payments.
While chatbots have existed for some time now, they have lost their appeal in recent years because of their inability to deliver human-like, personal experiences. However, with today’s Artificial Intelligence technology, chatbots have returned to the market. In fact, it’s predicted that superior chatbot interactions will grow in the finance sector by 3,150% between 2019 and 2023. In addition, they are expected to manage over $2 trillion worth of assets, while AI will power over 95% of customer interactions over the next decade.
Finance professional organizations will be able to use these conversational AI solutions to deliver better customer experience as the technology will be able to learn from the existing database and ongoing interactions. As such, it will be able to provide customized answers and relevant suggestions.
Companies accessing finance technology are increasingly turning to blockchain to have access to enhanced operational efficiency and security. This type of technology involves the implementation of a distributed database that is accessible to all users within a network and where they can add new records with unchangeable timestamps. This feature will maintain data authentication by restricting any changes to older data blocks, increasing both security and transparency in the process. It will also enhance trading accuracy, speeding up the settlement process and reducing overall risks. By the end of 2020, some 77% of financial organizations and 90% of payment companies plan to integrate blockchain technology into their operations. By 2024, blockchain technology is also set to reach $20 billion.
Data plays a fundamental role in the finance industry. And when this information is properly mapped with data analytics technology, it is sure to deliver increased business value. Financial data analytics enables organizations to better process enterprise-wide data, while also gaining actionable business insights, risk management, product development, fraud detection, and more. The technology will also help finance organizations analyze their past performance, optimize their current tasks, functions, and processes, and better prepare for the future. It’s widely accepted that the future of finance will be marked by a huge increase in financial data collection in order to build a smarter and more agile organization capable of identifying and taking advantage of more opportunities.
Robotic Process Automation (RPA)
Robotic process automation (RPA) is yet another artificial intelligence and machine learning technology that’s capable of delivering real-time actionable insights, while also capturing process efficiencies that were possible before. RPAs can help finance organizations to automate repetitive and highly data-intensive tasks, which makes the technology useful in reducing manual dependency and latency. In doing so, companies will be able to increase their productivity across multiple finance verticals. Gartner predicts that RPA can eliminate around 20% of repetitive and non-value-added tasks, as well as drive between 25-50% in terms of cost savings.
Cloud-based software-as-a-service (SaaS) can be used for non-core business processes. Among these, we can include HR, financial accounting, or CRM. Cloud-based SaaS can also be used for “point solutions” on the outskirts of the operation, such as security analytics or KYC verification. As this type of technology improves, COOs, CIOs, and CFOs will become more comfortable with these services, and the core service infrastructures in areas such as credit scoring, consumer payments, statements, and billings will become utilities.
The Key Initiatives in Finance Function
The top priority for the 2020 Chief Financial Officer is finance analytics, finance organization strategy and structure, and finance technology optimization. Along with improving operational excellence and implementing the digital transformation, the role of the CFO will also be to help grow the business and overcome the aforementioned challenges. It’s important to keep in mind that for many finance organizations, reports and analyses have insufficient forward-looking information. In addition, the finance organization structure currently limits the responsiveness to today’s fast-changing business needs and technological investments, which results in long payback periods and minimal returns on investment.
Handling Finance Analytics
Despite having a high degree of spending in finance analytics over the past several years, only a handful of finance organizations have actually been able to attain a high level of maturity in implementing advanced analytics. Not only does this make it hard to assess the real impact and ROI of financial data analytics, but the current status quo in matters of operating models will prevent the effective use of advanced analytics capabilities.
Finance leaders looking to implement these tools should initially consider pilot projects instead of large analytic investments. The CFO’s role in this regard will be to identify which advanced analytics projects that are also connected with their business problems have an available financial or nonfinancial dataset. And as these individual projects start demonstration applicability success, larger finance analytics projects can be pursued and implemented.
Once they are able to provide financial analysis insights in a timely manner, finance organizations will also start becoming a more valued and trusted business partner. Advanced data collection and analysis will play a crucial role in today’s global economy and increasingly digital world. It will allow businesses to keep pace with all existing and future challenges. To take advantage of these benefits of advanced analytics, business leaders will have to address the following areas:
- Planning and Budgeting – Immature and underdeveloped financial planning capabilities usually take up to nine months before they can produce any meaningful results. This huge time discrepancy will often mean that the generated data will be outdated. Regular use of spreadsheets, limited financial data analytics, reporting capabilities, and visibility into business value insights are all signs of a lagging budgeting process. The less companies rely on traditional finance tools and, instead, favor purpose-built FP&A solutions, the more they will have access to a common database management, data scenarios, and related workflows management.
- Integrated Financial Planning – Most finance departments have been using integrated financial planning (IFP) for a very short while. For this reason, many finance organizations struggle to generate timely and accurate business insights. With a well-designed IFP, companies will be able to target specific financial planning objectives, as well as generate new insights useful for the sales department.
- Performance Reporting – Since most spreadsheet reports are largely focusing on accounting numbers and lack most external inputs and financial data analytics, it’s incredibly difficult to generate any meaningful insights. Mature reporting capabilities, on the other hand, will be able to capture and integrate more data from different internal and external sources. In doing so, they will enable businesses to understand the why behind the results generated.
- Forecasting and Modeling – Traditional FP&A solutions rely mostly on static planning and budgeting tools used for forecasting and modeling. Advanced tools, on the other hand, use advanced analytics and in-memory computing (IMC) to generate faster and reliable predictive analytics.
Finance Organization Strategy and Structure
As finance is facing increased pressures to keep up with today’s rapidly evolving business environment, the role of the CFO is to understand where and how to employ different strategies and take advantage of the current available technology trends. To do so, the modern CFO will pay close attention to how to reduce duplication and how to provide more comprehensive and coordinated support to their business.
With companies expanding into the global economy, they will also be served by a more complex organizational structure. When this happens, they will need to put a higher percentage of their finance workforce in different business units. While centralization is still necessary, there are certain scenarios where finance leaders should consider the type of service delivery model best suited to support their overarching business strategy.
Some organizations will choose to work with shared services and opt for a center of excellence (CoE). Others may find it more effective to divide their responsibilities between the corporate and embedded finance teams. Since there is no one-size-fits-all approach to the issue, companies will need to choose the one system that will be able to balance the company’s financial and human resources, all the while keeping in line with the competing governance and guidance responsibilities.
After determining the desired level of centralization within the company’s structure, there are several other key aspects of the finance functional organization that need to be redesigned. These include:
- Start by assessing the current finance structure, including the company’s spend, staffing, technology, productivity, and performance. This will help you anticipate your future business needs.
- The following step will be to determine the activities that need to be outsourced to a capable and professional business partner.
- In addition, you will need to ensure that the structure will be based on your functional priorities, and you will need to clearly define what the scope of activities will be for each sub-function so that you will avoid any duplicates.
- Lastly, you will need to choose the right reporting structure used for embedded finance teams and optimize the spend of controls. You will need to use role definitions, performance measures, and incentives to drive desired behaviors. These methods are usually more effective than just rewarding reporting lines.
Finance Technology Optimization
The process of finance technology optimization refers to extracting more value from accounting and enterprise resource planning (ERP) systems while also undergoing a digital finance transformation. However, finance technology literacy is still at its beginning stages, which leads to an increased dependence on the IT department and various other external vendors. Therefore, finance technology implementation will take too long and will result in minimal ROI. This slow adoption rate is a serious challenge, and only about 24% of CFOs believe in their ability to solve the problem, while 76% report lagging return on investment from FinTech investment due to prolonged implementation. Yet, new technologies, such as robotics, advanced analytics, cloud computing, and more, can greatly improve the ability of the finance department to deliver real-time business intelligence and enable new process efficiencies.
The New CFO Team
As the role of the CFO will continue to expand, CEOs expect them to take the initiative and apply financial analytics to explore new markets, products, and channels to increase their business performance and achieve growth. Thanks to artificial intelligence, machine learning, and other emerging technologies, the finance workforce will be freed up to focus more of their attention on developing additional skill sets to further enable the business. Finance organizations need to be on a constant lookout to assess the work that needs to be done and determine which skills requirements their finance workforce will need based on those needs.
It is, however, important to keep in mind that digital finance technology will not replace human employees. Such a digital transformation is meant to upskill the finance team, so as to better assist the organization. Such changes will allow for more time, energy, and resources to strengthen business planning, analytical capabilities, and performance reporting. After all, increased collaboration between finance and business is needed to integrate functional expertise.
As such, the future generation CFO team will be comprised of the following members:
- The Innovation and Investment Strategist will develop insights from external trends and identify changes in customer and competitor behavior. This will allow the strategist to design future business implications that can be converted into financial projections.
- The Financial and Regulatory Accountant has duties that go beyond traditional bookkeeping. And thanks to the various automated solutions, this role will become increasingly more efficient. One such fiscal and regulatory specialist will be tasked to ensure compliance and focus on delivering all core reporting. The accountant’s main responsibility, however, will be to present a realistic financial situation to the company.
- The Financial Planning Analyst will prepare all predictive analytics and real-time insights on all business situations, costs, and prices. All of this data will be supported with predictive modeling and scenario analysis. The financial planning analyst will have extensive business knowledge and in-depth FinTech expertise.
- The Finance Business Partner will need to have a strong understanding of all external markets to be able to analyze and understand existing threats and opportunities from the company’s strategic direction. They also need to have the ability to influence the business model and handle the interaction among different business groups. This is a key role in driving value and business performance.
- The Financial Data Scientist will be in charge of executing complex financial models and will advise business leaders on the financial impacts on different scenarios.
- The Business Solutions Architect / Financial Automation Expert will need to be an expert in artificial intelligence and have extensive experience in emerging technologies. This role will have to be able to identify all required process changes and implement new business solutions by incorporating relevant finance technology.
The Future of Finance
Finance technology has already established a significant foothold in the industry. For the foreseeable future, some 82% of finance organizations plan to increase collaboration with FinTech companies. And once finance leaders have been successful in addressing the current finance function challenges, they will be in a far better position to create effective roadmaps that will indicate which technology upgrades to implement. As an increasing number of finance analytics and artificial intelligence tools are being enabled, the finance department will become increasingly tech-oriented, as well as a valued partner in the decision-making process.
Consero will provide your organization with a robust financial solution that will help you get a clearer picture and make more informed business decisions. Our history as a successful growth strategy development partner relies on its Finance as a Service (FaaS) software, aside from our in-depth understanding of finance, accounting, bookkeeping, market trends, and FP&A services. Feel free to contact our team and schedule a free demo. We’ll walk you through our processes, what you can expect as a Consero partner, and answer any questions you have.