Laura Timms, Product Strategy Manager, MHR Analytics
Finance transformation is all about improving the overall value that finance provides, but with finance teams under increasing pressure to do more with less, this is something that is becoming increasingly difficult.
It’s estimated that 81% of finance teams are currently undergoing finance transformation, yet research by Gartner reveals that seven out of 10 finance transformations fail.
This article, based on the new finance analytics guide from MHR Analytics, will reveal the benefits of adopting analytics to supercharge your efforts and help ensure that your finance transformation is a successful one.
Finance strategy that’s aligned with future business needs
Transformation is more than simply hitting a financial goal. It’s about being able to respond to the current and future needs of the organisation – something that can only be achieved when finance is connected to the wider business.
Unfortunately, with all of the demand that finance teams receive, it can be easy to fail to recognise how financial activity translates into everyday business.
This can lead teams working introspectively, which can quickly translate into silos, with poor communication of information, lower levels productivity and consequently a less valuable finance team.
To prevent this from happening, the financial strategy needs to be aligned with activity across the business, and analytics provides the platform to do exactly that.
Using a data warehouse, data from across the organisation can be synced to give finance teams real-time insights into how changes in one area of the business will impact the course of action they take.
This means that finance teams are able to steer away from getting caught up in metrics like historical spend and industry benchmarks, and are instead grounded in how the finance strategy relates to the unique needs of their business.
Focus on high-value tasks
According to Gartner, 56% of companies are in the evaluation phase of adopting AI to automate accounting & finance processes. By 2020 it’s estimated that 31% of companies will have actually implemented this into their business and 26% in “operating” mode, where AI is actively used in accounting & finance processes.
But what does this mean for finance transformation?
Well, AI technology is providing a platform that is changing the role of finance teams at a rapid pace. Through automating tedious financial processes, finance teams no longer have to spend their time buried in spreadsheets.
Everything from cash disbursement, revenue management and general accounting could be automated through leveraging analytics – in fact, it’s estimated that up to 40% of financial activity could be automated, and another 17% mostly automated.
Research goes on to reveal that for an accounting team with 40 full-time employees, with an average salary of £60,000 would save around 25,000 hours and nearly £72,000 that would have otherwise been wasted on team members carrying out repetitive tasks.
This time saved can instead be spent on higher-value tasks that facilitate business transformation and allow finance to act as a trusted strategic partner to the business.
- Understand where to allocate resources
Sometimes it can feel like finance are caught in the middle, with demands left, right and centre of the business. And with eloquent justifications from each department explaining why their project should be prioritised, it can leave finance teams stretched under the pressure to please everyone.
Analytics works to hand back the power to finance teams.
Through interactive dashboards that display performance across the business, finance teams are able to easily identify the key value drivers of financial growth.
This means that they’re able to present stakeholders with “the facts” and justify financial activity, only spending resources on activities that generate the most financial value, whilst cutting unnecessary costs.
On top of this, finance teams can look internally to see what they’re spending their own time and resources on. This can help them to define their list of roles and responsibilities as a department to ensure that they don’t get caught up in low-value tasks.
- Make faster, more reliable decisions
At the core of any finance transformation is the need to adapt finance practices to meet increasing business demand.
Despite this, many finance teams are still relying on outdated methods to carry out financial processes.
Relying on spreadsheets to communicate and understand what’s going on in the wider business is a common theme amongst finance, but using manual methods alone leaves room for human error. In fact, research shows that nearly 90% of spreadsheets contain errors, and this can make it tricky to make decisions with confidence.
This approach also means that teams are often forced to spend hours analysing data and pulling reports. This can lead to lags in getting all-important insights, which delays decision making and can result in “in hindsight” discussions with stakeholders.
Analytics works to streamline financial processes to provide teams with fast and accurate insights at the touch of a button. Through real-time data and automation of once tedious processes, teams can see bumps in the road way in advance and have greater confidence in their decisions.
To learn more about how analytics is impacting finance teams, read MHR Analytics’ ultimate guide to getting more out of your finance data.
‘MOVE FAST BUT DON’T BREAK THINGS’ – WHY FINTECHS WILL COME TO LOVE REGULATION
Alex Johnson, Director of Portfolio Marketing, FICO
The guiding ethos of fintech is move fast and break things. It’s the fundamental advantage that disruptors have over the incumbents they’re disrupting — the ability to move quickly and make mistakes, learn from them and deliver innovative services to customers. Generally, this ethos is presented as a virtue. Banking is ‘broken’ so any investments in improving it are both notable and noble – even if there are bumps along the way.
Conversely, anything that stands in the way of this ‘march of progress’ is generally cast as a villain.
The most prominent villain for fintech companies is regulation. From their perspective, it’s a competitive moat, based on rules written for a different century, that protects banks’ ability to make money without needing to innovate and offer more or improved services to their customers.
So, it’s easy to see why a fintech company — believing fully in the virtue of its mission and faced with a litany of illogical and intractable regulations — might just say ‘we’re doing it anyway.’ That’s what Robinhood co-founder Baiju Bhatt reportedly did when his company tried to roll out a checking and savings product that it claimed was insured without confirming that with regulators first.
The problem is that while we may mythologise the ‘move fast and break things’ ethos in the abstract, consumers don’t love it when their stuff breaks in the real world.
And when fintechs and challenger banks aren’t constrained by regulation (as they mostly are in the U.S and Europe) the harm caused by this ‘move fast and break things’ approach can be much more severe than a service outage or a false claim of deposit insurance.
Stories from overseas
In China, online P2P lending exploded in popularity, with the number of P2P lenders growing from 50 in 2011 to 3,500 in 2015. Then the whole industry imploded when it was revealed that 40% of P2P lending platforms were Ponzi schemes.
In India, online lending companies raised a record $909 million in venture capital last year (the third-biggest market behind the U.S. and China). And those lenders are now using personal data from borrowers’ mobile phones to make lending decisions – which although illegal, is reportedly ignored by Indian regulators.
In the Philippines (another emerging market where venture capital dollars for online lending are pouring in), the National Privacy Commission is investigating hundreds of complaints from consumers about lending apps leveraging their personal data to shame them into making their payments.
A prediction for the decade to come
In the 2020s, I believe fintech companies will come to love – or at least quietly appreciate – regulation for two primary reasons:
Fintechs and challenger banks understand that brand recognition and affinity is key to their long-term success. Building their brands will be a challenge. A recent survey of 2,000 Brits found 40% don’t trust challenger banks at all and 67% said they are more likely to do business with banks that have branches on the high street. As Zach Bruhnke, co-founder and CEO of U.S. challenger bank HMBradley recently said, ‘We’re going to have to grow by word-of-mouth and doing the right things for our customers.’
Fintechs and challenger banks focused on the long-term task of building brand affinity and trust will, over the next decade, come to despise bad actors that skirt the rules and dress up get-rich-quick schemes in the same language they use to describe their own firms. Regulations that constrain and/or shut down these bad actors will be increasingly appreciated by legitimate market participants.
In the 2010s, we saw the beginning of a trend that will strengthen in the 2020s — regulations designed to foster competition between incumbents and new market entrants. To date, such regulatory action has run the gamut, from vague (innovation sandboxes and special-use charters) to hyper-specific (U.S. regulators’ cautiously approving the use of alternative data, or the Bank of England considering giving non-banks access to its 500-billion-pound balance sheet). Perhaps, most promising, has been the work done by the Competition and Markets Authority (CMA), which has been proactively driving the adoption of rules and standards around Open Banking for past couple of years. O
ver the next decade, through careful management of public perception and increased investment in lobbying, fintechs and challenger banks will further reshape the regulatory environment from a competitive moat to a more level playing field.
Reaching fintech maturity
’As a licensed broker-dealer, we’re highly regulated and take clear communication very seriously. We plan to work closely with regulators as we prepare to launch our cash management program’.
This was the statement issued by the chastened co-founders of Robinhood shortly after they backed away from their plan to launch a checking and savings product without government insurance. And here’s the crazy part — that’s exactly what happened! Less than a year later the company announced a new deposit product, this time insured by the Federal Deposit Insurance Corporation (FDIC).
As fintech companies mature in the 2020s and the focus of their strategic objectives shifts from growth to profitability, regulation will play a vital role in transforming the ethos of those companies into something a bit more sustainable. Call it ‘Move fast, but don’t break things’.
HOW TO MERGE YOUR FINANCES AS A COUPLE?
By Nelisiwe Ndlovu, Certified Financial Planner at Alexander Forbes
There is never a good time to discuss finances with your partner, married or unmarried, and one key issue that needs to be discussed is whether you should merge your finances.
Joining all your money matters can seem overwhelming at first, so you don’t have to combine every bank account and credit card from the get-go.
Start by having an honest discussion with regards to your individual money management and financial commitments before deciding to merge or co-manage your household finances while deciding if you want to fully merge all your finances. Detail all individual income, expenses, and all your financial commitments. The best way to achieve this would be to first take your individual budgets and combine them. This will tell you what you can and cannot afford as a couple. If one partner does not usually budget, this is a chance to start doing so as this will ensure that your household finances are under control.
Before you think about merging your finances, be open and honest about:
- How much you earn – what is the income that you will bring home? What is the frequency of your income? Are you permanently employed or a contractor?
- What are your current individual expenses and financial commitments? List your assets and your current debt.
- Your individual financial goals and money management techniques – don’t worry if you might have not figured this out at the time of merging your finances – the important thing to do is to be open and honest so that you both build a stronger money foundation
- Disclose your financial obligations, this becomes very tricky if left until too late and may cause unnecessary tension in the relationship
- What are your goals as a couple – what is the purpose for merging your finances?
Married couples can formally or informally merge their finances as detailed above where household expenses are split between the couple (the split could be 50/50 or any fair split agreed upon by the couple, which could be based percentage-wise depending on one’s income). Some couples tackle finances by adopting the ‘pick a bill’ approach, where one couple pays the water and electricity while the other covers the food.
Being married does not mean necessarily that you need to have one joint account. You may also just want to open one joint account where you each deposit money to pay just your monthly household expenses.
The top five things to remember when merging finances as a couple:
- Have the ability to manage your own finances before expecting another person to merge their finances with you.
- Be mindful of your potential spouse/life partner’s money management behaviour and skills so that there are certain things you can address together before considering merging your finances
- Always keep an open line of communication – honesty is the best policy
- Set a money limit which you can each spend without having to consult each other
- Don’t forget to change your wills and beneficiaries on pension or provident funds as required.
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