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FROM CFO TO CHIEF FUTURE OFFICER – SO NEAR, YET SO FAR?

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Bertrand Lavayssiere, managing partner at international financial management consultancy, zeb

 

New study reveals the evolving role of the CFO to shape banks’ growth strategies

 

The role of the modern CFO appears to be changing. Where this role traditionally focussed solely on tasks such as management reporting, accounting and regulatory reporting, today’s CFO is now moving towards the larger role of a Chief Future Officer who contributes to creating value and shaping the future of the bank. Three quarters of CFOs and executives of large UK and European banks who took part in zeb’s proprietary research, see themselves as sparring partners of the CEO and the executive committee in driving strategic discussions, while only 4% solely deal with the “number crunching” at large.

 

However, despite this general shift, many CFOs struggle to balance their traditional activities with those that include strategic development. All too often major improvement projects and forward-looking analyses take second place behind mandatory standard tasks. As they see it, their traditional roles are:  preparation of the monthly and yearly statements, preparing the regulatory reports, preparing management dashboards, and piloting cost management exercises. The new components of their roles are emerging because of the new regulatory frameworks and specifically those related to the forward-looking initiatives, which require a comprehensive understanding of the institution’s own business models.

 

CFOs at banks increasingly recognise the importance of digitisation in their industry yet it is still regulatory constraints that they expect will have the biggest influence on their work in the next few years. Indeed, as digital transformation and ever more stringent regulatory requirements continue to dominate the industry’s agenda, these two aspects are set to be at the very core of the struggle faced by those with ambitions to play a more strategic role in their banks.

 

Amidst the effects of a long-lasting, low yield environment, evolving regulations and the requirement to manage the advent and maturing of new technologies are the major concerns that CFOs of financial institutions foresee affecting their functions. Their concerns mirror what they see as the industry challenges posed by digitisation – of clients, of their bank and of the entire banking environment – and the emergence of serious new competitors based on new business models facilitated by new regulations like open banking or PSD2.

 

Therefore, the new CFO roles are slowing evolving to include:

 

Performance measurement: CFO to provide proactive engagement in performance measurement and the integrated financial resources, management tools and support (details business models levers analysis, for example)

Resource optimisation: based on those tools, CFO to challenge the business performance and the utilisation of the scarce resources, encompassing the core banking topics: equity, liquidity, debt and leverage – all have become scarce in the last 10 years.

CFO/CRO collaboration: CFO to build with the CRO, the adequate simulations for optimising the utilisation of the scarce resources and highlight the issues arising in terms of business strategies and priorities. The new IFRS9 regulation, for example, will force CFOs and CROs to plan for credit provisioning together.

 

A digital future

Most CFOs are aware of the measures required to increase efficiency and effectiveness in their area. Finance executives recognise clear and significant benefits from digital technology, particularly for process optimisation and management decision-making. As banks adopt new technologies, finance functions will increasingly make use of next generation analytics, smart automation and high-quality, consolidated data. Highly automated and needing substantially fewer staff, the finance function of the future will proactively support revenue generation across the bank, for instance through better resource management, wallet analyses and pricing.

 

So far, however, the benefits of technological advances are neither reflected in banks’ digital strategies nor in corresponding budgets. 80% of CFOs bemoan their organisation’s unclear priorities, lack of a clear digitalisation strategy and insufficient investment. “New” technologies are not widely used at present, the study found. Moreover, the need for digital skills development within finance teams is widely recognised as a major obstacle to progress – more than two thirds of CFOs face a lack of skilled employees among their current teams, saying the skills profiles of the past are not enough to meet new requirements. In other words, for most CFOs such digital tools remain within sight but not within reach.

 

Although the transition for CFOs to the role of Chief Future Officer is not going to plain sailing, here are four areas of focus for CFOs looking to move towards a more comprehensive future role:

 

  1. Advanced analytics: use of advanced analytical tools to gain new insights and support revenue generation, notably via resource management benchmarking, wallet and pricing analysis
  2. Strategic resourcing: use of high-quality data as a strategic resource means; consolidating the core data around smart data lakes for process efficiency and accurate analytics; thinking with persistence of the structured/unstructured data opportunity with IT colleagues; planning for the future real-time world; bulk data transport as impacting data quality and availability.
  3. Skills development and partnering: developing new skills and partnering, as future finance functions will be based on a clear separation of analytics and production; building the CFO eco-systems to develop agile working models with partners for economic modelling and external data.
  4. Smart automation: the potential for automation varies greatly across the CFO sub-functions – accounting operations and standard reporting are highly automatable and could even be outsourced to some extent to shared services platforms; AI functionality, such as chatbots, should be tested and implemented wisely; planning for end-to-end, front-to-back automation across the organisation is big prize but is probably more of a long term goal for most CFOs.

 

 

Not just looking, but moving forwards

Of course, not all current CFOs will take on these expanded roles in the future; in part, it’s a skills issue and in part an organisational one. Looking into how the CFO function is positioned within banking organisations, it’s obvious that there is not a “one size fits all” – it varies according to the CFO profile, the CEO profile and the history of the bank. As each bank is different, the way to succeed are going also going to be specific to each institution.

 

The zeb CFO study 2018/19 gives foundation to what many have been observing anecdotally until now: a strong majority of CFOs want to play a more strategic role in their bank’s future. To take on the mantle of Chief Future Officer, CFOs now need to need to communicate a clear overview of where the finance function is and where it should go, setting priorities and rollout timelines for the next three to five years. They must bridge the gap between what they actually do and what they’re capable of doing to help their banks grow.

 

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Banking

Bringing Automation to Banking

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Ron Benegbi, Founder & CEO, Uplinq Financial Technologies

 

Automation is everywhere you look these days; from supermarkets to warehouses to automobiles. This prominent trend shows no sign of abating anytime soon. However, some sectors remain behind others when it comes to adopting automated technologies. Banking is one such segment, but there’s now evidence to suggest that this could be about to change.

 

What do we mean by automation?

There are a lot of ways to define automation, but broadly the term applies to any technological application where human input is minimized through design. Over the years, automation has evolved from a basic level, which took simple tasks and automated them, all the way to advanced automation powered by Artificial Intelligence (AI). In general, automated solutions work to increase productivity and efficiency within businesses and often result in a reduction in costs associated with human capital.

 

Ron Benegbi

Why has the banking sector been slow to adopt automation?

The banking sector has been built on a number of long-standing, tried and tested processes and protocols, which have been continually fortified and refined over time. This is one explanation as to why the sector has been so slow in adopting new, automated methods within its operations. Additionally, many major financial institutions have spent decades building their own internal legacy computer systems, which are often incompatible with modern automated solutions.

When combined, these two issues have caused a significant lag in the banking sector with regards to the adoption of automated technologies. This lag has created a market opportunity that a number of fintech providers have been able to exploit in recent years. Offering a more responsive and tech-first user experience, many fintech providers are leveraging the power of automation to better meet the banking needs of their customers. However, there is still time for the banking sector to start bridging this gap.

 

Does automation have a place in the banking sector?

The opportunity for automation to play a role within banking can be transformational.

To achieve this, it’s important that legacy organizations begin to learn from their more tech-savvy, smaller counterparts. If used effectively, automated financial solutions can greatly improve the experience of banking customers, both on a personal and business level. So, what exactly does this change look like, and how far away are we from seeing it become a reality?

A good place to start is the small business credit lending process, where not much has changed since the 1980’s. Over that period, the world has greatly transformed, but the methods used to assess credit worthiness have remained somewhat static. For the most part, banks assess data related to businesses’ accounting and banking records and from credit scores. For many businesses, especially the newer and less established ones, this antiquated approach is having a detrimental effect. In fact, it’s often cited as a contributor to the huge funding gap between SMBs and their larger counterparts.

 

How can automation benefit the banking sector?

By adopting more automated technologies, lenders in the banking sector can begin to assess more comprehensive information when making credit decisions. Notably, new methods exist, which enable additional data sets to be evaluated, in order to build a more accurate financial depiction of a business’ overall position. This data can come from sources like external market attributes, economic indicators, demographic data and exogenous shocks.

By leveraging additional data sets through new methods of financial automation, banks are now in a position to respond more effectively to small businesses, including those in emerging and evolving markets where there is a lack of conventional sources of information.

With more ways to access funding, facilitated by alternative data and automated processes, small business owners can improve their operational efficiencies and accelerate their growth efforts. In doing so, legacy oriented financial institutions can now better equip themselves in protecting against new, nimbler tech-based disruptors.

 

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Banking

MYTH BUSTING THE ROLE OF OPEN SOURCE IN FINANCIAL SERVICES

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Nigel Abbott, Regional Director North EMEA, GitHub

 

There is no denying the financial services (FS) industry is under pressure to innovate. Not only have customer and consumer expectations for digital experiences surged in recent years, but the emergence of nimble and ambitious fintechs have disrupted the market. Yet, despite striving for innovation being table stakes across the industry, FS organisations inevitably face familiar hurdles that slow their progress, including concerns surrounding security, compliance, and the ability to act fast.

Open source is increasingly seen as a route to drive innovation and create new value. The FS sector’s utilisation of open source and the transformative role it can play is accelerating – on paper, at least. According to the recent Fintech Open Source Foundation’s (FINOS) 2021 State of Open Source in Financial Services survey, as many as 80 percent of FS leaders said that innovation, reduced time-to-market and total cost of ownership are factors for FS businesses to consume open source.

Nigel Abbott, Regional Director North EMEA -GitHub

But the reality is these positive adoption figures don’t tell the whole story. The survey also revealed that 75 percent of FS technology leaders said their businesses are either not “open source first”, or that they did not know if they were. Tellingly, less than one in ten (eight per cent) said that their business has put in place policies to encourage open source contribution.

The statistics point towards disparity between uptake of open source and the ability to use it to its full potential. But why?

For me, it comes down to some common myths about the role of open source that need demystifying:

 

Myth #1: There are limits to the innovation that open source can deliver

This could not be further from the truth. All enterprises, including FS companies, rely on open source software to build the best software for their customers, improve infrastructure, and unlock the potential of their engineering teams. Nationwide, for example, has completely redesigned its DevOps processes to respond faster to market changes and keep pace with customer expectations to remain relevant. The impact is transformative when they actively embrace it and participate fully in the open source community, creating a win-win situation for end-users. 

 

Myth #2: Data can be shared without consent 

Quite the opposite. Open source does not require FS businesses to share all their secrets and give away their competitive advantage. Instead, taking an “innersource” approach allows financial institutions to take the skills of developers who are accustomed to using open source tools and brings these inside the company firewall, providing a secure internal platform for working collaboratively on projects.

 

Myth #3: Open source is not secure

The most common misconception is that higher security risks are associated with code being openly available to anyone who uses it. But the open concept is, in fact, one of the biggest security strengths of open source. This is because of the collaborative nature of how code is built. The open source community has a shared responsibility for developing and maintaining secure code, and there is a vast global pool of developers identifying and fixing security issues. Supported by the right tools and processes, open source makes it easier for developers to code securely throughout the entire software development lifecycle, reducing the amount of time and financial investment in delivering secure products. Research from Red Hat found that security is regarded as a top benefit for enterprises using open source.

 

Myth #4: The open source community lacks finance sector contributors

This is untrue. Financial enterprises of all shapes and sizes are prominent participants in the open-source community and lead by example, sharing meaningful code contributions. Challenger banks and institutions such as Goldman Sachs contribute to open source initiatives via FINOS. By opening their code and ideas, FS companies can share lessons and support the whole community – helping them deliver better services and more value to their customers. And crucially, they are advancing a community that they can systematically tap into and benefit from.

Open source is already delivering innovation in the FS sector. But the bottom line is that there is so much extra value it can bring. Unlocking the full potential of open source to effect change does not just require buying DevOps tools. Open source requires organisation-wide understanding and support, a culture of collaboration and a progressive DevOps and governance process to thrive. Only then can it deliver its true value and accelerate innovation.

 

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