The financial area is heavily impacted by new technology at the moment. Balancing trust, swift transactions and increased transparency is prioritized. To achieve this, technologies such as Blockchain, robotic automation and holistic reporting will play key roles, predicts Steve Treagust, Global Industry Director for Finance, HR and Strategy at IFS.
Japan and South Korea leading the way as the adoption pace of crypto-currencies accelerates
Although forged in the fiery furnace of the 2008 financial crash, Blockchain is now becoming an increasingly reputable alternative to traditional transacting systems, and we’re likely to see major financial institutions adopting some aspects of it over the next couple of years.
The industry is understandably wary of what I call “digital assets”─Blockchain and crypto-currency. After all, we are talking about largely unregulated and decentralized systems here; not typically music to the ears of finance chiefs who might see them as the enemy. However, at a recent conference held by Blockchain company Ripple, we discovered over 100 major global lenders are now working on Blockchain-related projects. That is not to say this will lead to them embracing digital currencies, but certainly specific aspects of the Blockchain are beginning to garner interest. Boasting efficiency, auditability, transparency, security and traceability benefits, it is not hard to see why.
One element is Ethereum, a Blockchain-based distributed computing platform focused on managing smart contracts in a highly efficient and automated manner. It means that, for example, if a chosen party can satisfy certain criteria, payments can be approved automatically–speeding up the entire process. Banks and governments are particularly keen on the benefits Ethereum offers because it doesn’t interfere with the centralized banking system as such. The markets have reacted positively, with the coin value rising above 8,000 percent in the past year.
Another popular digital asset is Ripple’s own XRP, which is designed not to replace fiat currencies but to facilitate real-time transfers and global payments anywhere in the world. Not only does it cut transfer times from days to just seconds, and costs from dollars to cents, but it also offers the prospect of financial institutions being able to reach a huge unbanked population, said by the World Bank to number around two billion. The Gates Foundation is currently working with Ripple to reach the unbanked in rural areas. Again, the markets have reacted positively, with the coin value rising above 40,000 percent in the past year.
We could not talk about crypto-currency without briefly mentioning Bitcoin. Although it offers elements of Ethereum and Ripple/XRP, it is perhaps not as focused yet on all capabilities. Unlike the others, however, what it does offer is a store of value, in a similar way to gold. There is only a finite amount of it left, which is why countries including Russia have been ramping up their computing power of late to mine the crypto-currency. The further East one goes, the more open to the use of digital assets governments appear to be. Expect South Korea and Japan to lead the way in adoption of Blockchain and crypto-currency over the next two years.
20% of company financial processes will be automated in five years
Robotic Process Automation (RPA) might not sound particularly inspiring, but it could hold the key to transforming and streamlining the way organizations operate; making them more efficient and cost-effective to run and driving an upskilling of the workforce. RPA goes further and deeper than just robotics to include technologies like artificial intelligence (AI), Blockchain, big data and the Internet of Things (IoT), to either perform tasks automatically or augment human delivery. It will have a profound effect on HR and finance departments.
The past year, financial firms have introduced a range of practical machines that think. Some banks already added AI surveillance tools to thwart financial crime, while others deployed machine learning for tax planning. Wealth managers can now offer automated investing advice across multiple channels, and many insurers now use automated underwriting tools in their daily decision-making.
After gaining maturity in operations and finance, areas such as risk, compliance and human resources are next on the list of RPA opportunities. The challenge lies in organizations’ fear of change, exacerbated by concerns around job losses. In reality, this shift towards smarter, automated, data-driven processes will create a huge number of skills higher up on the value chain. Cryptography, Blockchain management, robotics, AI computing and analytics will all become highly sought-after skills in this brave new world.
Remember, even if much of the heavy lifting will be carried out in the future by AI and machines, we still need humans to program, manage and run these systems. These technology advances will also enable processes to be spread further and wider geographically than ever before. We will need humans to manage this dispersed and culturally diverse workforce 24/7/365.
This will take time, of course. You cannot expect people to change overnight, and where upskilling is involved, there will be resistance from unions and the like. But eventually, organizations must do the metaphorical equivalent of taking their hands off the wheel of an autonomous vehicle. Those brave and far-sighted enough to do so will certainly be rewarded.
Holistic reporting the new standard as intangible assets, sustainability and long-term gains increase in importance
My final pick for 2018 predictions is perhaps less at the cutting edge of tech innovation and more a reflection of the need to manage organizations in a more holistic manner. Intangible value outstrips tangible value by 4:1 in organizations today, yet most finance teams spend their time almost exclusively on the 20% of tangible assets. We need to transition to a more holistic and sustainable strategic approach, dubbed “integrated reporting.” This aims to fill in those sizeable reporting gaps by including the 80%, and starts to move away from the idea of maximizing profit at all costs to one which considers the majority of stakeholders—customers, employees, partners and suppliers.
Apple, Starbucks, VW, BP: all have taken short-term profits over long-term gains. VW’s share price halved overnight after it was found to have cheated US air pollution tests for years, while the likes of Apple, Amazon and others have suffered huge amounts of negative publicity for their strategy of tax avoidance.
It will take time to achieve a change of the “profits-first” mindset at the top of organizations, yet a focus over the longer-term on sustainability through investments in local communities, the supply chain, employees, goodwill and other intangible assets, will reap much bigger rewards. This new approach also has the support of major organizations including ACCA, CIMA, IIRC and the European Commission. Big names including ABN AMRO and Tata are already using this integrated approach to drive their business forward.
Finance teams will be at the center of this push simply because only they have the processes and insight into the organization needed to pull together such a sweep of diverse information. As with all of the above trends, there will be no overnight transition. However, once organizations begin to see the bigger picture and spot early movers pulling away from the crowd, momentum will become unstoppable.
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