Recently, I read about Dubai announcing its plan to be “the world’s first Blockchain-powered government”, with a plan to be 100% on blockchain by 2020. The blockchain technology which is going to be implemented in Dubai will remove all middlemen such as lawyers, accountants, bankers, immigration officers and government officials by the year 2020.
Similarly, the Singapore Government with the Association of Banks in Singapore is harnessing blockchain technology for more efficient inter-bank payments. The list is endless and we are clearly witnessing an era where technology is fast disrupting the traditional finance landscape.
That leads us to an important discussion – what are the key trends CFOs need to watch out for in 2018? Let’s look at some of the trends and not necessarily in any order of priority.
TREND 1: Co-existence of Human and Artificial Intelligence (AI)
A recent study from Oxford Economics says 73% of finance executives agree that automation is improving finance efficiency at their company. AI’s unprecedented speed, accuracy and cost efficiency have encouraged CFOs to consider its adoption in the Finance and Accounting functions. Opportunities for automation are immense, we have barely scratched the tip of the iceberg. While the benefits span multiple aspects, this efficiency has:
- Increased automation, speed, and accuracy of data and account classifications for tax purposes, enabling insightful decision making.
- Improved tax audit support, tax compliance and reporting accuracy, and exception monitoring.
- Provided intelligent assistance in performing repetitive tasks on mostly structured data
AI advocates speak of a time to come when these systems will be capable of auditing 100% of a company’s financial transactions. These visionaries foresee the day when AI will enable auditing that is a continuous and real-time process, not a prolonged exercise requiring large teams of accountants working overtime after the close of a fiscal year.
According to Gartner, by 2022, one in five workers engaged in mostly non-routine tasks will rely on AI to do a job. The interesting observation they make is that the fear around joblessness due to AI should subside. According to Gartner, AI will create 2.3 million jobs in 2020, while eliminating 1.8 million. That’s encouraging – and the question to ask ourselves is if the CFO and their teams are ready with the skills these new jobs will require?
TREND 2: The immense possibilities with Blockchain
As CFOs, we realize that finance is expensive. Although not overtly visible, the finance functions considerably invests in trust. Block chain is an emerging foundational technology that has the potential to impact existing business processes and functions and help build trust. Block chain is essentially a central ledger or distributed database that is owned by everyone and yet owned by no-one. As the blockchain ledger is distributed across a network of computers, it is able to store a tamper-proof record of transactions, and since it distributes control across a network, there is no single entity that controls the data.
Blockchain technology authenticates all data through a digital signature to provide user verification and prevent user impersonation. It is widely regarded as un-hackable.
The real advantage of blockchain is that because no single entity is in control of the data, that control is distributed, every entry is authenticated and confirmed by the network and it can never be altered. This means that CFOs will have access to “one version of the truth”. The CFO can look at all transactions between parties laid out as they happened. The central ledger has the potential to reduce costs and speed up settlement times, which can improve liquidity. This means that companies can work more closely together, improving efficiency and acting with a heightened sense of trust.
Several global finance leaders are engaging with technology providers and are closely evaluating the feasibility of blockchain in their environment. Take for instance, NTT DATA developed a proof of concept in collaboration with Tokyo Marine & Nichido Fire Insurance in 2017. The prototype proved that blockchain offers attractive security and cost advantages for shippers and insurance companies. Compared to conventional web-based systems for issuing insurance, the test showed that a system based on smart insurance could reduce the shipper’s data-input workload by about 85% and the insurer’s workload by about 83%.
Blockchain has the potential to impact each aspect of the value-chain, redefine the traditional CFO role and revolutionize the finance function. That is why it is critical that CFOs understand the implications and potentials of this technology to remain at the forefront of this new paradigm.
TREND 3: The rise of cybercrime
Cybersecurity is a top boardroom agenda. It is no longer a concern solely for the IT department — everyone in an organization, right up to the CEO and CFO must remain vigilant to protect against breaches. According to a KPMG study, Cybersecurity is the top risk named by CEOs. Further, what is more alarming is that 72 percent of CEOs are not fully prepared for a cyber-event, significantly higher than in 2015 (50 percent).
2017 witnessed a large number of cybersecurity breaches. And they weren’t just your standard corporate breaches. They took different forms and shapes. There’s was a viral ransom ware and a full-on campaign hacking. And that’s just the beginning. As per some estimates, almost two billion data records around the world were lost or stolen by cyber-attacks in 2017. The NTT Security 2017 Q3 Threat Intelligence Report reveals that the number of security events increased during Q3 ’17: up 24 percent from Q2 ’17. The top targeted industries were finance, manufacturing, business services, healthcare and technology. All this will have serious implications and cause monetary and reputation damage to the finance function.
At the same time, this increased threat of cyber-attacks is pushing governments to introduce new regulations however enterprises are often not prepared. Take for instance, NTT Security’s 2017 Risk: Value report shows that many companies are not ready for the European union’s impending new General Data Protection Regulation, or GDPR. We found that across the board, awareness was low. In the US, just a quarter of businesses understood the GDPR would affect them and the situation was similar in Asia-Pacific region.
With the CFO’s experience in Enterprise Risk Management, and drawing on this experience, it is important they work closely with their security colleagues in managing this risk. Unless this happens, cybersecurity investments will not be aligned to business objectives, and may fail to protect the company’s most vital assets and mitigate the risks that carry the highest damage potential.
Are CFOs and their teams building the competency necessary to play a leading role in addressing cyber risk? What should this role be?
TREND 4: The rise of cryptocurrencies
As a CFO, you like them or you hate them, but one certainly can’t ignore them. Cryptocurrency is here to stay.
According to Gartner, by the year 2020, the banking industry will derive $1 billion of business value from the use of blockchain-based cryptocurrencies. When compared to the estimated $7.6 trillion, which is the industry gross output of the world’s banking industry, $1 billion may not seem like much. However, the value is more about the tacit endorsement of Cryptocurrency as a legitimate option by the banking industry.
Many cyberattacks such as the ransomware attacks, demanded ransom in Bitcoins. That is why CFOs will need to look out for them in the near future. With the legalities of cryptocurrencies also being worked on, and more than 900 cryptocurrencies in the market, the banking endorsement could open doors to other industries.
To conclude, while there are many more disruptive technologies knocking at the business doorstep such as digital, cloud, internet of things, quantum computing, software defined everything etc., I feel these four technology trends would have the maximum impact on the finance function and the CFO’s imperatives of fostering growth, streamlining operations and mitigating risks.
In a nutshell, it will be interesting to watch how technology shapes and challenges traditional finance methods. Clearly there is a need to look beyond our borders and understand the forces that are revolutionizing the world. There is a definite need to embrace technological advances like never before…