With disconnected processes and systems within their customers’ infrastructure exacerbating the issue, it’s not surprising that many fintech solutions are difficult to fully integrate. Indeed, almost half (40%) of fintechs globally are struggling to connect to their customers’ applications or systems, according to research from InterSystems.
This challenge is likely to make it difficult for fintechs to integrate any new applications or solutions within a financial services organisation’s technology stack – impeding their ability to collaborate with these types of institutions. With 93% of all fintechs surveyed keen to collaborate with incumbent banks in some way, connectivity problems could seriously inhibit their ability to capitalise on these potentially lucrative relationships.
To avoid missing out on opportunities like these, fintechs must find a way to connect more easily to any financial services organisation’s existing legacy applications. 47% of global fintechs state that enabling better integration with customers and third parties is one of the biggest drivers behind implementing new technologies, so there is a clear appetite to address this challenge.
One of the most effective solutions for fintechs is to develop a bidirectional data gateway between their own applications - of which 98% are at least partly cloud-based, 23% are hybrid cloud and on-premises, and the remainder are based in public or private clouds - and their customers’ environments. This can be achieved with smart data fabrics. With cloud offerings making it easier to provide remote access and service updates, in addition to facilitating deployment on-premises, developing a bidirectional gateway will ensure that financial services institutions do not miss out on innovative fintech applications.
A new architectural approach
Traditionally, integration of fintech services and applications has been accomplished through manual and cumbersome means: the slow process of coding point-to-point integrations and moving and copying data is difficult to maintain and notoriously prone to errors. Moreover, this outdated practice makes feeding applications the live, real-time data they require extremely difficult.
By implementing a smart data fabric, a new architectural approach, fintechs can create a bidirectional, real-time data gateway between their cloud-based applications and their customers’ existing on-premises and cloud-based applications and data stores. The smart data fabric provides a complementary and non-disruptive layer that connects and accesses information from legacy systems and applications on-demand.
Smart data fabrics integrate real-time event and transactional data, along with historical and other data from the wide variety of back-end systems in use by financial services organisations. They can then transform it into a common, harmonised format to feed cloud fintech applications on demand, providing bidirectional, real-time, consistent, and secure data sharing between fintech applications and financial services production applications. Bidirectional connectivity also ensures that any changes made through the fintech applications can be securely reflected in those production applications.
Embracing this new architectural approach will allow financial services organisations easy leverage of new fintech services and applications, facilitating seamless integration with their existing production applications and data sources. For the 40% of fintechs currently finding it difficult to connect to their enterprise customers’ environments, this will be very gratefully received – and will open the door to mutually beneficial partnerships with banks.
Driving innovation forward
Easier integration between fintech cloud-native applications and financial services organisations’ existing infrastructures will provide banks with a consistent, accurate, real-time view of their enterprise data assets, as well as increased speed and agility. With the financial services sector in need of an innovation injection to meet changing customer and regulatory expectations, this smart data fabric-powered approach to developing a bidirectional data gateway will also help to spark creativity and fuel innovative ideas.
These capabilities will enable financial services institutions to swiftly react to new opportunities and changes in their environment. It also gives them the insight needed to make better business decisions and improve customer experience, as they can provide more digital and hyper-personalised offerings.
Fintechs across the world are recognising the potential benefits of improved collaboration with banks. 56% believe that banks will get value from fintechs through improved customer experience and engagement, while 50% say that better partnerships will result in more opportunities for banks to focus on their core areas of expertise. A similar number (54%) believe that banks stand to gain from increased agility and speed to market. With data fabrics, fintechs and banks can take steps towards putting these objectives into motion.
A win-win for fintechs
By adopting a smart data fabric approach to implementing a real-time, bidirectional data gateway, fintechs globally will effectively kill two birds with one stone – helping to increase both collaboration and innovation.
Embracing this new type of data architecture will allow fintechs to better connect their cloud-based applications to their customers’ environments, allowing solutions to be more swiftly and easily integrated within those environments. In turn, this will boost the potential for collaboration with financial services institutions.
Furthermore, this technology will enable fintechs to better support financial services organisations through their own data struggles, helping data to instead become a critical differentiator that empowers financial services to swiftly innovate. By being able to more easily adopt fintech applications, financial services organisations can unlock faster development cycles, experience fewer bugs, and even reduce their total cost of ownership. Enhanced innovation opportunities will steer institutions towards their business goals, thereby delivering benefits back to their customers and creating an all-important competitive edge.
About the author: Redmond O’Leary is Sales Manager, Ireland at InterSystems.
Except it hasn’t been like that. Not even a little. The UK is in the midst of its “weakest decade for pay growth since the 1930s”, according to a report by the Resolution Foundation, a think tank. Meanwhile, the cost of living in the UK is at its highest since September 2011, according to the Office for National Statistics (ONS). Then there’s inflation. This almost hit a 30-year high of 5.4% in December. But the great compounder of peoples’ travails is the energy crisis. In 2021, a typical home was paying around £1042 for gas and electricity per year, in April – when the price cap changes – that figure is likely to increase to £2000.
Crises require collaboration
People are hoping that governments, central banks, and energy companies will step in with measures to alleviate the spate of issues facing households. The chancellor's announcement to provide a repayable £200 discount on bills and a further £150 council tax rebate for most homes in England will serve as some comfort, but the majority will still face a shortfall. Is the right solution for people to quietly struggle? Of course not. As the situation worsens, we might anticipate a wave of radical creativity and activity from citizens. We know from experience that catastrophes are mobilising moments, they spark new thinking, collaboration, and help knit society together. Consider the pandemic – a single emergency inspired 436,000 people to join the NHS Volunteer Responders Programme. The service reckons these people carried out about 2-million covid-associated tasks. Then there was all the clapping and banging of saucepans in the street to celebrate the efforts of health workers - crises are traumatic, but they unite.
Take the power back
It’s easy to see how citizens might mobilise in response to covid – delivering essentials to quarantining neighbours, staffing a vaccine centre, or just being conscientious when it comes to handwashing and mask-wearing. But the issues at hand require more thought. What can people do in response to soaring energy prices and inflation? The answer might lie in the rise of a consumer-centric energy market. We are currently seeing the first phase of this with a year-on-year increase in solar panel installations. There is room for growth, as of 2020, 970,000 UK homes are using them, according to government figures – that’s only 3.3% of the country. Further along, it’s possible that citizens will tire of paying huge prices to huge companies and opt for creating energy themselves. This could see the birth of localised power co-operatives, where energy is produced peer-to-peer. New, low-cost and easy to use technologies will be key to making this revolution happen in the coming years.
In the short term, the UK is staring down the worst set of circumstances since the financial crash of 2008. But if government inaction and industry stagnation lead to an era when people are more conscious of their own collective power for social change, the twenties might roar at last.
About the author: Matt Hay is the founder and CEO of Bulbshare, a company on a mission to solve the world's biggest social and commercial problems through the power of community collaboration.
In August, IPC, a technology and service leader powering the global financial markets, announced its partnership with Overbond, a fixed income fintech platform for AI predictive analytics and visualisations. The aim of the partnership is to leverage the voice that IPC captures through its Natural Language Processing (NLP) solution, known as a Dictation as a Service, to facilitate Overbond’s AI pricing and liquidity algorithms. It is worth noting that bond trading tends to be far more illiquid compared to equities, meaning prices for the majority of bonds are difficult to determine due to the infrequency with which they are traded at.
What exactly is being leveraged?
Moreover, to gain a greater understanding of the strategic collaboration, it is important to examine what exactly is being leveraged. Firstly, IPC’s Dictation as a Service is a cloud-based tool. To power this, IPC utilises its award-winning Connexus Cloud infrastructure. The solution allows traders to “dictate” trade terminology as well as translate what is being said in real-time through IPC’s Blotter visualisation platform. The combination of these applications provides end-users with an extensive solution for transforming previously unstructured voice trade data into discoverable, transportable data – all of which takes place in real-time.
Adding to this, Overbond has made significant progress in tackling data aggregation problems impacting automated trading of fixed income securities. Overbond’s COBI-Pricing LIVE tool is a customisable AI pricing engine that helps traders when it comes to automating pricing and trading workflows for global investment-grade bonds, as well as producing prices and liquidity totals for over 100,000 fixed income devices. By integrating COBI-Pricing LIVE with a bilateral representational state transfer (REST) application programming interface (API), which works by handling requests for a resource and returning all the necessary information regarding the resource, translating it into an easily interpretable format for clients, the AI algorithm is able to absorb, collect and process data. This can be from both present and past vendor feeds, internal historical documentation, over-the-counter settlement layer volume records, and now, thanks to this partnership, voice transactions.
Significant milestone
This partnership represents a significant milestone in the evolution of market structure, with technological innovation happening across different levels as a combination of services capable of translating trader voice communications to a structured data feed successfully for bond trading. The aforementioned levels are: voice call tagging to security code – within the workflow of the traders – and AI for downstream processing of the data.
What issues will the partnership help to solve?
Bonds are still traded by voice, with almost 25 percent of fixed-income trades that are made in both Europe and the United States of America executed using voice. This represented a large amount of data that wasn’t previously considered, illustrating a substantial gap in AI-powered, automated fixed-income modelling and trading. The strategic collaboration between IPC, which operates one of the largest networks for fixed-income voice trading in the world, and Overbond will ensure that this valuable voice data no longer goes uncaptured. What’s more exciting, as this trade data can now be captured and anonymised, is Overbond’s algorithms are now capable of pricing fixed-income instruments with greater accuracy.
It is no secret that the bond markets have been one of the last holdouts in financial services’ digital transformation, however, the resistance has started to wane. Partnerships between organisations, like the one between IPC and Overbond, showcase the ability to bring innovative technologies together developing next-generation solutions for the fixed-income marketplace. The strategic collaboration with Overbond continues the digital transformation of fixed-income trading by fully harnessing the power of voice data. Both businesses support an open platform approach in terms of rethinking how financial institutions around the world trade, optimise productivity and engage in knowledge sharing.
In closing, the partnership between IPC and Overbond enables the integration of IPC’s point-of-trade voice transaction data with Overbond’s AI pricing and liquidity algorithms to bring precision to the automation of bond trades.
Whenever we reach a new patamar in information technology, its first commercial application is usually in the sphere of accounting. This was as true for the development of spreadsheets in the 1970s with Visicalc, as it was for ERP programs in the 1990s with the dawn of widely available internet, as it has been for a plethora of accounting software tools that have taken advantage of cloud computing over the past decade.
The principal reason why accountants have been so fast to innovate in technology is probably because there’s always a new pain point for their profession to address. In the beginning, that meant invoice processing and calculation. These days it can mean anything from sophisticated auditing software to collaboration tools.
The following are just some of the ways in which accounting software improves the lives of small business owners and their accounts on a daily basis.
1. Increases productivity
At its most basic, the goal of the first computer was to compute more productively. This is essentially a synonym for accounting more productively. Accountants were arguably the biggest early beneficiaries of advances in information technology. The academic James Kwak has said of Microsoft Excel, which at its heart is an accounting program: “Microsoft Excel is one of the greatest, most powerful, most important software applications of all time.”
Excel is just one facet of a much larger pool, however. There’s also Intuit’s QuickBooks, first released in 1998, and now used by over 5.6 million businesses in the United States. Most of those businesses are run by entrepreneurs with only a cursory knowledge of accounting. Modern accounting software of the likes of Excel and QuickBooks means that’s all they need. Multiply 5.6 million by man-hours saved, and you start to get a feel for the scale for the productivity generated by these tools.
2. Saves Costs
Closely aligned to accounting software’s ability to increase productivity, is its capacity to save costs. Most digital accounting tools aimed at the mass market are now marketed through subscription models, whereby small businesses can expect to pay a few hundred dollars per annum for a service that once cost them tens of thousands of dollars per year. The payroll function offered by Sage is a case in point.
Most businesses lease at least some of their equipment and machinery, which involves complex lease contacts, replete with terms and conditions. Trullion is a lease accounting automation software that uses AI to extract the relevant data from these contracts, exporting it to the company’s ledgers, workflows, and report functions. The time savings for financial teams and external auditors - who can click on the data in these reports and be brought directly back to the original contract - is huge.
3. Enables Collaboration
As mentioned at the outset of this article, accounting software was one of the first software applications to enjoy the benefits of cloud computing. Companies, finance teams, and auditors can now all be connected to the same documents in real-time. Thanks to the cloud, every transaction and the corresponding journal entry can be viewed by the relevant stakeholders, thus leading to a level of transparency and collaboration that simply didn’t exist before. Tools offered by FreshBooks and Financial Force are just two such examples.
4. Reduces Errors
There is not an accountant alive today that is not familiar with error messages like #REF!, #NUM!, and #VALUE! in their spreadsheet calculations. Without software, most of these errors would continue to exist - at least in the short-term, while the accountants grappled to understand why their balance sheet wasn’t balancing, or why changes made in the debt schedule weren’t being reflected in the financial statements.
Finding and reducing accounting errors is the bread and butter of accounting software. And while this is largely taken for granted, it generates huge value. If we equate small errors with essentially being poor quality data, we can put a figure on this. Research conducted by Gartner suggests that the average financial impact of poor quality data on an organisation is $9.7 million per year. The aforementioned examples of Trullion and QuickBooks are prime examples of where human error is minimised thanks to the functionality of the tool.
5. Generates Insight
Taking all these points together, we’re led to accounting software’s greatest contribution to any business: the insight it provides. It is uncontroversial to suggest that, thanks to accounting software, millions of business owners now have a better handle on their company’s finances than ever before. Financial statements are easier to interpret. Budgets are easier to construct and analyse after the fact. And accurate Pro-forma statements are easier to project. This is the difference that accounting software can make to your business.
Automation technologies, in particular, are overhauling the way people work by taking over more routine administrative tasks and therefore reducing the amount of back office work needing to be done by individuals.
This is leading to an evolution of the role of the modern-day finance professional – primarily that of the CFO – and here Marieke Saeij, CEO at Onguard, presents finance Monthly with some of the key changes we should expect to see.
The need to develop new skills
As automation technology becomes more prominent in the financial sector, CFOs will be able to dedicate more time to bigger picture issues, such as where they can create business efficiencies, and focus on how else to add value to their organisation. As a result, they will be required to develop new skills, such as analytics, communications and programming. This will ensure they have the knowledge and ability to interpret and analyse data collated within their credit management system, for example, and turn these insights into actions. CFOs should also look to create new KPIs to ensure they are continuing to get the most of their operations and focus more on managing financial processes, rather than carrying them out.
As CFOs spend less time on the monotonous day-to-day tasks, they will also be able to look more closely at customisation and ensure they understand and deliver each customer’s preferred communication channels and payment methods for their invoices. This will allow the business to interact with customers in the way they prefer to increase the chances of invoices being paid on time and to strengthen existing relationships.
Developing new strategies
The use of big data in predictive analytics is providing CFOs with key insights on a wide range of issues, which can be used to drive better commercial decisions and inform decision-making processes. This will enable them to add strategic value by being proactive, rather than reactive, as they can use information from the past to predict the future. For instance, predictive analysis may show that a certain customer has paid his invoices on average within 28 days for the past seven years. This means it is highly likely he will also do the same when he receives the next invoice. CFOs can then use this information to decide how they interact with this customer, chasing for payment only after that time period has elapsed.
The introduction of real-time finance cycles could also change the way CFOs operate as they will no longer be using outdated figures and basing important decisions on potentially inaccurate information. With real-time finance cycles, CFOs will be able to work with the most up-to-date information and be reassured that they are making business decisions with the latest available data. This will allow them to see where possible adjustments need to be made and take action immediately.
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Cross-department collaboration
Often, the siloed nature of large companies inhibits the efficiency of a CFO as it means they have a lack of visibility and are not always privy to important information. With more time available to them, CFOs could collaborate with other departments within the company to ensure the organisation gets the most from all of its financial operations. This will help every department to have a better understanding of what other departments are working on, how this may impact them and the financial processes involved. This will stimulate greater openness and understanding between teams and could improve the business’ credit management processes.
The modern-day CFO will be substantially different from the traditional view of the role. However, this is a fundamentally positive thing. Thanks to increased use of more advanced technology, CFOs will be able to move away from the more mundane day-to-day financial tasks needed to keep a business ticking over and take on a more strategic, diverse and value-adding role.
“Banks have responded to this new paradigm, digitising their processes by leveraging and making decisions based on data and analytics, and shifting their focus on consumer experiences that go beyond mobile and online”, says Rosanna Woods, UK Managing Director at Drooms. “They have realised that to remain competitive and maintain market share they need to be more strategic and technologically adept, recognising the need to invest in automation, core modernisation and digitisation.” Below, Rosanna tells us why a collaborative approach is the way forward.
The changing landscape of investment banking
2019 is proving to be a momentous year for the global investment banking industry as it returns to normalcy in terms of profitability and capital adequacy. Global M&A activities, mainly by large US banks, are creating opportunities to expand overseas and acquire FinTech startups.
Today, most investment banks are enthusiastic about digital transformation initiatives to reduce costs and improve customer experience. Although investments banks adhere to their conservative business model, digitisation has shifted power to investors, who favour partnering with banks that are digitally more advanced.
Opportunities amid regulatory challenges
In Europe, the introduction of wide-ranging regulations has also impacted the working environment for banks. For example, the Second Payment Services Directive (PSD2) has encouraged innovation and competition between incumbents and FinTechs, while implementation of the revised General Data Protection Regulation (GDPR) framework has given EU citizens comprehensive data protection, forcing banks to ensure the privacy of customers’ data.
While addressing the myriad requirements of these new and contradicting regulations makes data management more daunting for banks, the major challenge for most of them is that data is being managed in siloed and disparate systems, making it all the more difficult to understand clients’ needs and demands.
Today, most investment banks are enthusiastic about digital transformation initiatives to reduce costs and improve customer experience.
However, the good news is that more banks are recognising the capabilities of cognitive technologies in gathering intelligent insights on customers, compliance and operations making collaboration with FinTechs more attractive. Also, robotic process automation (RPA) is rapidly gaining popularity as it brings productivity benefits to the table.
Helpful technology
The advent of Artificial Intelligence (AI) has been particularly helpful for banks in processes including client servicing, trading, post-trade operations such as reconciliations, transactions reporting, tax operations and enterprise risk management.
While much of the media attention towards AI has focused on its potential capacity to replace humans, at present it is seeing much more practical use in terms of complementing human intelligence. ‘Augmented’ intelligence involves machines assisting humans in their decision-making processes.
A sub-field of AI – Natural Language Processing (NLP) is a good example of augmented intelligence in practice. NLP systems are designed to read and interpret human languages. A key application of this in relation to banking is the analysis of substantial amounts of ‘unstructured data’, which is data that as yet cannot be ‘read’ by machines, such as PDF files, images and audio materials.
Banking is a data-intensive sector and many key tasks demand correct interpretation of partly structured data. Therefore, NLP has the potential to make processes much more efficient with less effort required from humans. As such, FinTechs have been quick to apply this technology because of its value in improving customer interactions, making collaboration with them attractive for most banks.
The advent of Artificial Intelligence (AI) has been particularly helpful for banks in processes including client servicing, trading, post-trade operations such as reconciliations, transactions reporting, tax operations and enterprise risk management.
Role in M&A
Technologies such as virtual data rooms (VDRs) come into their own for banks when used in M&A deals, helping to address many of the challenges such pursuits face even at the best of times. There are several key causes of failure, including politics around the deal, culture clashes among the personnel involved and, in particular, parties being unprepared for the due diligence phase. In this latter regard, M&A deals rarely fail because of a lack of knowledge. Rather, it is about how that knowledge is handled. Over half of deals fail because those parties involved are reluctant to confront issues head-on.
Buyers often proceed with deals despite the challenges because they feel obligated by the amounts of time and money involved. They should, however, be prepared to cut their losses if the risks outweigh the benefits. For example, allocating inadequate resources during the review stage cost Bank of America $50 billion in legal fees post its acquisition of Countrywide Financial in 2008, let alone the reputational damage it suffered for inheriting the past mistakes of the mortgage lender.
A VDR enhances the M&A process by increasing the power to collect, process and distribute information to the right parties with much greater security and accuracy. It digitises relevant documents, automates tasks and streamlines workflows.
Authorised users, including those inside a company and their external stakeholders, are connected digitally and in a secure environment with real-time access to all relevant documentation, depending on users’ individual permission levels.
A VDR enhances the M&A process by increasing the power to collect, process and distribute information to the right parties with much greater security and accuracy. It digitises relevant documents, automates tasks and streamlines workflows.
Creating a database in which documents can be updated consistently gives asset owners full control and the ability to react to the latest market conditions, bringing assets to market quickly when the conditions are right, sometimes at short notice.
One of the strengths of the Drooms NXG VDR is its Findings Manager function. This improves the vendor due diligence both prior and during the sales process. It allows for the automatic pre-selection of documents and helps in the assessment of potential risks and opportunities within a transaction. This yields greater control, instils confidence in potential buyers and cuts disruption to existing business.
Blockchain first
Macro forces such as blockchain are also slowly revolutionising many areas of banking. For example, blockchain made it possible to automate approvals of contracts as well as protect the transfer of confidential data from hackers and fraudster whenever transactions are made. In 2018, Drooms became the first provider to move its VDR offering into the blockchain age, using this modern technology to enhance the security of transaction data archives. Up to that point, all data had been stored on physical data carriers following completion of a transaction. But now it can be stored on Drooms’ own servers with blockchain protection. As a result, the secured data cannot be lost, is non-manipulable and is accessible to all parties involved in a transaction at any time.
A new threat
As more financial institutions start to adopt technologies created by FinTechs, a likely threat is emerging. Tech giants such as the likes of Amazon, Alibaba, Apple and Google are attracting customers in the payments domain by offering alternative ways of managing finances. In the US, Amazon is already offering its customers the option to turn spare change into gift cards, and parents can also give children their allowances via a reloadable debit card for example. In India, customers pay delivery fees through a Cashload feature and store excess cash from previous purchases in their account, as well as deposit money for future orders.
With platform companies’ potential to exploit customer data and come up with innovative solutions to address customer pain points, there is a lingering risk of disintermediation for banks. Customers who feel that tech companies alone meet their banking needs may decide to switch to non-banking channels. And there is also the possibility that tech giants may provide banking services in the future, making services provided by banks non-exclusive. Although big techs pre-dominantly target the origination and payments domain of banking, a stronger foothold by platform companies could threaten the survival of many banks in the industry.
Towards modernisation
The various areas of the banking industry will undoubtedly continue to evolve at varying speeds. And as time progresses more banks will likely partner with innovative FinTechs to remain competitive and market relevant. Potential for creative and ground-breaking collaborations and advanced modernisation will also likely increase.
That said, as technology transforms the future of banking, so ought banks’ mindset towards cognitive technologies and collaboration with FinTechs. After all, technology is not a panacea and it is accompanied by many challenges as well as opportunities.
Customers’ everyday interactions with banking and insurance companies have been undergoing a steady process of transformation for some time, but the process still has far to go, both in terms of direct communication with customers and collaboration with third parties. Below Tony Rich, Head of Propositions at Unify, discusses the current banking environment and its ongoing interactions with a fast-evolving digital world.
Far fewer people now regularly visit or phone the local branch of their bank than even a decade ago, assuming there is one close by. I can pay money into my account at an ATM and arrange transactions just using my mobile app and a thumb print as security.
But bigger change is still to come. Today, when I interact with someone at my bank or insurer, I can choose to make a phone call or have a web chat, but as soon as I need a document or to speak to someone else, that conversation stops. Interactions can still be fragmented and time consuming. If I need to sign or check something, even if the document is held for me on a secure portal as some insurance companies now do, the process is very disjointed.
Let’s roll the clock forward a little to a time when cloud-based collaboration technology will make things much more seamless. Imagine I want to apply for a mortgage, or file a complaint, or make an insurance claim. My initial contact will start in the same way as now (say, a phone call) because it’s the one I am most comfortable with. But from there, things look very different.
I am immediately sent a link to a secure digital space where all interactions, conversations, documents and transactions about this particular process (my mortgage, complaint or claim) are stored and instantly accessible. Now, at any point, I can switch to a voice call, or a chat box, or a video call with two or more people. All this is done within the same secure online space, accessible through my mobile, tablet or PC. Here, at any time, I can hear a recording of the original call, see any documents I need to review and sign, talk to other relevant contacts, and so on. And when my case is complete, it can be archived to meet all auditing and compliance requirements.
This is a leaner procedure, with less to-ing and fro-ing, and document distribution and version control is easier. For customers and staff alike, it’s a more joined up, better and faster experience. For the company, a streamlined, friction-free process increases efficiency and drives down costs.
Multiple benefits
Given the challenges that all banks and insurers face – getting costs under control, protecting their brand, retaining and attracting customers and staff, achieving leaner agile operations while meeting regulatory requirements and compliance – it’s easy to see how this kind of immersive omni-channel experience could help address every single one. So, what’s needed for online communication and collaboration to be the norm?
The airline industry has already blazed a trail in creating more joined up omni-channel customer experiences. When I fly, part of my journey now is my ability to print or download my own travel documents, choose my seat, check myself in online or at a kiosk, and so on. I feel more empowered and in control – and the airline has enhanced its brand and achieved major efficiencies at the same time.
Key differentiator
In financial services, perhaps, things are in a state of transition. Internally, delivering more immersive customer experiences requires organisational and cultural change to think, connect and collaborate digitally by default. As far as customers are concerned, success depends on making sure the experience is easy and available to them in whatever channel is right for them. Older people, for example, might prefer phone calls and printable web pages. Digital natives, on the other hand, are savvy at reading and absorbing information direct from the screen and are more likely to initiate any communication digitally, including via social media.
Omni-channel communication and collaboration platforms are already in use at banks and insurance companies and new applications of this technology is being tested and developed every day. Extending platforms out into the customer space is a logical next step as the world becomes ever more connected. And in a fast-changing market and with the arrival of Open Banking driving new services, unified omni-channel experiences could be a key differentiator for any player looking to compete.
Budgeting is a highly necessary and mandated task for any business, with an extremely structured process in most cases. But as budgeting expands to include a broader scope within companies, how can we work towards a collaborative budget? Chris Howard, Vice President of Customer Experience, Centage, explains for Finance Monthly.
I’ve yet to speak to anyone involved in the budget modeling process who didn’t wish for an Excel feature that somehow made budget collaboration easier. And I speak to a lot of people.
The folks responsible for creating the ‘master’ budget models, often CFOs, don’t have an easy time of it. They need to gather input from numerous people within their organizations (most of whom have no background in corporate finance) and then validate the data they receive. All too often, they rely on managers to put together entire budgets based on higher level numbers, guidelines and goals they provide.
Once that’s done, they need to piece together a myriad of spreadsheets and apply complex formulas and macros to arrive at projections. This last bit typically occurs late into the night.
But here’s the thing: Excel was never meant to be a collaborative tool. It simply wasn’t designed to farm out files and to collect and manage the input of multiple users. That means even the most advanced power user can’t deliver the level of collaboration finance teams need.
Beyond input consolidation, the CFO’s I speak to say they have an urgent need for automated rigor in their budget models to ensure accuracy. It’s not uncommon for a CFO (or another budget contributor) to find that an error – such as a broken link or formula – which causes a costly displacement in the budget. The result is a lot of discomfort.
Given needs and constraints of budget modeling, what does a truly collaborative budget look like? How does it work? Based on what I’ve heard from CFOs in the mid-market, here’s what I think are the requirements of a collaborative budget model:
Bottom-Up vs. Top-Down Management
Although it’s the finance team’s responsibility to manage a budget, the budget itself belongs to every department within the organization. It’s the CMO who determines how to spend the marketing budget, and the CTO how to best manage IT investments. This means that budgets must be managed from the bottom up, rather than top down, and that buy-in is essential. But when a CFO is forced to control the budget model via a master spreadsheet, those models are, by definition, managed from the top down. This results in a disconnect between the model and the day-to-day activities of an organization. Monitoring performance vs. plan becomes impossible.
Role-Based Security
Budgets are filled with highly sensitive information, personnel data, salaries and the like. A collaborative budget should prevent the wrong users from accessing data that’s not directly related to their roles in the organization. For this reason, a collaborative budget model should have role-based security with an interface that’s customized to the user’s function. What the VP of Marketing sees should be very different from what the CFO sees. Needless to say, this is far outside the realm of Excel’s capabilities.
Financial Integrity Safeguards
In a true bottom-up collaborative budget, most of the contributors will have no background in corporate finance, and little understanding of the differences between a balance sheet, cash flow or P&L statement. How do you ensure that input from these contributors is correctly tied to the right outputs, and is fully compliant with US GAAP accounting rules?
Collaborative budgets need some kind of built-in rigor that protects the financial integrity of the outputs, allowing non-finance team members to enter data without breaking things. In other words, data entered by facilities management is automatically tied to the correct outputs without that user even realizing it.
Self-Serve Reporting
Finally, a collaborative budget must promote self-sufficiency, especially when it comes to reporting. Every CFO I speak to tells me his or her goal is to create reports once – with financial rigor firmly in place to ensure integrity – and then hand over the reins to the CEO or Board. This is the only way a CEO is free to monitor performance vs. plan, cash flow or P&L on a monthly or even a weekly basis on their own, and without the CFO’s constant involvement.
In order to turn over the reins, the entire budget needs access to the data in real-time, otherwise the CFO will be forced to update the reports manually (hardly the level of self-sufficiency they’re looking for).
Why a Truly Collaborative Budget is Worth Working Towards
A truly collaborative budget model will, by definition, require finance departments to jettison their budgeting spreadsheets – a painful exercise given that most of them have been working with Excel since their pre-college days. But the payoff will be huge.
A budget model that combines historical information with real-time data is the only way to spot trends, threats and business opportunities. And it will be “board ready,” meaning it will allow teams to respond with accuracy to the Board of Directors when they ask about ramifications of any number of business changes on the P&L, balance sheet and cash flow statement.
Put another way, it’s time to say goodbye to that monster spreadsheet your team just finished creating. Instead, implement a budget that lets you combine data from multiple sources to present a single version of the truth. You’ll get a living, evolving document that significantly improves the quality of information you deliver throughout the year.
