With a world that increasingly relies on the individuality of society, transformation towards bespoke platforms and mechanisms is inevitable. Here David Orme, Senior Vice President of IDEX Biometrics, discusses the growing benefits of biometrics in the world of money, a world which for consumers is deemed one of the most private and personal to each of us.
Sadly, our relationship with money and purchases is not as personal as it used to be. Gone are the days when people would visit their local banks, queue up at the kiosk and request to withdraw cash from their account via the bank clerk.
Modern technology has positively shaped personal finance in many ways by providing convenience and security through areas such as online banking and payment cards. As a result however, our personal relationships with our money is quickly deteriorating.
After all, we live in a world of personalised experiences. Amazon offers us individual recommendations, Spotify suggests great new songs based on our listening, and Netflix knows what we’ll love to watch. We now expect everything to be unique and tailored to us and our personal preferences. It puts us in control and validates that we are each individuals with our own specific likes and needs; that in a world of 7.6 billion people, we have a voice.
This taps into an innate love of the personal... Something that reflects who we are: from a monogrammed shirt, a personalised number plate, a tailored itinerary for your holiday to simply how you like your coffee.
Yet there are some things in life that have resisted being personalised: credit and debit cards are one such example. They’re all the same. All dull and functional. Generally, the only way to personalise cards currently is to use a PIN with significance such as a birthday, as insecure as that may be.
But as the protagonist from the 60s TV show, The Prisoner, famously shouted “I’m not a number!” None of us are numbers. We are all unique. And what is more unique than our fingerprints?
Biometric intervention
Our society has become increasingly security conscious, in a landscape characterised by the rising skill levels of cyber criminals. With biometric technology already implemented as a security measure in airports, and even on the latest smartphone devices, the idea of fingerprint recognition should not be a foreign concept. Instead, due to it already being a consumer habit, biometric payment cards will be easily adoptable, thus paving the way for a smooth transition.
Traditional methods of authentication such as the Personal Identification Number (PIN) are becoming more and more outdated. Failing to combat fraud, the PIN has seen millions lost to scams ranging from shoulder surfing to lost and stolen, even to opportunist criminals discovering PIN codes written down.
By introducing a biometric payment card, consumers will be far more protected from fraud, which will eventually bring an end to the PIN. By storing a fingerprint sensor directly onto the payment card, as opposed to a central database, there is nobody else in the world that will be able to connect with the card to issue a transaction other than the owners themselves. Thus, creating a far more accurate method of authentication and the ultimate personal relationship between consumers and their cards. With everything else now seemingly moving towards a digital platform, this is the last piece of physical interaction in payments and therefore a much-needed opportunity to build a personal connection and better security to combat fraud head-on.
Specifically, the reference fingerprint can easily be uploaded to the card by the user, at home, and once that is done they can use the card via existing secure payment infrastructures — including both chip and ID and contactless card readers — in the usual way.
Once it is registered and in use, the resolution of the sensor and the quality of image handling is so great that it can recognise prints from wet or dry fingers and knows the difference between the fingerprint and image ‘noise’ (smears, smudging etc.), that is often found alongside fingerprints. The result is a very flexible, durable sensor that provides fast and accurate authentication.
Fingerprint recognition will provide a clearer means to distinguish an individual from everyone else on the planet. This technology will not only assist the financial sector, instead, its benefits will transcend into a range of areas, from bolstering national identification which will help address healthcare and social fraud, assisting financial inclusion and maintaining access to controlled spaces such as government buildings.
How soon is now?
Fortunately, the long-held ambition to add biometrics to cashless transactions has now been achieved. The production and trials of an extremely thin, flexible and durable fingerprint sensor, suitable for use with payment cards, is underway in countries such as Bulgaria, the US, Mexico, Cyprus, Japan, the Middle East and South Africa.
However, we anticipate that each banking customer may deploy as many as 100,000 biometric cards to their account holders by the end of 2018 and that biometric bank card adoption will go into many millions from 2019. Paving the way for payments to become personal once again.
Personal relationships are a key part of life, they offer us a sense of importance and happiness. The time is now for this to extend to our payment cards. Biometric payment cards will create a unique connection, with transactions exclusive to the owner, shunning anyone else on the planet trying to access the sensor. Not only is this integral to creating a personal relationship between the card user and their bank, but the security benefits are therefore more profound as the challenge of forging fingerprints is a far more complex one for criminals
Though biometric technology is already in-place across our society, its potential within payments has yet to be truly discovered. Before this can be achieved, banks need to gain consumer trust and promote the value of biometric technology before its benefits can be realised by us all.
Financial sector leaders feel more positive than peers in other industries (89%) about tech change within their organisations, according to Fujitsu’s Tech in a Transforming Britain report. Despite half (50%) saying banks will not exist in their current form in a decade, an overwhelming 95% believe technology is the key to driving their organisation forward.
Seven-in-10 financial sector leaders believe technology will enable them to overcome many of the socioeconomic issues they are facing today. This is an idea that their peers agree with; over a third (37%) of business leaders are banking on financial services to innovate and drive change in the UK, while almost half of business leaders (45%) believe banks are changing the most in the UK today.
It’s a change both consumers and leaders in the industry are keen to see continue. Consumers want to see Artificial Intelligence (13%), biometrics (15%) and a 5G mobile network (10%) implemented to improve their experience in banking over the coming year. With banking leaders looking to Artificial Intelligence (42%), biometrics (35%) and robotics (32%) in the same period it is clear that there is alignment.
“Financial services is clearly seen by the public as a sector that has and continues to be transformed by technology,” said Mike Foster, Managing Director, Financial Services Sector, Fujitsu. “This perception is fully justified. The majority of financial services organisations have not only embraced technology, but are seeing benefits with workforce productivity, operational efficiency and in driving business growth. As further transformation of the sector looks inevitable – for example through the introduction of new pieces of regulation such as PSD2 and rise of blockchain technology – it is vital that organisations consider how new technologies can shape their futures and ensure they are ready to compete in a diverse marketplace.”
Improving employee productivity (47%), operational efficiency (38%) and fuelling business growth (37%) were the key internal benefits financial leaders attribute to technology today.
There are challenges ahead, however. While the financial services sector is aware of the benefits of technology, they have concerns. More than half of the sector’s leaders (55%) say cybersecurity is their biggest operational challenge today – higher than the average across industries (48%). Access to talent in a new digital world is also an issue; 56% say a lack of skilled employees has the potential to impact growth and revenue most within their business.
Foster continued: “Banks have led the digital charge for many years, a fact that is recognised both amongst their peers and UK consumers. Many assume this means there is nothing left for them to implement, yet, with almost half saying their competitors are doing more to drive the UK forward, this is clearly not the case. While there are a wealth of digital tools and services available for consumers, there is a need for banks to collaborate to begin to address their digital future. Whether that’s coming together to address cybersecurity risks, or working together to address the skills gap, the focus must now be on the internal demands to ensure success.”
(Source: Fujitsu)
For an Agile transformation to be truly successful all departments within an organisation need to be part of the journey. For finance teams this can be a particular challenge as historically change happens infrequently within finance practices.
Often finance departments are blamed for slowing innovation. In today’s marketplace the ability to pivot and quickly try new ideas has become critical to success. Below, Paul O’Shea, CEO of Kumoco, the management consultancy that specialises in Agile working and cloud consulting, looks at some of the simple steps finance can take to become an enabler of innovation
- Adopt a VC model for funding projects
Finance departments usually do not have a culture of reviewing value generated by projects as they proceed. Typically they engage at the start to approve budgets and at the end of projects to review ROI and manage depreciation. Working in an Agile way requires continual assessment of the value being delivered. This means that projects that are not delivering value can be identified and stopped earlier. Conversely those that are, can be promoted and additional investment assigned.
In practice this means finance departments should be encouraged to adopt a venture capital model. An initial budget should be allocated to kick-start a project, then value delivered is continually measured to trigger further releases of funding.
A finance department usually works to longer-term goals and does not have a culture of reviewing projects as they proceed to make sure what is undertaken is still valid and has not been overtaken by changes in the business or the market in which it operates. However, a more flexible approach is increasingly necessary as the pace of change in economies and markets has never been faster and companies need to be fleet of foot to survive. Finance departments should be encouraged to perhaps adopt a venture capital model, nurturing projects over defined periods of time. They could provide an initial budget to kick-start a project but then continually assess the project’s progress and validity before releasing further funds for subsequent stages to ensure that what is being funded is still relevant and is valuable for the business.
- Embed the finance team in projects
Typically finance departments sit apart from actual project teams.
This is in direct opposition to an Agile way of working, which involves continual assessment and development, to drive efficiencies and ensure projects are on track and are meeting evolving goals. To address this, businesses should consider embedding finance department members in the project team so they have a better understanding of the work being done and the strategy and goals. Finance team members could also benefit from Agile training where they receive an introduction to Agile and to understand its ethos and integrate more effectively with project teams.
- Use a range of metrics to measure value
Assessing value is not easy. A 2017 global survey by the Scrum Alliance showed that for 41% of participants[i], measuring value was their greatest challenge. To help finance departments correctly assess the value of Agile projects to a business there should be regular reassessment, the metrics should be standardised and value should be measured not solely by financial gains but through a range of key performance indicators (KPIs) to have a more holistic view of the benefits of the project on a business.
- Foster an Agile finance function
As well as the above measures, which apply across a business, fostering an Agile approach in finance departments is also a key part of helping to encourage an Agile and lean way of working in an organisation.
Adopting Agile will help finance functions to increase efficiency and speed through simpler data management by accelerating financial processes such as capital expenditures, resource allocations, reporting and analysis, leading to fewer controls and more real-time information. The result is more timely and actionable financial information that allows managers to be more Agile and responsive and avoid problems and recognise opportunities that will help to transform a business. This is supported by the 2017 CFO Indicator Report that found that 36% of CFOs would like their teams to spend less time on report preparation and data collection more time on forecasting and scenario analysis.
Simple techniques could be embraced, such as understanding how Kanban, a process designed to help teams work together more effectively, can help streamline processes and drive efficiencies. It may also be useful for the finance department to have a Kanban board, updated daily, so that everyone can see and understand how and why these tools work.
CFOs and their teams should also monitor and analyse non-financial KPIs, including customer satisfaction, customer relationships and brand reputation, which can be used to make more accurate forecasts, minimise risks and identify new opportunities.
- Training & preparation
Finally, finance departments should also make themselves transformation-ready and educate staff on the key role the finance function plays in helping to develop an Agile ethos in a business focused around developing a strong customer-centric culture, making a company more flexible and able to achieve goals that are rapidly evolving. The truly Agile finance function has the adaptability, skills and nimble effectiveness to help transform businesses of whatever size or sector - and take them to new heights.
Written by Christophe Diricks & Axel Butaije, KPMG Luxembourg
Running a cross-border business isn’t exactly like sailing down a peaceful river… perhaps it’s more like crossing an ocean full of dangers. However, on the other side may be a land of opportunity. New regulations, political trends, and business restrictions populate this ocean of challenges, but the wind of new technologies is picking up too, offering new paths across. And every good sailor knows that wind can be a fearless enemy but also a powerful ally, if you know how to harness it.
Disruptions to the business environment have been many, recently, like new reporting obligations (FATCA, CRS, and country-by-country reporting) or the new level of transparency that the Base Erosion and Profit Shifting (BEPS) action plans require. These changes may lead to a paradigm shift on how businesses deal with tax authorities.
In such a context, new technologies have (and will keep having) major impacts on how business is done—on one hand, negatively, by for example turning sensitive information into publicly available data, but, on the other hand, positively, by helping you meet the new requirements which ultimately keeps you competitive.
In this article, we will examine recent tax developments in private equity, real estate, and debt/hedge funds (so-called alternative investment funds) and discuss how new technology can be your best ally in navigating these changes.
Following several crises in the financial sector over the last decade, governments have put more pressure on companies (and to some extent individuals) by verifying their compliance with new international requirements, as well as by ensuring that they pay their fair share of taxes. Tax authorities have furthermore been performing tax audits based on information available via search engines (like Google), public online trade registers, and social networks (like LinkedIn, Facebook, or Twitter). This atmosphere of high-tax pressure has engendered new tax audit methodologies which look not only at a company’s tax returns/accounts but which also verify all the publically accessible information that tax authorities might be able to access.
Companies are thus asking themselves how they can comply with the new substance, oversight, and documentation norms in a cost-efficient manner. It could be hard to determine whether your fund platform in Luxembourg or Ireland has enough substance to benefit from tax treaties and directives under the new standards, but the BEPS Action 6 recommendations and information on non-CIVs offer guidance on this. Basically, they mention two pillars: infrastructure and human capital.
Infrastructure in terms of substance might sound obvious, but it could be worth revisiting. Broadly speaking, infrastructure comprises all the tangible fixed assets necessary to running your business like having a dedicated furnished office space, but also less tangible elements like your IT system or personalised email address or domain.
The substance definition of human capital is maybe a little less straightforward. Generally, by “human capital requirements,” it should be understood that you must have a task force appropriately qualified to run the business and to ensure that there is proper oversight over activities both performed and delegated. In addition, simply having the human capital is not enough anymore: the qualified workforce must be involved throughout the whole process of the (alternative) investment.
As industry members know, it is currently common for deal teams to be located in the country (or countries) of investment, and for investment funds and holding platforms to be in financial centres such as Luxembourg or Dublin for Europe, Singapore for Asia, or New York for the US.
However, deal teams are only a link in the long chain of the investment transaction, and fund management platforms (including special purposes vehicles) in Luxembourg or Dublin must have a more and more important role to play in those transactions:
- Prior to the investment, the deal team(s) must inform the fund management platform of the intention to invest.
- During the transaction, the fund management platform must have sufficient information to assess the profitability/viability of the investment, so it can raise a red flag when needed.
- Finally, at the investment’s “end-of-life” phase, i.e. when the investment is to be disposed of, the fund management platform should be in a position to determine which of the proposed exit options is the most appropriate so it can ensure that all the efforts made throughout the process have not been made in vain.
Having an experienced management team to review, approve, and monitor investments is also one of the key functions of the alternative investment fund manager (AIFM). Having an AIFM means that strategic decision-making abilities and management have to be performed in-house, with sufficient substance, people, and systems to effectively manage the overall operations.
We can therefore see a convergence between the AIFM Directive and the OECD’s BEPS Action 6 in the level of substance, responsibility, and activity required. This is probably why, following Brexit, the biggest alternative investment funds managers have decided to transform their Luxembourg or Dublin investment fund and holding platforms into AIFM-compliant platforms.
So management teams in Luxembourg or Dublin must play their roles seriously during the whole lifecycle of the investment—however, in instances of tax audit, this is not enough. The teams should also be able to demonstrate (through documentation) that all the appropriate functions are being effectively performed.
Management teams, in order to adequately and promptly document the oversight of the business, need efficient IT dashboard tools that allow them, in one click, to access the compliance status of their entities. They must furthermore be able to perform risk management and compliance duties (according to FATCA/CRS, MIFID, AIFMD, and any other local requirements) smoothly and efficiently. Tailor-made software solutions already exist in this area.
Looking ahead, artificial intelligence (AI), robotic process automation (RPA), blockchain and digital ledger technology (DLT) will shape how alternative investment managers operate and even how investments are structured. RPA, for example, will enhance productivity, reduce costs, streamline processes, and limit operational errors. It will affect many routine tasks with limited added-value such as invoice processing or investor reporting, taking them over from human workers, who in turn will focus on more interesting and dynamic functions such as review, approve, and monitor investments
The oversight is becoming an increasingly important activity within the alternative investment fund industry notably because of the regulatory requirements for the AIFM conducting officers and the tax international developments (BEPS) obliging directors to understand the business into which they invest.
AIFMs understand the importance of creating strategies around tax technology. They are pursuing investments in these areas in order to transform the tax function into a strategic business aspect of the organisation. Now is the time to assess where you are in terms of substance and technology, where you want to go, and how to get there.
By Daniel Mason, Managing Director UK, Prophix Software
Headquartered just outside Toronto in Canada, Prophix Software is a leading developer of innovative performance management solutions, designed to automate financial and operational processes. Thousands of finance leaders in nearly one hundred countries use Prophix to empower their organisations and gain valuable insight into business performance. Prophix and its partners deliver superior value by combining high-end functionality with low cost-of ownership and fast implementation. Daniel Mason has been with the Prophix organization for just over 7 years, having spent a total of 17 years working within the corporate performance management sector. He is currently responsible for Prophix’s UK operations, including sales, marketing and professional services.
Here Daniel explores the modern finance function, the skills finance leaders need to recruit and offers his views on how organisations can prepare for the future by investing in their finance teams.
You can’t handle the truth
The truth of business comes out in the numbers. Not just revenues and profits, but headcount and staff turnover, customer churn and marketing reach.
Finance has historically been the natural home for numbers in an organisation. But recent reports show that finance teams are struggling to keep up with the growing demands of modern business. A lack of data literacy, continuing reliance on manual tools, and poor collaborative skills, are seeing the finance function side-lined as business transforms in this data-driven age.
The challenge is more acute now, highlighted by the capabilities brought by global connectivity and new technology. But issues of skills development and technology investment in finance are not new.
I’ve been working in the finance world for the last 17 years and the same issues were apparent when I first moved over. Prophix was founded on the recognition of some of these issues 30 years ago. Yet still, many – perhaps most – finance teams have not changed their practices. Why?
Barriers to progress
In my experience there are three things that hold the finance function back.
The first is a lack of resources. Even though IT was born out of the finance function in many organisations, investment in IT for finance has long been hard to secure. Because it doesn’t have a visible ‘front line’ effect on sales, it’s often overlooked.
The second is the knowledge base. Too few finance professionals have been on a mission to grow their skill base and expand their knowledge beyond its current bounds. The reasons for this are sound: the realities of operating a modern finance function haven’t left much room for personal development. But breaking the cycle of all-hands-to-the-pumps manual processing requires that time to step back and analyse the current processes.
The third reason is a lack of soft skills across the function - particularly communication. This isn’t about lazy stereotypes of finance professionals. It’s about formalised training in building collaborative relationships and releasing staff to have the time to go and build them. While other functions have moved on in this regard, finance has all-too-often remained static.
Building maturity
It’s possible to begin to quantify the problem, or at least recognise just how widespread it is amongst finance teams. The global analyst firm Gartner created a ‘Maturity Model’ to map the transition from historical finance practices to new. That means moving from a messy world of manual data manipulation, isolated in its own silo, to being truly smart about data, and providing strategic insight across the business.
In this Maturity Model, Level One represents those unaware of corporate performance management (CPM) tools – the term for technologies that enable more automated and integrated data handling in finance and beyond into business operations. Level Five represents companies making best use of data – connecting across departments and driving business strategy.
What’s interesting about Gartner’s analysis is that in the most recent update of its research, no companies were found to have reached Level Five. That’s no companies, of any size.
At Prophix, we work primarily with mid-market companies. We, and they, often expect that the largest global organisations will be significantly more sophisticated. But it seems not. It seems all finance teams in every size of organisation might be facing the same barriers to progress.
The ideal modern finance function
These barriers aren’t just bad for the finance function. They’re bad for the business. Finance’s requirement to look backwards as well as forwards puts it in the strongest position to drive strategy within the organisation. By underinvesting in skills, development and infrastructure to advance the finance function, the business is missing out on better insight, evidence-based strategy and enhanced day-to-day decision making.
There are three core areas where investment can unlock a transition of huge value to the organisation.
The first is what might be called ‘Smart Compliance’. Finance teams invest untold time – and sweat – in the production of mandated reports of one form or another. Still today, most organisations produce these reports through manual manipulation of spreadsheets with very poor repeat-ability and little robustness. The skills of manipulation required for a particular task are often locked in the head of a single individual, and audit trails are incredibly hard to produce.
Technology can remove the burden and often manual process of compliance through “Smart Automation”, which not only frees up human resource, but dramatically increases transparency and reduces risk. With time freed, finance teams can start to address more forward-looking issues of strategy and operational readiness.
This operational readiness forms the basis of the second major step. In an accelerated world, getting good information at speed is critical to good decision-making. Given the resources, finance can be the home of “Operational Intelligence”, giving leaders and departments the insight they need to improve decision-making. Analysis can be made available in near-real time against external events.
Of course, sometimes organisations need to look well beyond today and it is improved “Foresight” that forms the third pillar of improved service from finance that can be unlocked with investment. Planning stops being an annual trudge through budgets and likely expenditure, and becomes a process of acquiring and qualifying strategically valuable foresight. This delivers increased accuracy of forecasting, multi-dimensional modeling, resource correctly allocated to sales expectations and much better reconciliation of cross-functional planning. Imagine being able to quickly realise multiple future scenarios and explore the impact of different factors and decisions on the organisation’s success.
Partnering across the business
The ideal finance team should be seen as finance partners, having the trust and understanding of all departmental managers. It’s not enough to simply have the skills and collect data, analyze and report it as required. Since almost everything a company does is ultimately routed through finance, finance leaders need to be able to cooperate, partner and work efficiently with the teams and departments that report to them.
This highlights the importance of investment well beyond technology and systems. Skills remains a big gap in the finance function, both technical and more general.
The technical skills gap is in systems thinking, and financial planning and analysis. With so much effort devoted to manual processing, teams have lacked the opportunity to go beyond the immediate challenge and start to look to the future. There has been little opportunity below the most senior levels to examine operations – both in finance and the wider business - and consider improvements. Freeing time through automation creates this opportunity and the skills gap rapidly becomes apparent: even when the tools are available, teams don’t have the skills to apply them to their maximum potential. For this reason, investment in CPM should be paired with investment in up-skilling to maximise the benefit.
The softer skills gap is in communication, though perhaps calling it a ‘soft’ skill underplays its importance. To deliver the most value to the business, finance teams need to get well beyond the borders of their function and learn to communicate effectively, gain mind-share within departments, and socialise ideas. Building trust across the business will allow finance to enhance every department’s capability with better insight and support for improved foresight and operational decision making.
The truly modern finance function features a mix of skilled individuals who understand new technology, and who are able to interpret data, come up with a solution, point it in the right direction, and then are able to take that information and communicate it effectively through the organisation. Finance leaders need to look at training the people they have, but also at recruiting individuals who bring this mix of skills. People who have the financial intelligence and commercial acumen to understand the data, and see what’s going on within an organisation, and who are confident interacting with their colleagues and communicating information and ideas.
Preparing better for the future
At Prophix, we see lots of finance leaders who are happy with a large team dedicated to manually processing data. They don’t want to grow their role. They don’t want to embrace change. Until a risk is realised, or competitive advantage is lost. By then it can be too late – for the finance function, which has lost its role as the arbiter of truth. Or in the worst cases, for the business.
Finance leaders with ambition need to get closer to the CEO and push the business case for change. They shouldn’t just be signing off big-ticket investments in all the other areas of the business going through rapid transformation, it should be part of that transformation. Performance management may be thought of as a low priority because it’s a ‘back office system’. But extensive research shows that companies that invest in performance management generally outperform their peers 2:1 within the marketplace. The business case for change is strong.
Investment is just the start though. As Gartner’s Maturity Model shows, building a truly modern finance function is a journey, and one that all organisations are still on. 70% of organisations are still only at Level One, not even aware of how much better things could be.
Delivering the business benefits of a modern finance function requires continuous evolution, review, and investment. It's not a one-off project and it certainly can’t be addressed purely with technology. Skills and talent are absolutely crucial, both developing existing talent and recruiting the right new people into the organisation. People who blend technical skills with systems thinking and the confidence to deliver that value across the organisation.
As with any journey, the starting point is to assess where your company is right now. At future-of-finance.com we have developed a comprehensive audit tool that will give you an immediate idea of your position and provide you with a 17-page report with practical guidance on what to do next. So get going today.
Read more at www.future-of-finance.com
