10 minute read 7 Sep 2020
Young woman sitting on top of the mountain

Why you may not recognize your finance function five years from now

Authors
Claus-Peter Wagner

EY EMEIA Financial Services Assurance Leader

Committed to strengthen the confidence and trust in the financial markets. Top priorities are the development of EY people for the future and to deliver high quality work.

John Morley

Partner, Insurance Consulting, Ernst & Young Advisory Pte Ltd

Insurance leader focused on finance transformation. Passionate about driving value and creating impactful work for clients. Believes in inclusion and fan of diverse cultures. Avid world traveler.

Woon Sun Chong

Partner, Financial Services Business Consulting, EY Advisory Services Limited

Passionate about elevating the Finance function to increase its value to the enterprise. Ambitious to make the Finance and accounting space exciting. Driver of transformation and innovation.

10 minute read 7 Sep 2020

The finance function of the future will have a refreshed purpose, enabled by people, technology and data – but not as you know them.

Looking ahead three to five years from now, banks’ finance functions will be working in new ways, using powerful tools and technology and applying broader skills to deliver strategic objectives.

Multiple factors – from the squeeze on margins to real-time regulatory demands and the growth of low cost, modular IT solutions – will stimulate the reorganization, reshaping and refocusing of banks’ finance functions.

How far and how fast such a change would happen is hard to predict, when influenced by factors such as internal willingness to embrace change and the strength of competitive threats from younger, tech-savvy, customer-focused rivals. But happen it must, if banks are to build and sustain thriving businesses.

The finance function in today’s typical bank is working on borrowed time. It’s no longer tenable to sustain huge central teams of qualified accountants wrestling with spreadsheets, making manual interventions, and using disparate and unwieldy technologies. It’s no longer justifiable to maintain highly valuable resources generating backward-looking reports to the extent this has been done in the past. And although some members of the finance team may continue to be designated “business partners,” trying to support business units through analysis and insight, the speed and focus of their support needs to meet expectations of time.

The weaknesses in today’s model are well known. Finance teams are hampered by legacy IT systems and poor and inconsistent data with highly qualified professionals spending time on routine data remediation and financial basics. At the same time, regulators are requiring more information and direct access, while business leaders see the scope for more tailored, rapid data analysis and decision-useful information.

EY Banking CFO survey 2019

67%

of respondents expect a high impact on the finance function from increasing regulator demand for more timely and comprehensive data.

Pressure for change is mounting in this low-inflation environment where return on equity is unsustainably low. The threat of a banking revolution led by high tech, data-centric new entrants has never been more real.

Something has to give – and we believe change is coming. We see the dawn of a new era for the finance function, one where team members are finally liberated from the manual workaround and delivering to their full potential. This new-look finance function will have a larger, yet clearer, scope than we see today. It will also be using modular technologies in new ways, have a new organizational structure and contain different skill sets.

Expanding the scope of finance

The scope of the finance function’s role is changing, but it’s not getting smaller and will gain further importance. Historic reporting activity will remain vital but take less time, its efficiency improved (finally) by end-to-end reporting systems, consistent data and automation. More capacity will become available for enabling more future-focused analysis and insight to support business units and decision-making that drives increased stakeholder value. Meanwhile, the need to satisfy regulatory information demands will continue and regulators may well be asking for more and possibly real-time data, but finance teams will respond using improved systems and technology. Reporting scope may also expand through increased environmental and social reporting over time.

Enablement through technology, data and process

Technology inevitably plays a big part in EY’s vision of the next wave finance function. Banks will apply a variety of technology levers to support their transformation to meet strategic priorities. We’re entering an era of fast solutions: just like on our mobile phones, quick-to-build apps that will be rapidly tested and proven to meet a need or dropped with no adverse consequences.

Finance functions will still need general ledgers and will work closely with enterprise resource planning (ERP) providers to ensure they have fit-for-purpose solutions. These solutions will be cloud-based, increasingly hosted on the public cloud, to improve organizational resilience and remote access not only to the solutions themselves, but also to organization-wide structured and unstructured data. The recent EY Banking CFO Survey found that 80% of large banks have already implemented cloud and SAAS programs, as have 23% of challenger banks.

EY Banking CFO survey 2019

80%

of large banks have already implemented cloud and SAAS programs.

EY’s future vision depends on the widespread availability of clean data – readily accessible for multiple purposes: regulatory compliance, financial reporting and internal analysis and decision-making. Machine learning and other IT innovations will help to maintain the availability of clean data across the organization.

Big data and advanced analytics will be the most critical technology enablers for the finance function. The majority (60%) of large banks are already implementing big data. In the future, advanced data analytics will enable finance teams to provide greater insight into business performance through both predictive and prescriptive analytics.

EY Banking CFO survey 2019

5%

of banks surveyed (regardless of size) have a mature business as usual (BAU) analytics capability, despite analytics and big data being ranked as the most critical technology to enable the future finance function.

High quality, consistent processes are also essential for EY’s anticipated future finance function. Routine, high-transaction processes will continue to be automated. Machine learning techniques will also be able to apply core accounting rules, reducing manual interventions and improving efficiency. Finance function efficiency will also be improved through the use of chatbots, as well as optical character recognition (OCR) and voice recognition technology.

Blockchain will facilitate the tokenization of key business assets such as contracts, enabling finance teams to complete transactions efficiently and securely across the business lifecycle. Through blockchain-based platforms, finance functions will interact in new ways with business partners, suppliers and other key parties.

Future finance organization: when less is more

Organizationally, the finance function will look very different. We anticipate a 30%-50% reduction in finance headcount, offering the opportunity to redeploy and reskill these people, and a 20%-40% cost reduction enabled by the automation of low-value activity. The central finance function will be far smaller than today, focused on activities that still require technical accounting expertise and value-adding judgement. Team members will also be responsible for the quality and availability of the data gathered from across the organization, which can then be accessed for multiple purposes – from regulatory reporting through to internal decision-making. They will integrate more closely with risk functions to improve both risk management and financial performance.

This core finance function will itself continue to meet financial and regulatory reporting requirements with minimal fuss. Alternatively, some banks may decide that process-driven, regulatory and other reporting activities can best be handled by specialist and accredited providers – potentially outsourced or offshored, or grouped in utility functions or centers of excellence formed with other banking organizations. By sharing the delivery of process-driven activities where no competitive advantage is to be gained, all participants could increase output quality and efficiency.

Based out in the business, front line finance professionals will take the lead in providing insights to improve performance and decision-making. Though nominally tagged as finance personnel, these “finance insight teams” will focus on business challenges – for example, assessing the cost of capital of newly written products or other potential new business – delivering near real-time insights.

Maximizing the resource mix: skills, policies and performance management

In this remodeled finance function, the skills and expertise required of team members will change. Within the central core, qualified accountants will still be needed to implement and understand the implications of evolving accounting standards and other regulatory and legal requirements.

But sitting alongside them will be a new breed of data scientist or business analyst: individuals who understand how to use data, the IT systems that generate it and the questions that business units want help answering. This is a complex blend of skills, gained partly through education and training, but almost certainly also through frontline experience across the business. Such teams may also require advanced IT skills – internal software developers to create an internal app store of easy-to-use solutions available to finance teams and business units, accessible whenever needed.

Banks already recognize their growing need for data and IT specialists. In the EY Banking CFO Survey, 78% of respondents agreed they would increasingly need to recruit finance executives with technology and data related skills in future. Need for such skills will also change the traditional career path to CFO based on accountancy training and a financial controller role. In the survey, 40% of finance executives thought this career path was already eroding and would eventually disappear.

EY Banking CFO survey 2019

40%

of finance executives thought the traditional career path to CFO was already eroding and would eventually disappear.

The role of the CFO will itself evolve, expanding into that of the Chief Value Officer responsible for driving the broader change needed across the business to increase stakeholder value. To succeed in this wider role, future CFOs will require broader business understanding and the ability to derive business-relevant insights from both financial and non-financial data.

Policy frameworks will evolve in line with changing data skills and needs. For example, data required for front office purposes need not satisfy the same accuracy and completeness standards as data needed to satisfy financial auditors. Performance management systems will also develop to embrace the broader non-financial data scope of the CFO and supporting finance function.

Barriers to the vision

CFOs will need to overcome organizational inertia and cultural resistance to change in order to bring their visionary new finance functions to life. They will need the backing of their CEO and the board – particularly to approve the budget required for investing in people capabilities, processes and technology. Developing a compelling business case will be essential but won’t necessarily be easy for CFOs who have long been focused on cost, particularly within their own functions.

Far-sighted CFOs will also need to allay regulatory concerns over developments such as widespread (public) cloud adoption. The more challenging barrier, however, may come in human form. The specialist data, systems and business expertise required for many future finance-related roles will be in short supply. Buying in talent may not be an option, requiring CFOs to develop new training and development opportunities delivering the necessary resources over a longer timeframe. Finance functions could also reach out across the broader banking organization to form transformation alliances, enabling them to gain maximum impact from the innovation skills dispersed across it.

Although the barriers to change may be substantial, CFOs may have no choice in whether they embrace the future finance function. They may be forced to keep up with competitors – whether faster-moving traditional banks, newer entrants or technology companies with an eye on the financial services market. Business as usual may no longer be an option.

Such threats may stimulate change, but so should the upsides to be gained. We think EY’s vision of the future finance function in banking is an exciting one. Forward-looking CFOs have long aspired to achieve a higher profile, more strategically focused role within their organizations. This day can come – if CFOs have the determination to make it happen.

Additional EY contributors include Ladislas Tyl, Partner, EY & Associés; Jonathan Chesebrough, Partner, Ernst & Young LLP; Shaun Carazzo, Partner, Ernst & Young LLP; Steven Lewis, Partner, Ernst & Young LLP; George Ioannou, Director, Ernst & Young LLP; Sally Connor, FSO Assurance Senior Analyst, Ernst and Young LLP and Danny Buckley, Partner, Ernst & Young LLP.

Summary

In the future finance function, CFOs will lead their teams in fulfilling a broader remit based around delivering sustainable high performance. Five years from now reorganized, reshaped and refocused, finance functions will have far more impact on their banks’ success – powered by specialist skills, agile technology and clean, accessible data.

About this article

Authors
Claus-Peter Wagner

EY EMEIA Financial Services Assurance Leader

Committed to strengthen the confidence and trust in the financial markets. Top priorities are the development of EY people for the future and to deliver high quality work.

John Morley

Partner, Insurance Consulting, Ernst & Young Advisory Pte Ltd

Insurance leader focused on finance transformation. Passionate about driving value and creating impactful work for clients. Believes in inclusion and fan of diverse cultures. Avid world traveler.

Woon Sun Chong

Partner, Financial Services Business Consulting, EY Advisory Services Limited

Passionate about elevating the Finance function to increase its value to the enterprise. Ambitious to make the Finance and accounting space exciting. Driver of transformation and innovation.