In an era of rapid change, bank chief financial officers (CFOs) are at the forefront of evolving finance operations to drive strategic growth amidst volatile markets, squeezed profit margins and shifting consumer behaviors. In part, this modernization of the finance department, especially in the banking and financial services sector, was accelerated due to the global pandemic of 2020.
This transformation involves overcoming barriers such as aging business applications, outdated business models, expanded regulations and the inability to adopt advanced technologies. By utilizing cloud-based data analytics and reporting platforms, however, banks can centralize financial accounting, manage profitability through multidimensional analytics, connect financial planning and forecasting across business lines, and finance modernization.
Key Factors Driving Finance Modernization
One of the most pressing factors driving modernization, or digital transformation, in banking is the increasing regulatory pressure. Financial institutions face more scrutiny than ever, making it essential to report accurately and promptly. Regulations are more stringent, compelling banks to improve their reporting and control systems. This necessity ties directly into the modernization of outdated applications and technology. Many banks still rely on legacy systems that are slow, manual and heavily dependent on IT support. Transitioning to modern, cloud-based systems can significantly enhance efficiency, security and the speed of financial operation, facilitating timely and comprehensive regulatory compliance.
In addition to regulatory and technological pressures, competitive technological advancements push CFOs to stay ahead of the curve. The financial services sector is highly competitive, and executives constantly seek strategies to make their teams more efficient and generate better results. Embracing the latest technologies is no longer optional; it’s a critical strategy for maintaining relevance and competitiveness in the market. Yet, while the vast majority (more than 70%) of CFOs say investing in finance technology is a critical priority, only 39% say they are proficient at it, according to Gartner research.
Features and Benefits of Finance Modernization
Finance modernization starts with a centralized financial accounting system featuring integrated data management—a function that makes information more accessible and meaningful. With this system, banks can achieve coordinated planning and provide more accurate forecasting, which is crucial for introducing new products like credit cards and loans. Other advantages include improved profitability analysis, enhanced reporting, better decision-making, upgraded risk management protocols, reduced costs, elevated user experience, and a comprehensive view of financial data. This interconnectedness across planning, forecasting and reporting ensures banks can respond swiftly and effectively to market changes.
Improved regulatory reporting is another significant benefit of cloud-based ERP and EPM solutions. These systems ensure banks comply with evolving regulations more efficiently by providing accurate and timely reports. The ability to track data lineage from front-office transactions to back-office records enhances transparency and control, reducing regulatory risks.
Overcoming Barriers to Finance Modernization
Addressing outdated business models and applications requires a strategic approach. Finance modernization initiatives are crucial and often involve modernizing the front, middle and back offices. While front-office transformations are more visible to customers, back-office transformations are essential for internal efficiency. Modernizing these systems typically starts with adopting cloud solutions, which provide the latest technologies and reduce the IT burden on banks.
Artificial intelligence (AI) and other technologies will forever change the banking sector. By moving financial applications to the cloud, banks can benefit from the advanced capabilities of AI and machine learning (ML). These technologies facilitate better data analysis and predictive insights, enhancing the overall strategic planning process. Additionally, cloud-based solutions offer scalability and flexibility, enabling banks to adapt quickly to changing business needs.
Cloud-based enterprise resource planning (ERP) and enterprise performance management (EPM) solutions are pivotal in finance modernization. These solutions provide integrated data systems that centralize financial accounting, enabling multidimensional analytics. Such analytics offer deeper insights into profitability and financial performance, essential for strategic decision-making.
The Strategic Role of CFOs in Finance Modernization
Several trends are expected to shape the future of finance modernization in banking, including AI and ML-powered advanced predictive analytics and automation. These technologies will enable banks to forecast future trends more accurately and automate routine tasks, freeing up resources for more strategic activities.
With more than half of corporate executives reporting that their digital transformation investments have produced less than the desired results, adopting a strategic approach is essential. Modern banking CFOs are crucial in leading this initiative. It is essential to link modernization initiatives with organizational objectives and foster collaboration among cross-departmental stakeholders including finance, legal, and technology department leaders.
A successful transformation can be evaluated by performance in four strategic areas:
- The cloud. By harnessing cloud capabilities, CFOs can transform finance functions and achieve centralized accounting, ensuring accuracy and efficiency.
- Process standardization. By focusing on process standardization with automated controls, CFOs can equip users with the necessary skills and tools for effective data reporting.
- Data quality. Instituting the three core pillars of data management—lineage, ownership, and sourcing—will increase trust, usability, consistency, and data integration, ultimately driving strategic growth in the banking sector.
- Risk management. With advanced data analytics and predictive controls, they can navigate complex regulatory environments and mitigate potential risks.
CFOs are uniquely positioned at the center of strategic planning and financial operations. This makes them the ideal champion of digital transformation. To harness the full power of new and emerging technologies, it is critical for CFOs to collaborate with CIOs and tech teams to bolster their technology skills and define roles and procedures in the finance team.
With a keen eye on ROI and growth, it’s essential for CFOs to drive finance modernization. With CFOs at the helm of digital initiatives, organizations will enhance their resilience while identifying new opportunities for innovation and long-term success.
