The recent speech by the King reaffirmed we could be approaching a change in UK law with the potential to completely transform our lives and accelerate economic growth. The government has committed to enabling the implementation of revolutionary new technologies via the Data Protection and Digital Information (DPDI) Bill.

The final objective is to reach ‘open data’, where all types of information, whether it be personal financial data or employment details can be shared securely within a trusted platform. Users will have the ability to verify their identity online with the same assurance as with traditional documents. With the accelerated development of digital, more products and services are being purchased and consumed online.

If people can select and securely share their data with trusted groups, it will enable them to instantly receive new offers customised to their requirements and situations.

The Department for Science, Innovation and Technology has estimated that the bill will strengthen the UK economy by £4.7 billion in the next decade. Open finance could deliver a future where your devices can enable you to make smarter decisions in every part of your financial life, from budgeting to retirement planning. This could revolutionise financial literacy and instantly offer people a comprehensive understanding of their finances. This would be critical at a time when many people are experiencing financial challenges with the cost of living and a decline in household incomes. 

Smaller companies also face barriers to obtaining a clear concept of their finances, which impacts their planning, budgeting and forecasting.

Open financing takes centre stage

Open finance can become a priority in the UK’s movement towards open data. Financial services consist of a large portion of most people’s and businesses’ data footprints. It’s inconceivable to achieve a modern, digitally driven connected economy without focusing on financial datasets.

Fortunately, the UK has a globally recognised fintech industry with the ability to respond quickly, deliver new products and collaborate with larger, more established organisations. 

Nikhil Rathi, the CEO of the Financial Conduct Authority, detailed the opportunities a digital identity offers for customers. The Government is using the success of open banking as the initial step towards creating a smarter data economy. We are also witnessing progress within open finance and how to apply open-banking data-sharing within finance is a priority on the industry agenda. 

CFIT has delivered an industry-wide coalition on supporting open finance, allowing for the secure sharing of all types of financial data. By next year, a series of recommendations for industry and government will be released.

If delivered correctly, open finance will provide customers with greater control of their financial lives and stronger access to financial support and affordable credit products. SMEs will benefit from fewer barriers to accessing banking services. Open banking has shown us the path, now the open finance revolution is the next step to enable all datasets, so the UK can become a competitive, smart data nation.

A resilient data structure has become a mandatory part of measuring, managing and transforming business for long-term value creation. Financial consultants, Accordion published a playbook for CFOs in 2022, emphasising how finance has become critical in delivering a strong foundation to support ongoing strategy and generate value creation.

Driving that focus on finance is the disruptive and volatile economic conditions we are experiencing, causing many organisations to enhance their people, processes and technologies to drive the added value they need. 

At the core of this process is data and analytics. Once considered as an afterthought, data and analytics is now a priority for CFOs. Stakeholders expect information and insights based on real-time data, which facilitates the need for a comprehensive data strategy and for accurate and reliable analytics. CFOs and investors expect performance visibility that can support data-focused business decisions. 

While the CFO playbook still resonates today, there has been one particular shift in the last year: a rise in focus on data and analytics. The latest playbook focuses on the following key points:

Measure Liquidity

Closely monitor factors influence receivables and identify any factors such as one-off payments, debt or large vendor payments. CFOs should recognise and prepare for this potential impacts on a business.

Refocus on performance visibility

Many finance team measure against dated strategy plans and as a consequence, the report delivered don’t necessarily align with the correct KPs. CFOs must collaborate with investors and determine the value creation factors to deliver the right KPIs to generate a structured reporting strategy. This approach will ensure finance teams convert data into actionable insights and people can make informed decisions.

Determine the future technology

CFOs must explore and invest in the right tech stake in order to generate optimum financial and operational  reporting. 

Invest in new talent

After determining the right tech, a CFO must also invest in a team capable of navigating these systems. A priority hiring need for CFOs is finding finance talent with the necessary data skillset to leverage technology and utilise the power of data. A collaboration between finance and technology is more critical than ever. 

Establish the necessary data foundation

CFOs need continuous access to metrics to recognise factors influencing performance. While this may seem obvious, large quantities of valuable data is often hidden in legacy systems, meaning it is ineffective for delivering vital insights. Achieving this visibility requires the CFOs to leverage their systems and create a single source of truth that gathers and examines all data for analysis. 

Deliver vital analytics and insights

Without delivering a data foundation, finance will spend excessive time manually gathering data. With a single source of truth, CFOs reduce time spent on data analysis and focusing more time on high value activities. 

Create integrated business planning

Streamlined forecasting is pivotal in business management. Stakeholders will expect CFOs to utilise real-time data. While forecasting is a vital part of the CFO role, new CFOs must prioritise cash flow as a critical part of the business planning process, educating and working company leaders. An enterprise-wide approach ensures cash forecasting is connected to the business forecast and supply & demand planning, which is critical for business success.

Plan for the budgeting process

The CFO must act as a strategy leader, examining assumptions, creating processes to hold business leaders accountable, and delivering targets based on valued insights, creating efficient resource allocation and more informed business decisions. 

Prioritise performance factors

CFOs will collaborate with stakeholders to create an updated value plan, build a valued data and analytics framework and create new visibility into the state of the organisation. CFOs have the ability to generate insights into factors influencing performance, enabling them to prioritise performance factors.

Work with stakeholders on finance-focus transformation plans

Now is the time for CFOs to collaborate with sponsors and the wider business, to adapt transformation plans into action. 

While the general playbook for CFOs remains relatively the same, data and analytics are a part of every element of the role of the CFO.

The Institute of Analytics (IoA) has a strong interest in AI and is committed to this market. While AI offers multiple benefits, it’s critical to appreciate the risks that emerge from unregulated technologies. AI has gained rising interest in the finance industry, transforming multiple parts of the industry. This movement has been supported by new data, including various datasets and online textual information. As businesses integrate hybrid cloud solutions and strengthen their computer skill sets, they are more capable of maintaining high performance at scale, creating a competitive advantage.

AI empowers financial organisations to make data-focused decisions, securing valuable insights and strengthening overall performance. AI provides diverse opportunities within finance, incorporating fraud detection, enhancing the customer experience and the automation of policy enforcement.

It’s critical to highlight that while data is a fundamental element of AI, it can also act as a customer of AI. Not all data is appropriate for model training, and some companies lack the sample size required to test their tools. AI can support data creation, supporting further growth and contributing towards developing more structured AI algorithms.

To explore real examples of AI in finance, we can observe JP Morgan as a good example. The leading bank has publicly prioritised an AI-first approach and underwent various business transformations to break down legacy silos and deliver horizontal data consolidation and collaboration systems. Back in 2021, after volatile retail stock markets, traders observed the impact of retail activity on various stocks. As a consequence, JP Morgan explored a structured approach to monitor social discussions for determining short squeezes and implementing timely risk mitigation measures. This example highlights the need to implement a proactive leading indicator with strong predictive options rather than depending on retrospective factors. By exploring historical data and combining the concepts of influence, the JPM team created a leading risk mitigation algorithm model.

Activities with multiple search processes can take time, with considerable variation in completion time depending on employee efficiency. Businesses like JP Morgan used auto-responsive models to constantly monitor business processes, and determine the task at hand.

The availability of big data relevant to business use cases has opened up various opportunities for AI within the finance industry. For example, asset management benefits from using historical information and emotional analysis to determine certain market trends and investment opportunities. Alternative data types like customer behaviours strengthen the ability of algorithms to identify vital data points and support critical investment decisions.

As new technologies advance, there is a risk of disruption while regulators try to maintain pace. While AI offers various benefits to the financial industry, it’s critical to prioritise implementation safely and ethically. Focusing on the necessary measures will enable the necessary foundations to ensure consistent ethical use of AI in the future. Regarding financial customer and investor protection, AI services in finance can create or intensify other risks. Applying algorithms in financial decision-making can lead to biases, causing risk to customers and investors.

Policymakers should explore the implications of these technologies and recognise both the benefits and risks associated with implementing AI. By focusing on creating regulatory frameworks, policymakers can provide customer protection and the ethical application of AI in the financial industry.

More recently, the European Parliament introduced the Artificial Intelligence Act, a major move towards integrating structured rules for AI technology. The act divides AI into four risk levels, and AI applications involving vulnerable groups would face stricter conditions. The introduction of the AI Act highlights policy recognition of the need to regulate AI technology. The act aims to create clear rules to control risk and safeguard customer investor interest, but with accelerated developments in AI, policymakers face a growing challenge in maintaining pace with the changes.

The financial market is rapidly progressing and has been supported by digital innovation, societal changes and customer expectations. As we look to the future, there are several trends in digital finance emerging that could reshape the industry over the next decade. What could the future of digital finance look like?

Emerging Central Bank Digital Currencies (CBDCs)

CBDCs have enabled customers to have accounts directly connected with central banks, reducing the dependence on traditional intermediaries. Other benefits include a more seamless and cost-effective process for cross-border payments and for central banks to strengthen their ability to introduce supportive monetary policies.

The rising challenge of data privacy and cyber security

While digitalisation has brought many advantages to finance, it inevitably will create challenges, specifically the rise of persistent and sophisticated cyber threats. As cyber-attacks become more regular, stricter standards will protect personal data and financial assets. Creating resilience, and trust, and ensuring customers’ data is secure will be critical.

The progression of big tech and fintech

Technology and finance are becoming progressively more intertwined, providing continuous opportunities for innovation and disruption. Fintechs provide new solutions, and Big Tech businesses are exploring financial services on a deeper level, competing against conventional banking businesses. The progression of data analytics and AI has enabled the delivery of tailored financial services. Furthermore, big tech and fintechs have enabled access for previously inaccessible groups, strengthening financial accessibility for many.

The rise of mobile and digital payment options is inevitable, with a growing demand for contactless options. The demand for contactless payments and digital wallets is rising. With the increase of digital wallets globally, there may be a need for a worldwide protocol for seamless global transactions.

How open banking is transforming the sharing and access of financial data

Open banking has empowered the consumer, giving people more control over their finances and enabling control over who can access it and for what purpose. With greater access to data, financial institutions can deliver more tailored and innovative products for customers. Open banking provides a stronger collaboration between traditional banks, fintechs and other associated providers, creating further innovation across the board.

Open banking isn’t just a trend, it’s a significant shift in how we recognise and determine financial data. It’s predominantly about giving power to the customers, accelerating innovation and supporting collaboration in the industry.

Sustainability and Integrating ESG in Digital Finance

Digital finance must consider the implications of ESG becoming a global priority. Green Finance Platforms, for example, that incorporate sustainable investment and ESG-associated portfolios, will likely rise in popularity. Progression in tech will enable real-time reporting and measuring sustainability measures within financial operations, strengthening stakeholder transparency. Digital financial solutions will be critical in securing resources required to tackle global challenges, like climate change.

The next few years in digital finance will involve considerable transformation, from the disruption of cybersecurity to the increase of open banking and sustainability-related services. As the industry evolves, all stakeholders must be prepared and willing to adapt and innovate to maintain pace with the future.

According to an industry report from automated finance business Ledge, finance professionals at technology businesses are often encouraged to increase their headcount to manage the rising workload on finance operations.

The new data highlights that as an organisation matures, the finance team grows 3.5 times, which is approximately 20% faster than all other areas of business within a company. Ledge’s findings indicate that tech companies are becoming more reliant on skilled finance professionals to manually manage complex and high-volume finance operations despite an unprecedented shortage of accountancy talent. 

The number of CPA candidates currently sits at its lowest since studies began, and 87% of businesses have stated that they are finding it increasingly difficult to recruit the necessary talent. 

The increased adoption of digital payments has supported the traditional payment infrastructure with various new methods to pay and receive payments, and transaction volumes have increased considerably as a result. Studies from PwC suggest a 42% increase in global cashless payment volumes and is expected to rise further by over 80% by 2025, increasing from 1 trillion to 1.9 trillion transactions.

The shift in the payments market has generated various challenges for finance teams at rapidly scaling businesses, who depend on spreadsheets and manual activities to manage considerable volumes of payment data that often is dispersed across disconnected systems. Around 40% of finance teams’ time is spent processing transactions, and 48% of finance teams highlight that fragmented data is the biggest barrier to them closing their books. 

Many leading enterprises still lack the necessary automated tools they need. Ledge’s study suggests that finance teams have grown 20% faster than other areas of the business, reflecting this pressure and the increased complexity and workload on tech businesses to assign additional talent to finance operations to enable the business to continue.

Tal Kirschenbaum, CEO and co-founder at Ledge explains that while the digital payments area has witnessed significant innovation, the majority of finance systems and processes have changed over the years. Finance professionals still rely on conventional spreadsheets to manage their finances and accounts, combining several fragmented variations of banks, billing systems and databases.

Skilled finance professionals at leading global businesses still lack the automated solutions required to effectively report on simple metrics, like cash position and revenue. The latest report indicates that many of these teams have been forced to increase their headcount with manual activities that significantly increase the risk of material losses, compliance challenges and costly audits.