Fraedom: the biggest fintech and finance trends in North America
In recent years, we have seen a number of developments within the finance sector, many of which have been driven by the latest technology. Increasing use of artificial intelligence (AI), for example, is now adding value to a wide range of tasks, such as credit risk management, risk and finance reporting, trading floors, customer relationships and, of course, security. As technology continues to advance, we are seeing a growing number of trends influencing the way banks and fintechs operate. But which trends are likely to be most influential in North America this year?
An innovation that is being driven by the application of ever-improving AI capabilities is the intelligence of chatbots. In a relatively short period of time they’ve gone from only being capable of completing very basic tasks, such as answering FAQs, to being capable of initiating actions of their own. Their capabilities have grown so much that by 2022, chatbots and virtual assistants are expected to save companies $8 bn per year. And this growth is only expected to continue within the finance sector. According to Gartner, by 2020 consumers will manage 85% of their total business interactions with banks through fintech chatbots. Advances in chatbot technology will allow banks to streamline their operations, reduce service costs, improve their customers’ experience. Consequently, they’ll allow banks to serve more people, more quickly.
In the US, voice banking has been in use for several years now, with Wells Fargo one of the first international banks to adopt it. Since then, not only has its adoption increased but also its capabilities. In 2017, U.S Bank was the first bank to allow users to access voice banking on all three major voice assistants – Alexa, Siri and Assistant. This is a trend we expect to continue, particularly as Mariano Belinsky, managing partner of Santander InnoVenture, detailed that the next progression in chatbots and voice technology will be natural language processing. This will provide context and meaning to user inputs and enable AI to come up with the best response. Developments in this technology will enable chatbots to overcome natural communication barriers and better understand the user’s intent, therefore improving customer service and limiting the need for queries to be rerouted to humans. With this in mind, it seems it will only be a matter of time before virtual assistants become more mainstream among US banks.
Blockchain technology is really gathering momentum across banking and financial services sectors. A recent report by the market intelligence and advisory services company, Greenwich Associates found that the financial services industry is spending about $1.7bn per year on blockchain, as banks and other firms move beyond the proof-of-concept stage and start rolling out commercial distributed ledger technology (DLT) products.
The research also reveals that blockchain budgets increased by 67% in 2017, with one in ten of the banks and other companies now reporting blockchain budgets in excess of $10,000,000. Additionally, it found that the typical top-tier bank now has about 18 full-time employees working on the technology. These figures are substantial and are expected to rise as blockchain technology gains more traction among US banks of all sizes. As its adoption increases, it is likely banks, and financial services organizations will focus more on how they can use blockchain technology to reduce operational complexity, streamline efficiencies and to find a competitive advantage.
Advances in Mobile Banking
We are seeing a growing trend of consumerization as banks and financial institutions try to meet the demand among small businesses for the same mobile interactions they get from their personal banks. Business executives are increasingly used to leveraging the latest technology to gain a real-time view of their finances in their personal lives and are therefore now demanding the same capability within the organizations they work for. In fact, research from Fraedom found that 95% of commercial clients who bank digitally in their personal lives, expect to do so at work as well. As a result, commercial banks are beginning to invest in key technology areas to make consumerization possible. This is something set to continue, as more commercial banks expand their digital offering to allow businesses access to a greater range of mobile banking capabilities with real-time visibility of spend regarded as one of the most sought-after features.
We are already seeing a trend of financial institutions partnering up with fintechs, but this is something that will continue to develop, with Fraedom finding that more than three-quarters of US commercial banks are considering new fintech partnerships this year. There are a number of drivers for this, such as improving customer experience, speeding up digital transformation, better cash and card management and cost savings. Not only are partnerships with fintechs enabling banks to implement the right technology for these purposes, but they are also helping banks to better understand the consumerization of business processes and technologies.
Ultimately, technology will be at the heart of developments within the finance sector this year, with partnerships with fintechs allowing US banks to get the most from these new technologies. These trends will be instrumental in helping commercial banks to improve their customer service and develop a more modern offering that is more in line with what people have come to expect from consumer banks.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.