Cloud adoption in the financial services industry in Europe is finally picking up pace. Overcoming initial hesitation caused by extensive legacy infrastructure, lack of clarity on regulations, and concerns related to compliance and data security, the industry will start to move core services to the cloud within the next three to five years. Cloud can assist stakeholders with challenges related to high cost, lack of innovation and personalization in products and services, time to market, low consumer confidence, and lack of operational efficiency.
Internet of Things (IoT) and cloud enable faster and better-priced financial services. The use of cloud platforms also drives partnerships, use of application programming interfaces (APIs), different pricing models, and free offerings for consumers.
“Start-ups using cloud at the core of their strategy are disrupting the way businesses are organized, forcing incumbents to rethink their cloud and data storage and usage strategies,” said Digital Transformation Research Analyst Deepali Sathe. “Emerging opportunities include new business models, such as peer-to-peer (P2P) payments, and data analytics to launch innovative products and services that will increase convenience for consumers. As regulators step in with specific cloud-related guidelines, adoption is expected to accelerate.”
Use of cloud enables access to a larger pool of data and new markets and business models will enable a variety of services and products, to drive several growth opportunities:
- Artificial intelligence (AI) and machine learning (ML) will help channelize services like authentication and card and account aggregation
- Cloud platforms will be fundamental to providing blockchain services
- Payments is the largest market sub-segment and the P2P model, which is cloud based, will see massive growth
- As the ecosystem evolves, the regulatory technology (RegTech) services market will take off as the catalogue of regulations for cloud adoption is expected to go beyond 300 million pages by 2020. Services such as anti-money laundering (AML) and Know Your Customer (KYC) will be leading applications
“The cloud ecosystem is a complex web of stakeholders,” noted Sathe. “Innovations across the board will make available the best possible solutions and competitors will compete to strike a balance between security and innovation, even as commoditisation of services occurs rapidly.”
Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today’s market participants. For more than 50 years, we have been developing growth strategies for the global 1000, emerging businesses, the public sector and the investment community.
As their role expands to include ever more nonfinancial demands, CFOs know they must build new skills to lead. Faced with advances in technology and growing responsibilities, many CFOs are bracing themselves for more change ahead—and understand that they must adapt to be effective. There are new demands on CFO time, such as digitizing critical business activities and managing cybersecurity, in addition to traditional finance duties. While these newer responsibilities present opportunities for finance leaders to differentiate themselves—and their companies—from competitors, companies are not yet prepared to manage these challenges.
Most CFOs know it’s no longer enough to play their traditional role. Instead, for CFOs to deliver value as their duties evolve, the results suggest that they must build skills in other areas of the business, play a more active leadership role, and rethink their usual approaches to overcoming external pressures and finding new investment opportunities.
Today’s CFOs are responsible for much more than finance. On average, five functions other than finance now report to the CFO. More than half of CFOs say their companies’ risk, regulatory compliance, and M&A transactions and execution report directly to them, and 38 percent of CFOs are responsible for IT. Some CFOs even manage cybersecurity and digitization, suggesting just how diversified the list of demands on the CFO is.
For the most part, CFOs understand that their roles continue to change and expect to adjust their course. About four in ten CFOs say they spent the majority of their time in the past year on roles besides traditional and specialty finance. Among these other roles, CFOs most often focused on strategic leadership, organizational transformation, and performance management.
What’s more, CFOs themselves and respondents in other roles believe that CFOs can create value in several ways, and not necessarily by fulfilling traditional duties. Eighteen percent of CFOs say that, in the past year, they have created the most value for their companies through their traditional finance work. But others are most likely to cite strategic leadership (22 percent) as the area where they’ve created the most value. Looking ahead, CFOs would prefer to spend less time on traditional finance activities in the next year—and more on strategic leadership (two-thirds of all respondents say CFOs should spend more time here), organizational transformation, performance management, and big data and technology trends.
Still, the nonfinancial responsibilities—including those related to technology—are putting many CFOs on alert. Less than one in three believe their companies have the capabilities they need to be competitive in their digitization of business activities. Fewer than half feel their companies are well prepared or very well prepared to be competitive on their cybersecurity capabilities.
Top executives acknowledge the value that finance chiefs bring to their companies, and CFOs themselves agree. In matters of finance, both groups largely agree that CFOs are very involved members of their teams. They also agree that CFOs should spend more time as strategic leaders in the years ahead.
But as the CFO’s role evolves, so are the expectations that other company leaders have for them. Not surprisingly, then, the data show that CFOs perceive some of their contributions differently than do others in the C-suite. Majorities of CFOs and other C-suite executives agree that their CFOs are significantly or the most involved in bringing deep financial expertise to discussions, focusing group discussions on the creation of financial value, and serving as the executive team’s public face to financial stakeholders. But for activities beyond finance, the results suggest there’s a gap between the leadership that CFOs currently demonstrate and what other business leaders expect of them. For instance, 72 percent of CFOs say they are significantly involved or the most involved executives in allocating employees and financial resources. Yet only 29 percent of other C-level executives say the same about their CFO peers.
CFOs also rate the performance of their finance functions differently than their fellow executives. While 87 percent of CFOs rate their finance functions as effective, only 56 percent of other C-level executives say the same. These groups also report differing views on the challenges that finance functions face. Whereas CFOs are likelier than their peers to cite a lack of resources and skills as barriers to effective finance-function performance, others in the C-suite most often identify a lack of innovation mind-sets.
On the whole, CFOs recognize the need to move beyond traditional or textbook practices. But few say their companies use innovative methods to make decisions. Roughly two in three CFOs say their companies do not yet have the capabilities for agile decision making, scenario planning, and decentralized decision making they’ll need to be competitive in the coming years.
Likewise, many say their companies use basic financial controls in their decision making—but few report the use of more advanced practices. When asked about their capital-allocation processes, most CFOs agree that their companies set capital-expenditure budgets at the project level, use comparable metrics across business units, and track the results of specific projects. These practices support the foundation of a strong capital-allocation process. Fewer CFOs, though, report using tactics that would foster further learning or innovation. Just 30 percent of CFOs say their companies formally review investments made three to five years ago, and one-quarter say they’re using new methods to identify funding opportunities.
Assert proactive and strategic leadership. CFOs perceive some of their contributions to the C-suite differently than other leaders do. One such divergence is the CFO’s involvement in strategic decisions, suggesting that finance leaders have more room than they may think to leverage their expertise and influence—especially since many other C-level executives believe CFOs should spend more time on strategic leadership in coming years. Finance leaders could start by more explicitly articulating the scope of their role, which may help finance leaders increase the engagement and effectiveness of the executive team.
Adopt an investor’s mind-set—and more innovative practices. Many CFOs are aware of their financial stakeholders’ interests, but less than half agree that their companies keep cash scarce—which investors often see as an indication that a company will be disciplined in its investments. The finding highlights the importance of demonstrating capital discipline by translating an investor mind-set into a day-to-day management style. That could also mean adopting innovative finance processes: for example, moving away from a typical, annual capital-budgeting process toward a more agile one, with flexible budgets, quick decision making, and a performance-management system to match. Maintaining a more investor-based mind-set could also help preclude the kinds of misunderstandings that draw the attention of activist investors, which less than one-third of CFOs say their companies are well prepared to manage.
Embrace technological advances. If new technologies and trends are adding to the evolution of the CFO’s role, they also have the potential to make it easier for finance leaders to understand current business complexities. There is a wide range of tools that can help CFOs benefit from big data and the digitization of finance processes; for example, software that automatically completes repeatable, standardized, or logical tasks, such as processing transactions or integrating data to derive business insights. CFOs should increasingly use such tools to lead complex enterprise-resource planning efforts, among other challenges that they are being tasked with managing.