By Ashok Dhamankar, CFO – Financial Services, UPL Ltd
Technology has disrupted every walk of life and changed the way we used to behave and operate. However, this disruption is for the good that has improved transportation, connectivity, communication, learning processes, education, healthcare, etc. Even modern progressive farmers have started using tech-enabled solutions in agriculture.
Technology has unsettled engineering, space, automotive, manufacturing, services, and even social media. Post-pandemic, successful corporates have embraced technology in most of the critical functions including, planning, production, logistics, customer relations, marketing, HR, and finance. The CFO’s role particularly has been evolving with the adoption of ABCDs in the tech world. ABCD refers to Artificial Intelligence (AI), Blockchain, Cloud Computing and Data Analytics. These technologies have been widely adopted by finance professionals.
Artificial Intelligence (AI) or Machine Intelligence, is a branch of computer science that focuses on building and managing technology that can learn to autonomously make decisions and carry out actions on behalf of human beings. We use Amazon’s Alexa, Google’s Google Assistant and Apple’s Siri- all these are robots driven by AI and controlled by computers to carry out routine tasks that are usually done by humans because they require human intelligence. Similarly, AI in Finance also has changed the way CFOs used to manage financial and operations risks, maintain compliance, and create opportunities.
The CFO is a critical function in the corporate world and has to meet the expectations of the audit committee, board of directors, shareholders, regulators, securities exchanges, and the general public. All these functions can be performed efficiently by the adoption and implementation of AI which has transformed traditional accounting functions into vibrant tech-savvy, revolutionary finance by automating time-consuming and repetitive routine tasks to provide powerful predictive analytics. Automation results in optimised use of time and resources that can be channelised for analysing product patterns, customer behavior, or market trends. Well-researched predictive analytics can help improve financial performance, direct a company’s strategy, and minimise risk. Thus, AI offers substantial opportunities for CFOs to automate routine tasks, improve decision-making capabilities, and enhance risk management.
The Board and CFOs have considerable pressure to reduce the impact of expected credit loss (ECL) which is nothing but bad debt on future cash flow and profitability. AI-led software has the power to analyse past payment trends and predict future collection risk more precisely than traditional methods of providing for doubtful debts. These tools are used to underwrite the risk of defaults by financial lenders like banks, NBFCs, and impact investors. Well-oiled ECL systems will provide intelligence that can be shared with sales, collections, and field teams and can be used as the default prevention part of the business strategy.
Blockchain is changing the face of finance significantly and finance is making blockchain most successful due to higher adoption of the tech solution. It allows apparent information sharing within a business network, stores data in blocks that are linked together to form a chain and is immensely helpful in automation of finance processes like inter-company transactions between group entities, segments, and strategic business units of large corporates. It provides complete transparency in working capital management while issuing letters of credit, letters of guarantees, factoring and reverse factoring of receivables, thereby reducing the working capital cycle to real-time.
Domestic payments, overseas remittances, and packing credits can be swifter and more economical with the aid of blockchain. According to a survey, financial institutions, large corporates, and large export star houses are projected to save $27 billion by the end of 2030 in cross-border trades while ensuring security and transparency. Citi India has completed its first blockchain-enabled Letter of Credit transaction for Cummins India.
As noted in Crunch time IV: Blockchain for finance: “Business blockchains can operate as standalone solutions, but the value realised increases significantly when they’re combined with other technologies, such as automation or artificial intelligence, to reimagine an entire end-to-end process.”
Use cases of blockchain in finance:
1. Real-time receivable financing through bill discounting, factoring, reverse factoring, channel financing or supply chain financing by using API with the lender. It saves significant time due to higher visibility and excellent participation from lenders.
2. Seamless interaction between import and export banks eliminating role of corresponding banks.
3. Concurrent multiparty tracking and management of inland and international Letter of Credit, overseas payments, and settlement of obligations.
4. Real-time loan funding and servicing loan obligations including interest payouts, covenant trackers and compliance.
5. Risk audits, credit underwriting and counterparty risk management.
6. Liquidity, fraud, Anti-Money Laundering (AML), capital and operational risk management.
7. Automate compliance and regulatory reporting and filings.
8. Clearing and settlements of capital market trades and post-trade recordings.
9. Blockchain has upgraded e-KYC and identity verification processes, enabling lot of time saving and ease of operations.
10. It has also facilitated automation of financial contracts and documents with flawless correctness.
Cloud computing refers to making available computing resources on the net or cloud which may include servers, data storage, database, networking, software, analytics and intelligence that can be archived from anywhere in the globe. Cloud computing can make available the entire British Library for reference because it is stored in the cloud, not in an individual computer which couldn’t have accommodated the data. Clouds are the safest and handy spaces to store data which can be accessed from anywhere in the world. As described by Ralf Ebbinghaus, CEO at Swyx, “Cloud computing is like using a library in the sky where you can pick different types of games, films or any other apps and pay as you use – but like a library you never own them.”
IT admins have no more requirements to maintain big servers, customise costly software and create their own networks. All types of organisations use the cloud for a wide variety of use cases such as data backup, disaster recovery, e-mail, virtual desktops, software development, big data analytics, and customer-facing web applications. Cloud computing has provided CFOs extraordinary visibility over data that can be accessed from anywhere for manufacturing, services, representative offices, and marketing units spread across the globe. It also allows real-time updates of financial data providing CFOs with updated views of their organisation’s finances. Cloud computing stores large data and makes it available quickly to make their decision-making process accurate and timely. It helps optimise costs by using opex models vs capex models.
Cloud computing is a disruptive tool immensely useful to CFOs to manage and control financial resources, faster decision-making, and thereby create value for the organisation. With the aid of cloud computing CFOs can focus on strategic planning and analysis instead of managing IT infrastructure. Paradigm shift will empower CFOs to lead their organisations from the front.
Data analytics converts raw data into refined data into a new avatar that can be used for decision-making. These refined data formats can be used in business as intelligence tools. Data analytics strengthens financial and operations decision-making, providing future-driven insights. Data analytics can identify business issues at an early stage, take preventive actions, and thereby improve revenue and margins for the entity. CFOs can get real-time visibility, analyse customer trends and be ready with better stories for investors, employees, and other stakeholders. They also can get real-time perspectives of revenue, costs, assets, various risks, and liabilities.
Data analytics can improve financial planning, analysis, reporting, and filing accurate data to regulators. It can help immensely in optimising business, financial and operational risks for the organisation.
