Preparing for a digital finance future

In a recent article for the International Monetary Fund, Cornell University discussed the benefits and costs of digital finance. Eswar Prasad of Cornell University explained that we are reaching the end of the stage of physical currency, even within low and middle-income countries.
Digital finance is far more than replacing physical cash with electronic payments. Digital finance has opened doors for non-central bank issuers of money and generated a diverse range of new financial service providers. It can dramatically reduce the costs of financial transactions and improve access to payments and credit for customers failing to be part of the existing system. From a cost perspective comes the potential risk associated with a decentralised system consisting of fewer regulatory limits and the possibility of customer data being used incorrectly.

Industry experts believe that central banks have little choice but to deliver a central bank digital currency, which begs the question of how this will impact their ability to control financial policy and maintain their position with other competitors. Utilising the benefits of digital finance while reducing costs is a significant challenge for central banks and the international financial system. A decentralised system typically has multiple providers competing for customers via new products that meet their needs, reducing costs and increasing overall access to services.

According to a recent study by Deloitte and the Institute of Management Accountants (IMA), nearly 2 out of 3 CFOs believe their controller departments are only somewhat prepared to achieve the demands of data analytics, governance, compliance and new cloud-based technology systems.

While over 70% of finance executives confirmed their team had started the digital transformation process, 95% said additional work was needed or the process was happening too slowly. Kye Cheney, risk and financial advisory partner at Deloitte, explains that financial controllers recognise the need to transform but the challenges of shifting to a more modern, strategic and digital system remain.
CFOs accelerated the digital transformation process at the beginning of the pandemic in 2020, intending to handle declining revenues, disruptive capital markets and an economy-wide financial crunch. Aside from a sharp rise in remote working, this disruption accelerated the requirement for critical skills and resources, speeding up the necessity for controllership.

Since the pandemic, business leaders have expected CFOs and their controllers to deliver more strategic insights, utilise real-time data and analytical tools and operate more efficiently. Automation, data integrity plans and talent development have increased as a consequence of the pandemic.

According to Deloitte and IMA, there have been mixed results for successfully increasing the rate of automation implementation and the development of a clear route toward a modern finance system. CFOs and other respondents from the report stated that data and analytics require the most attention, with over 40% confirming initial or early maturity in this space. Deloitte and IMA believe financial planning and analysis were considered to need the most progress to meet future demands.

To achieve current and future demands, progression from value reporting toward value creation and strategic partnerships has become critical. Limitations in terms of time, budget, employee experience and resource capacity present the biggest challenges to digital transformation.

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