How did the Advent of Financial Technology Change the Role of a CFO?
Over the years, finance has been the most crucial part of any industry. The primary priority of a business is to maximize profit. In the past, the market used thousands of techniques to maximize gain. CFOs always created these strategies on paper with thorough research from the past. However, one can find only a few records from the past to justify a proven technique to overcome profitability issues. In today’s world, digital technology replaces these strategies, which is key to maximizing a company’s growth through its financial structure and technology. This technology is known as Financial Technology (FinTech). Now, although you will find various definitions of FinTech, it all boils down to making the most of the latest technology in the finance industry.
Fintech is a technological advancement toward CFO services. The purpose of this technology is to create ease for customers and professionals doing business together. In addition, this technology helps companies to develop a more efficient and accurate performance measure in their core operations. Financial technology uses specialized software to build economic systems or applications on any device, from mobile phones to supercomputers.
Furthermore, financial technology is the systematic program that creates digital cryptocurrencies and NFTs (Non-Fungible Tokens), which are currently the market’s most profitable digital assets. These tokens and currencies make a new market for people to invest their money and acquire better gains.
Financial Technology: The History
There are several stages in the history of financial technology. The earliest stage includes morse code and telegraph to transfer funds. After that, NASDAQ came into creation in 1971. Additionally, PayPal came into existence in 1998, which was the first application used to transfer money from one account to another. It is the best third-party application to move money across the world.
- Early Stages
The post-financial crisis is the third stage of financial technology, which began in 2008. The intention behind this development was to minimize fraudulent activities happening in the world of finance. But unfortunately, these activities were layered and complex, making it impossible to understand from an ordinary person’s standpoint.
Early digital innovators invented computer programs to help counter these activities and make them comprehensive for everyone. This stage was also the time when smartphones came into existence.
- Fintech 4.0
The current and most developed version of financial technology started in 2018. It lays the foundation for machine learning and blockchain technology. This era is known as Fintech 4.0. The foremost reason to develop Fintech 4.0 is to regulate and create solutions for the emerging and dominating digital finance market around the globe. In recent terms, governments are taking a keen interest in digital finance and are reconsidering the position of digital banks in federal reserves and state banks.
The problem arising from this technological advancement is the connection between the public and private sectors, making it difficult for regulatory agencies to develop policies that minimize the risk associated with these transactions and investments.
These developments can be very profitable for the general public. However, they are equally risky at some points due to the complexity they bring up, including the use of artificial intelligence. For that reason, highly-skilled finance professionals are essential for current and future enhancements in digital finance. As a result, companies now demand the understanding of digital skills when they offer you a job in their finance department.
The Role of Chief Financial Officers (CFOs)
The Chief Financial Officer is the highest-ranked financial officer in an organization. They are responsible for everything related to a company’s accounts structure, from bookkeeping to investing in complex instruments. A CFO is also accountable for fraudulent activity in the company’s environment. CFO’s job description makes them one of the company’s most prominent and respected roles. In the past, usually, the CEO managed the company’s account. However, currently, due to the complexity of financial products available, a company relies on the expertise of a CFO to:
- Regulate reports
- Control the accounts
- Make financial decisions
The Future of the Finance Industry and CFOs
The finance industry’s future depends on three things:
- Enabling CFOs
- CFO’s teams analyzing large amounts of data
In addition, incorporating technology into business operations will help businesses to examine the risk-return profile at the lowest level to exploit opportunities that are currently difficult to analyze.
With the changing financial market, finance professionals are trying to decrease costs to the minimum level possible. Additionally, they are actively transforming the entire investment system onto digital platforms. Whether it is real estate or commercial investment, each of these industries now has a financial product that works according to the shift in that particular industry. An example of this is, MBS (Mortgage-backed securities).
In short, CFOs are now trying to increase their efficiency in regular transactions and FP&A (Financial Planning and Analysis). This includes taxation and using these products to maximize the company’s profit. FP&A is a crucial part of a company that generates revenue leads and develops forecasting, analysis, and budgeting.
The expansion of data surfing around the internet has increased the skills required to access it. These skills have now created platforms for data scientists and AI technicians. Additionally, crypto headhunters and Fintech Engineers are given recognition as significant financial figures in today’s world. These newly created jobs are trying to make it easy to understand digital complexities.
World and Virtual CFO:
A CFO’s responsibilities have evolved with this rapidly changing market. After the housing market crash in 2008, the world started rethinking how money works. This crisis also opened many individuals’ eyes to solely trusting their financial manager when investing their money. Everyone today is reading, and data is easily accessible to anyone. Investment companies now have to justify any change they make in their decision-making to all of their investors.
CFOs have a lot on their plates in the current market. They are switching from a low-end automation process to a high-end automation process. The more efficiently a system operates automatically, the easier for the CFO to make decisions regarding production and delivery. CFOs are overinvesting their time and energy into building and handling AI technologies to thrive in future investment patterns. Some new features of a virtual CFO’s job are:
Data Layering in Financial Technology
To survive in the market, a CFO must have deep knowledge. The system is so complex that it now contains layers and layers of data spread all over the world. CFOs must dig deep into these data systems and find the most accurate information that would later flow into their company.
Another principal concern is keeping the data safe from malware and hackers. Again, it is a CFO’s responsibility to protect the data through different firewalls. In addition, harnessing the data through digital programs can keep it safe from increasing hacking risks.
The Team from the Future
No matter how hard a CFO tries, they can’t win this battle of data science without a great team. This team is a combination of multi-skilled professionals working to solve company problems.
Out of the entire C-suites, a CFO is most challenging to evolve with the rapidly changing economic environment. In this digital transformation journey, the whole company looks up to the CFO for solutions. From collecting customer feedback and insights to managing the entire company’s account. The CFO brings in the best outcome that favors both the customers and the board.
Digital Strategies in Financial Technology
CFOs are optimizing digital strategies for maximum efficiency. For this, CFOs use Artificial Intelligence programs to create patterns and strategies. Then, they put these strategies into creation to find any arbitrage opportunities in the market. By doing this, CFOs get a hold of future designs, especially for the stock market.
Policies and Decentralized System
Government regulations are currently under development to create policies that control the risk related to digital finance. A company has to change its policies regularly according to the government. Consequently, virtual CFOs have to be aware of these changing policies than any other professional. Their connections with other virtual CFOs provide them with knowledge of how other companies manage their policies.
Decentralized Finance (DeFi)
Decentralized Finance is a provision of this evolving financial technology that tries to minimize the involvement of bank and government regulators in the proceedings of cash and investments. This technology empowers customers with digital money exchanges. The entire cryptocurrency buying and selling process is happening through decentralized finance.
Why Should Virtual CFO Care about DeFi?
DeFi creates a new market for investments and general asset management. The improvement from the previous centralized finance is that DeFi works independently and does not require people to manage the entire system. In short, there is no salary expense in this new type of investment.
DeFi would create all those opportunities that are available in the traditional market. However, due to no human involvement, there are no commissions or cuts from the profit. Instead, whatever you make goes directly into your pocket or, in formal language, your company’s bank account.
The market is new, and active participants are managing to take home 2 to 20% of the average monthly return on their capital. These investments are not regulated and can bring your investment to 10 times less than before. But there is a solution to that, which is known as “stablecoins.” These are cryptocurrencies pegged to another asset that helps limit price fluctuation.
DeFi is drawing the attention of many CFOs in the financial market. With this increasing attention, DeFi would bring in more investments from different industries to hedge investment risks.
The Changing Role of a CFO in Financial Technology
The dynamic conditions are evolving the role of a CFO in every industry. Crisis/disaster management, catastrophic strategies, technical evaluation, and digital fraud evaluation are all part of the new role of a CFO. In addition, post-pandemic, many companies have gone digital. This allows employees to work remotely without worrying about travel expenses. Furthermore, this remote working causes a change in the way a particular department functions.
Besides accounting and asset management, CFOs now must deliver strategic solutions to face upcoming industry challenges. These challenges also involve rising inflation and interest rates.
There has also been a keen interest in talent acquisition by the CFOs. They are looking for technologically advanced financial skills, such as a good grip on financial technology and knowledge of DeFi and cryptocurrencies, to prepare their company for better returns.
The Inflation Issue
Rising inflation creates concerns about a company’s expense report. CFOs are responsible for developing cost-cutting measures to look for any flaw within the economic structure of the company. Neglecting inflation and asset depreciation can become grounds for a higher cost of goods sold and a smaller profit margin.
Companies always expect their CFOs to be an influential part of their hierarchy. They influence the managers and employees to drive automation initiatives as technology is now a part of their company. This automation increases productivity levels and does not require human involvement. The technological change businesses face these days need a skilled CFO to manage them and keep them flourishing by amplifying their profits.
Why is Financial Technology necessary, and what are CFOs doing about it?
The change is necessary as companies can’t work in the traditional environment. It is nearly impossible for a company to work with conventional on-paper methods and not use digitization techniques. Many famous multinational companies have failed to survive with traditional approaches to running the company. One notable example is Nokia. The brand never updated its digital landscape. And hence, it faced a massive downfall and is still trying to cover up the disaster. The company was well aware of the enhanced tech in cell phones but still couldn’t accept it.
CFOs are aware of the switching environment and are finding ways to overcome twisted digital problems. CFOs can only solve these problems with a skillful and knowledgeable team of finance professionals. CFO and the team must proceed quickly to deliver a set of solutions. The solutions need to be easy to operate and cost-effective.
CFOs are responsible for the financial health of a company since they are in charge of all these responsibilities. Therefore, the most challenging part of a CFO’s role would be how they analyze and interpret the given information and present it to the senior management as straightforwardly as possible.
Businesses do benefit from a forward-thinking CFO’s approach. They begin from the initial steps of bookkeeping and expense sheets until they find the system’s flaws. As a result, a CFO’s job description has dramatically changed. And the best among those are the ones who think one step ahead.
Digital CFOs and Time Ahead
With the changing times, the role of CFO has shifted from an on-site job to a remote position. These CFOs are known as Virtual CFOs. A virtual CFO is an organization’s financial head responsible for every monetary transaction through the company’s account. These professionals often work under an umbrella company that manages many virtual CFOs in different sectors. The umbrella company appoints a virtual CFO to a company according to its preferences.
These CFOs are now responsible for working in the digital framework of the finance industry. Many companies have shifted toward virtual roles for their top management. This shift allows the company to look into a more advanced approach to commerce.
Technology has become a crucial part of our society. Without these advancements, our lives can’t persist. As these advancements keep developing, the system will continually change. From a financial standpoint, the economic shift in the entire business world is drastically shifting towards digitalization. Every job in this sector will transform into a digital position.
There is a big gap between traditional and digital CFOs in the industry that needs to be addressed. We understand there are still many concerns regarding virtual CFOs and their ability to hedge risk in the developing market. However, the results till now have been in favor of these computer-literate officials. These professionals are growing accelerated in the job market and paving the way for themselves.
Virtual CFOs are transforming the outlook of a company’s entire senior management system. In addition, technology has enriched the business environment with many complicated features. These features take financial expertise to operate, and a Virtual CFO is equipped with this expertise to address the world’s future challenges.