3 Macroeconomic Conditions Facing Financial Services CFOs

Olivia Berkman

The financial services CFO is looking at a new normal. The convergence of three macroeconomic conditions has changed the ways CFOs and the C-suite manage their businesses fundamentally.

The economic climate of the last 10 years has forced significant shifts in the way financial services CFOs are approaching compliance, attracting and retaining talent, and decision-making.

David O’Malley, general manager, U.S. Financial Services and Insurance at SAP North America, explains, “It’s a convergence of risk and regulation as the new norm, with the well-documented, pent-up demand for innovation over the last seven or eight years after the global financial crisis.

“And the last piece is this incredible explosion of activity around what we call fintech, which really is nothing more than financial technology providers disintermediating a lot of financial services firms from traditional revenue models and revenue streams.”

Risk and regulation is the new normal

The convergence of these conditions has put pressure on traditional revenue streams and capital availability. One of the challenges around risk and regulatory is that many financial services executives have a difficult time providing transparency and getting to a single source of truth.

“When you have five or six or ten systems of records through acquisitions that are not reconciled and that give you different criteria and sources from which the data was sourced, banks find themselves in a situation where they absolutely cannot give the level of transparency they need to internal and external stakeholders,” O’Malley says.

There are steps companies can take to point to a single source of truth and regain the ability to free up underperforming assets, put capital back on the street, and make investments.

According to O’Malley, “They’re going to be told to reserve more and that’s going to have that much more of an impact on earnings. But for them, that transparency, that access to data, is without question one of the number-one ways we see forward-thinking CFOs using technology to their advantage. It gives them the ability to pivot, to react to market conditions.”

For a CFO of a tier-one financial institution, being able to react to market conditions and leverage global events, such as Brexit or a disturbance in the Middle East, is an ideal state very few can reach. “When I talk to CFOs, they say, ‘Look, I want insights. I want to be able to make decisions on things. I want to know that if I have a short-term cash-flow issue in one of my emerging countries, and I’m going to miss payroll, that I can find access to a low-interest, overnight loan that I can get from a variety of vendors and that I can get an instant decision on that. And I can’t do that unless I know my cash position.’ Really, at the CFO level, its more about insights, it’s more about the narrative.”

The fintech boom

The rise and evolution of fintech has forced CFOs to rethink a lot of their traditional business models to control costs. Technological innovation has upended long-established ways of trading and banking.

O’Malley explains,“When you think about payments, for example, you think about the way some of these fintechs today can interrupt a normal process that took an intermediary to confirm counterparties and to offset the counterparty risk and to make sure that payments were settled. Now you’re going peer-to-peer, and you’re leveraging tools like distributed ledger and Blockchain to actually take those players out of the middle, and almost overnight, eliminate a major fee category for them.”

“There are always the market leaders, typical bell curve. You have a lot of fast followers and you have laggards. And what I’m seeing is that companies that are slow to respond are losing. Now, are the lights going off completely? No. They’ll probably shrink. They’ll probably come back to whatever it was that once made them great, but the truth of the matter is that they’re losing in a lot of ways.”

Demand for innovation

They’re not only losing in capitalizing on market conditions by not being able to react instantaneously based on real-time data. Companies are also losing because they are not positioned well to attract and retain top talent.

“Those talent wars are raging. And we’re not attracting and we’re not retaining the best and brightest students like we used to in financial services circles. And why? Because there are so many limitations and so many challenges and so many processes that are very stale. And the environments are not conducive to creativity, or for people having access to make information-based decisions.”

Companies that are successful in acquiring and retaining talent are getting them involved in high-stakes projects with the ability to access information in real time and make decisions.

For more insight on the future of financial service companies, see What Comes After FinTech?

This article originally appeared in FEI Daily. It is republished by permission.

Olivia Berkman

About Olivia Berkman

Olivia Berkman is the managing editor of FEI Daily, Financial Executives International’s daily newsletter delivering financial, business, and management news, trends, and strategies.