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Is there enough room for both Man and Machine?

How has the world of finance transformed?

Make note of this very interesting transition. In the first half of 2020, (when the coronavirus pandemic was still in its nascent stages), we spoke incessantly of the oncoming digital transformation – the phenomena that was going to envelop each and every aspect of the financial world in the days to come. Cut to the final quarter of 2020 – and those days have come. A bulk of the world of finance has already moved far ahead on said journey, and even those who hesitated at first have now started to go through change. The degree of automation has been highly varied, ranging from as little as one-fourth of existing processes to as high as 90% in some cases. There are firms, however, who are still struggling and are yet to implement changes.

The Two Cohorts

Thus, the world of finance today stands in two distinct cohorts: (1) firms at a stage where digital transformation is a reality and can be completed in near future due to availability of tools and resources; and (2) firms still struggling with the transformation process owing to a host of challenges, such as intercompany or bank reconciliation.

For those firms which are still struggling, the primary cause may be in the cost of overturning existing systems. Many of these are large/older firms which work on older ERP (Enterprise Resource Planning) systems which were set up using considerable financial resources and time. These are firms still seeking to squeeze out the last drop of return from their previous investment and are averse to adopting newer systems. How long they can sustain themselves in their previous setup still remains a looming concern.

For such firms, there are two courses of action to be looked at: (1) building a completely new platform and a novel ERP system that fits their exact needs or (2) taking an agile approach in digitising processes piece by piece. Although the first idea is safer, it is more expensive in the short run given the fact that it will require a dedicated team of experts and consultants to carry out the change. The second, albeit cheaper in the short run, will require greater adaptability within the firm – as different aspects of the business will be continually digitising itself and start functioning in a different way compared to the rest of the processes.

Digitally transforming financial processes – whether over an 18-24 month period or over a 3-month period – is going to be a challenge either way. Once completed, however, the obvious question to answer will be this: How much of finance will AI make redundant?

The Degree of Digital Transformation

First, it would be prudent to get an idea of the degree of expected change to be brought about digital transformation processes to the various verticals across finance. In most firms, for example, finance operations are set to become almost 90% automated, with greater human focus being put on controlling the processes rather than carrying them out. For example, chat box functionalities to look up account details and receivables in back-office as well as in an interface meant for users will greatly cut down on time and promote ease of access.

Data Analytics and forecasting will see an automation degree of almost 75%, with the primary need for flexibility and human intervention coming in during unforeseen exigencies, such as supply/demand shocks, labour market shocks or pandemics such as the COVID-19 crisis. Automated Revenue Forecasting systems, for example, will design several algorithms to analyse both internal and external data and generate more accurate forecasts in days – instead of the weeks needed by globally dispersed teams that are currently still acclimating to new scenarios like working from home and remote collaboration.

In partnering businesses, AI is expected to have a 25% potential automation rate; hence leaving it to primarily be a human-centric exercise, especially in taking key actions and decisions. Digital capabilities will, however, greatly enhance the ability to harvest business needs from finance, such as auditing suspicious invoices for manual approval or in deciding how to deal with a train disruption at a supply bottleneck.

The bottom line, however, reads for a massive transformation in requisite skills and processes for employees, with most requiring to adapt to a new task or a very different-looking old one. Finance is not set to become a 100% digitised as of yet, and humans will remain a mainstay in the years to come.

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