As is quite typical of me, I wanted to write something poignant and insightful whilst also holding a mirror up to the world we live in. However, I thought I’d do something a little different this time. Given the future of finance is being driven by emerging technologies in an ever changing geopolitical and regulatory landscape, I wanted to demonstrate that we shouldn’t be afraid of the change that will inevitably come, but that we should embrace it.
The below piece was written by Artificial Intelligence using Microsoft Bing powered by Chat-GPT4. I insisted that it reference all sources, both academic and professional, and that it use language as if written by a CFO or a Partner at an accounting practice. I asked for between 2,000 and 3,000 words. I then proof read the article and made some amendments to make it read more like me, using more decorative and descriptive language. Finally, I input my revised version back into the program to suggest any amendments to improve the readability. A final proof read and you have the below.
Hopefully you will enjoy the results.
The financial industry as a whole is undergoing a radical transformation, driven by the rapid development and adoption of emerging technologies such as blockchain, artificial intelligence (AI), and smart contracts. These technologies are enabling a new paradigm of finance, known as decentralized finance (DeFi), which offers an alternative to the traditional, centralized finance (CeFi) model that relies on intermediaries and regulators to facilitate and oversee financial transactions and services.
Many of you may be familiar with DeFi from discussions around blockchain technology and cryptocurrency, where it is a collection of blockchain-based applications and protocols that aim to provide open, transparent, and permissionless access to financial services, such as payments, lending, trading, investing, insurance, and asset management. DeFi users can interact directly with each other through peer-to-peer networks, without the need for intermediaries such as banks, brokers, exchanges, or platform operators. DeFi leverages the power of smart contracts, which are self-executing agreements encoded on the blockchain, to automate and enforce the terms and conditions of financial contracts, reducing costs, errors, and fraud.
DeFi has been growing rapidly in popularity and adoption, especially since 2020, when the total value locked (TVL) in DeFi protocols increased from less than $1 billion to over $100 billion, attracting millions of users and investors from around the world. DeFi is seen as a disruptive and innovative force that can democratize and revolutionize the financial industry, by offering greater efficiency, transparency, accessibility, and inclusion to financial services, as well as fostering innovation and experimentation in new financial products and markets. However, DeFi also faces significant challenges and risks, such as security breaches, scalability limitations, interoperability issues, and regulatory uncertainty.
Moreover, DeFi is not only relevant for the external financial ecosystem, but also for the internal financial function within the businesses where you and I work. What will the finance team of the future look like? Will there even be a finance team in 10 to 15 years? Or will the majority of the work be automated and replaced by technology and AI integration?
What will happen to us accountants?
This blog post aims to explore the current and potential applications of DeFi for the finance team, the benefits and challenges of decentralizing the finance function (as an extension of how finance business partnering works nowadays), and the role of the finance team members in the future.
Automation and Technology in Finance
One of the main drivers of the transformation of the finance function is the increasing use of automation and technology to perform the routine and repetitive tasks that traditionally occupy a large portion of the finance team’s time and resources. These tasks include invoicing, payments, reporting, auditing, and risk management. By using tools such as robotic process automation (RPA), artificial intelligence (AI), blockchain, and smart contracts, the finance team can improve the efficiency, accuracy, transparency, and compliance of these activities, while reducing costs, errors, and fraud.
RPA is a software that can mimic human actions and execute predefined rules and workflows, such as data entry, validation, reconciliation, and extraction. RPA can help the finance team to automate the manual and mundane tasks that are prone to human error and inefficiency, such as processing invoices, reconciling accounts, generating reports, and performing audits. RPA can also integrate with other systems and applications, such as enterprise resource planning (ERP), customer relationship management (CRM), and business intelligence (BI), to streamline and optimize the end-to-end financial processes.
AI is a branch of computer science that can perform tasks that normally require human intelligence, such as learning, reasoning, and decision making. AI can help the finance team to enhance the capabilities and outcomes of the financial activities, by providing insights, predictions, and recommendations, based on the analysis of large and complex data sets. AI can also help the finance team to handle the more complex and judgmental tasks that are difficult to automate, such as forecasting, budgeting, valuation, and risk assessment.
Blockchain is a distributed ledger that can record and verify transactions in a secure and transparent way, without the need for intermediaries or central authorities. Blockchain can help the finance team to improve the trust and traceability of the financial transactions and records, by providing a single source of truth that is immutable and verifiable by all parties involved. Blockchain can also help the finance team to reduce the transaction costs and delays, by enabling faster and cheaper cross-border payments, settlements, and remittances.
Smart contracts are self-executing agreements that are encoded on the blockchain, and that can automatically execute the terms and conditions of a financial contract, such as payments, transfers, or deliveries, based on predefined rules and triggers. Smart contracts can help the finance team to automate and enforce the financial contracts, such as loans, bonds, derivatives, and insurance policies, without the need for intermediaries or escrow services. Smart contracts can also help the finance team to create and access new and innovative financial products and markets, such as decentralized exchanges, decentralized lending platforms, blockchain derivatives, and on-chain asset management protocols, if appropriate and aligned with the business strategy and objectives.
The implications of automation and technology for the finance team are profound and far-reaching. By using these tools, the finance team can not only improve the efficiency and quality of the existing financial activities, but also transform and reshape the role and scope of the finance function, from a traditional, transactional, and reactive model, to a modern, strategic, and proactive one. The finance team can shift from being solely a cost centre and a business support function, to being a value driver and a business partner, that can provide insights, guidance, and solutions to the business challenges and opportunities.
Decentralization and Data Insights in Finance
Through the transformation of the finance function discussed above, the finance team can become more decentralized and distributed across a business or organization, rather than concentrated in a single location or unit. This allows the finance team to be closer to the business operations and customers, and to provide more relevant and timely data insights and guidance to support decision making and value creation. Finance, as we know it, is removed as a cost centre and the team members become part of profit centres that can contribute towards the growth of a business in a meaningful and impactful manner.
Decentralization in finance is not a new concept, but it has gained new momentum and significance over recent years with the advent of new and emerging technologies as discussed previously. Through the application of DeFi, the finance team can not only improve the efficiency and effectiveness of interactions with external financial ecosystems, but can also improve the efficiency and effectiveness of the internal operation of the financial systems, improve governance and compliance with ever-changing regulations, develop deeper and more impactful relationships with the wider business and become more agile in approach. Through a decentralized network model, each department or business unit now has a single finance member who acts as a liaison, advisor, and analyst. This aligns the finance team with the wider vision and strategy of the organization, and supports the business goals and objectives of each department.
The benefits of decentralizing the finance function include:
Improved efficiency and agility: By automating and standardizing the routine and repetitive tasks, such as invoicing, payments, reporting, and auditing, the finance team can free up time and resources to focus on more value-added and strategic activities, such as planning, forecasting, and scenario analysis. Moreover, by being embedded in each department, the finance team can respond faster and more flexibly to the changing needs and demands of the business and the market.
Enhanced collaboration and innovation: By working closely with the business leaders and stakeholders in each department, the finance team can build trust and rapport, and foster a culture of collaboration and innovation. The finance team can act as a partner and advisor, rather than a controller and enforcer, and help the business to identify and seize opportunities, mitigate risks, and optimize performance.
Increased visibility and accountability: By providing data insights and recommendations that are tailored and relevant to each department, the finance team can increase the visibility and transparency of the financial performance and impact of the business activities and decisions. The finance team can also help to establish and monitor the key performance indicators (KPIs) and metrics that align with the strategic goals and objectives of the organization, and hold the business accountable for the results and outcomes.
However, decentralizing the finance function also poses some challenges and risks, such as:
Loss of control and consistency: By delegating and distributing the finance activities and responsibilities to each department, the finance team may lose some control and oversight over the financial processes and policies, and face difficulties in ensuring the consistency and quality of the financial data and reports. The finance team may also encounter conflicts and trade-offs between the local and global interests and priorities of the organization, and struggle to balance the autonomy and alignment of the finance function. This would likely be mitigated through maintaining a traditional Finance Director or CFO who is responsible for ensuring the overall quality of financial outputs and compliance with the corporate standards and regulations.
Skill and talent gap: By shifting and expanding the role and scope of the finance function, the finance team may need to acquire and develop new skills and competencies, such as digital and analytical skills, business and domain knowledge, communication and interpersonal skills, and leadership and management skills. The finance team may also face challenges in attracting and retaining the talent and resources that are required to support the decentralized finance function, and compete with other functions and departments for the best and brightest people.
Security and compliance issues: By leveraging and integrating the emerging technologies, such as blockchain, AI, and smart contracts, the finance team may expose the financial data and systems to new and complex security and compliance risks, such as cyberattacks, data breaches, fraud, and errors. The finance team may also need to comply with the evolving and diverse regulatory and legal frameworks and standards that govern the financial transactions and services, and deal with the uncertainty and ambiguity of the rules and regulations.
Therefore, to successfully decentralize the finance function, the finance team needs to adopt a holistic and balanced approach, that considers the benefits and challenges, the opportunities and risks, and the enablers and barriers of the decentralization process. The finance team also needs to collaborate and coordinate with the other functions and departments, and align the finance function with the vision and strategy of the organization. This is not a small undertaking, but the risks can be mitigated and the benefits are there to be seized, if the finance team is prepared and proactive.
The Human Connection
One of the most important and often overlooked aspects of the future of finance is the human aspect, which refers to the impact and implications of the transformation of the finance function on the people involved, both within and outside the finance team. How will the finance team members cope and adapt to the changes and challenges brought by automation, technology change, and decentralization of the finance function? How will the finance team members interact and communicate with the business leaders and stakeholders in each department? How will the finance team members develop and maintain their skills and competencies in the digital and decentralized era of finance?
These are some of the questions that the finance team members need to ask themselves and address, as they prepare for the future. The finance team members should not be fearful, but rather embrace and welcome it, as an opportunity to learn, grow, and thrive in the new and exciting world of finance. Adopting a positive and proactive mindset and attitude can help them overcome any potential obstacles and difficulties, and leverage the available resources and support, that can facilitate and accelerate their adaptation and development.
Some of the tips and suggestions that can help the finance team members to embrace and thrive in the future of finance are:
Be curious and open-minded: The finance team members should be curious and open-minded about the new and emerging technologies and trends in finance, such as blockchain, AI, and smart contracts, and how they can improve and transform the finance function and their lives.
Be flexible and adaptable: The finance team members should be flexible and adaptable to the changing needs and demands of the business and the market, and to the shifting and expanding role and scope of the finance function.
Be collaborative and communicative: The finance team members should be collaborative and communicative with the other functions and departments, building and maintain trust and rapport, and fostering a culture of collaboration and innovation, that can support and enable the success and growth of the business and the organization.
Be analytical and strategic: The finance team members should be analytical and strategic in their approach and thinking, and also be able to provide and present data insights and recommendations, that are relevant and timely, and that can support and guide the decision making and value creation of the business and the organization.
Be creative and proactive: The finance team members should also be able to create and implement solutions and initiatives, that are innovative and impactful, and that can drive and enhance the performance and outcomes of the business and the organization.
The future of finance is here, and it is decentralized, digital, and data-driven. The finance function within a business is changing and evolving, as the majority of the work becomes automated and replaced by technology and AI integration, and the people involved will likely move towards a decentralized structure with a single finance member sitting within each department providing data insights relevant to the department. This transformation offers significant benefits and opportunities, such as increasing efficiency, innovation, and value, but also poses considerable challenges and risks, such as losing control, consistency, and security. Therefore, the finance team needs to adopt a holistic and balanced approach, that considers the benefits and challenges, the opportunities and risks, and the enablers and barriers of this transformation process. The finance team also needs to collaborate and coordinate with the other functions and departments, and align the finance function with the vision and strategy of the organization. Moreover, the finance team members need to embrace and thrive in the future of finance, by being curious, open-minded, flexible, adaptable, collaborative, communicative, analytical, strategic, creative, and proactive.
It is not only about the finance function and its role in the business, but also about the finance team, and how the finance team can transform and reshape their role and scope, from a traditional, transactional, and reactive model, to a modern, strategic, and proactive one. It is also about each individual finance member, and how they can grow their skills and abilities by acting as a liaison, advisor, and analyst within each department, and providing data insights that are relevant and timely, and that can support and guide the decision making and value creation of the business and the organization.
The future of finance is here, and it is exciting and promising. Are you ready for it? 🚀
Could you tell this was written by AI if I hadn’t told you at the beginning? Feel free to answer in the comments.