The Evolution of Financial automation: Key trends and Insights

Explore the transformative potential of financial process automation in enhancing productivity, reducing risks, and adding value to finance departments. Uncover strategies for CFOs to prioritize and maximize the impact of digital transformation in financial operations.

Dimitri Raziev
Founder, Kolleno
datepicker icon January 21, 2024

Optimising financial operations by automating workflows is at the heart of a company’s competitiveness. Whether by introducing machines into value chains or planning processes for support functions, the aim is to boost productivity by automating financial processes and enhancing automatic back office finance tasks. In fin ops, where human error has no place, finance process automation is a godsend for concentrating human resources on higher value-added tasks while reducing the risk of error. The traditional challenges faced by CFOs (minimising delays, boosting productivity, improving data quality and reporting, etc.) are still unavoidable, but the focus is now on these new technologies, which make it possible to go much further in automating low-value-added tasks like back office finance tasks and achieve 100% financial process automation. The opportunities are numerous, and the digitisation of supplier processes is a key driver of productivity, risk reduction and added value for finance departments. Accelerating the digital transformation of finance departments should be a priority on CFOs’ agenda. How can finance departments maximise the impact of this digital transformation?

The democratisation of process automation in financial services

What is financial operations? Financial transactions refer to transactions in financial assets and liabilities between resident institutional units or between resident institutional units and non-resident institutional units. A financial transaction between institutional units involves either the simultaneous creation or liquidation of a financial asset and its counterpart liability, the change of ownership of a financial asset, or the incurrence of a liability. Financial operations require lots of human intervention and are mostly considered back-office tasks. 

Automating financial processes is nothing new: the arrival of IT tools in companies began a long cycle of task automation in financial services. From paper-based account bookkeeping to ERP systems incorporating OCR (optical character recognition) functions, technical progress continues to relieve accountants, CFOs, and treasurers of numerous low-value-added tasks, often perceived as time-consuming and error-prone. Today, the automation of financial processes is being democratised, thanks in particular to increasingly powerful “artificial intelligence”. In fact, according to a PWC report published in 2017, almost a third of existing activities could be automated in financial fields. This trend towards ever-increasing automation already seems to have begun among administrative and financial directors since 65% of them claim to have standardised and automated processes, according to another study by Ernest and Young.

What are the benefits of automating financial processes?

1. Simplified financial operations 

– Artificial intelligence-driven automation optimises processes

– Lower operating costs

– Faster transactions

2. improved insights

– AI excels at analysing vast amounts of data

– Informed investment decisions

– More time to offer personalised financial advice to customers.

3. Increased security

– Automation enables faster data processing

– Improved fraud detection

– Greater security for financial transactions

Simplified operations

First and foremost, task automation can drastically improve the productivity of finance departments. Without replacing human resources, it enables them to concentrate on higher-value-added tasks such as controlling, consulting, and strategy. Automation makes it possible to autonomously manage many tasks that used to be handled by accounting departments: expense reports, bookkeeping entries, payroll management, and invoicing management. In the video below, Kolleno’s Head of Product Jared showcases real life examples of how certain tasks within financial control can be easily automated with workflows

These tasks were particularly time-consuming but not overly complex. Moreover, they could be a source of error, with dramatic consequences for the company in terms of both tax and cash management.

Therefore, automating financial processes can ensure better risk management within the company. This risk management can be accompanied by automated verification of supplier repositories to minimise the risk of fraud. To this end, the Trustpair solution enables automated control of the supplier repository by checking the bank details and identities of the various suppliers to ensure that the entire file is error-free.

Up to date information

In addition to eliminating human error, the automation of financial operations ensures that accounting is always up to date. Where previously, provisional account closings for financial arbitration purposes could prove as tedious as an annual year-end closing, automation enables regular reporting to monitor strategic financial KPIs, such as cash flow, operating margin, and inventory levels, on an ongoing basis.

The result is improved communication/collaboration between the company’s various departments: each has access to reliable information, enabling them to make informed decisions based on financial indicators, not to mention the possibility of interconnecting the company’s various automated processes to aggregate data from different departments. In short, automation opens up a whole new world of possibilities for the organisation… 

Ultimately, for the company, automation translates into improved productivity, greater reliability, and even a source of savings. By enabling financial departments to concentrate more on more important tasks, it should be seen as an opportunity.

Increased security 

Cybercrime is a major concern for business leaders. For many, the increase in connected devices and digitalisation is a positive development. However, with this progress comes a considerable increase in threats such as fraud, hacking and data theft. PwC’s 19th annual global CEO survey reveals that 61% of all CEOs are concerned or extremely concerned about cyber threats. No company is immune.

To combat fraud, many financial institutions use machine learning to detect anomalies. To do this, they are considering techniques such as logistic regression, decision trees, neural networks and clustering. With this type of AI, companies can study customer behaviour and then compare it with other indicators. The result is a complete picture of a transaction. Outside the financial sector, many companies have an e-commerce component. Advances in fraud detection would undoubtedly be an asset for customers. PayPal, for example, uses Machine Learning to reduce the fraud rate to 0.32%, compared with an average of 1.32%.

Improved insights 

Financial automation helps businesses secure reliable data for improved performance management. Digitising processes doesn’t just cut costs: its ROI goes far beyond the financial, enabling you to manage your business more effectively. In its report on the future outlook for supplier management, the IOFM states that more than one in two accounts payable managers believe that P2P processes are set to become increasingly complex, not least because of the growing number of interconnected data flows.

For many companies, the challenge is to move from 100% paper to digitalisation of the entire supplier process: availability, auditability and reliability of information are the issues that lead businesses to choose automation.

Five trends currently prevail in financial automation in 2023, displaying a steady growth in adoption: RPA, digital-only banking, software-as-a-service, Regtech, and Buy Now Pay Later. 

Financial automation software and RPA 

Robotic Process Automation (RPA) is a user-friendly software that automates processes by accessing user interfaces without touching underlying programs. RPA involves entrusting a software program (or robot) with a repeatable task cycle that may or may not reproduce the workflow normally carried out by humans. This may involve simple manual tasks such as copying, pasting, sorting, filling in, transferring, etc… To do this, the RPA can perform a number of operations to achieve the desired result: collecting information sources from different types of channels (OCR for invoices, databases, third-party software APIs…), information processing, response triggering, and communication with other information systems.

As a result, RPA can be introduced at various levels of financial processes, from accounting entry to more complex processes such as Procure to Pay. P2P automation thus enables a company’s procurement cycle to be generated autonomously, from order to payment. In this context, the RPA automates the validation of data relating to new suppliers, notably by verifying solvency, address and tax information. The process also integrates payment processing while ensuring that invoices comply with orders placed. In other words, the system acts autonomously, while the financial departments play only a supervisory role.

Robotic Process Automation

Robotic Process Automation (RPA) is an application of AI. It is currently widespread in accounting. The most performant financial process automation software is capable of eliminating routine, repetitive analysis tasks previously performed by human beings, such as reconciliation and consolidation, i.e. standard formula-based tasks. Many companies have already reaped the benefits of automated financial reporting software, enjoying reduced transaction processing time and increased productivity, redeploying staff to more skilled roles and eliminating manual errors.

At present, RPA generally takes the form of simple automation and is limited in its ability to adapt and evolve like a human. However, an emerging trend is to combine RPA with cognitive technologies. Machine learning or natural language processing enables the automation of back-office finance tasks that usually require human intervention. 

AI is also making its mark in personal finance management. To do this, it offers technology-based tools: cloud-based AI, predictive data analytics and, last but not least, chatbot messaging. These are designed to track transactions and even provide advice in real-time, recording and managing business transactions.

The rise of digital-only banking

Over the past decade, the popularity of digital-only banking has risen to unprecedented levels. While traditional banks were once the only option for investors and consumers, neobanks are becoming increasingly attractive. One of the main factors driving digital-only banking’s growth is the proliferation of financial technology start-ups. These start-ups are leveraging cutting-edge technological advances to offer innovative financial solutions to consumers and businesses. Financial technology companies have made it easier than ever to send money and make payments online, while others have disrupted the traditional stock market industry by allowing customers to trade stocks commission-free. Neo-banks enjoy certain distinctive advantages that make them more attractive to customers, like higher interest rates for saving accounts and lower fees for certain services. What’s more, many neo-banks offer their customers more options than traditional banks, including real-time notifications when funds are deposited into their account or access to budgeting tools that can help them manage their finances more efficiently.

Software-as-a-service platforms will pave the way for greater cost savings

Software-as-a-service is an application delivery model in which users access a platform remotely. A third-party provider manages the software hosted in the cloud. As a result, users don’t need to buy hardware or licenses or worry about installation or maintenance; they just pay for and use the service. For financial companies, using a software-as-a-service platform can be incredibly advantageous. These platforms offer several advantages over traditional face-to-face service solutions, including cost savings, scalability, agility and security. Companies can significantly reduce their information technology (IT) spending by using cloud technology and eliminating upfront hardware costs. And because suppliers manage all aspects of their software solution, including maintenance and upgrades, companies don’t have to worry about incurring additional costs later. These platforms enable companies to obtain services according to their dynamics without investing additional resources or manpower. They are especially suitable for companies experiencing seasonal fluctuations or those with limited budgets who need greater flexibility to grow their business.

The emergence of regulatory technology

Regulatory technology and related solutions are expected to be a strong trend in 2023. Regulatory technology, sometimes referred to as RegTech, is a form of financial technology that enables organisations to more effectively manage the ever-increasing number of regulatory requirements with which they must comply. 

It provides companies with automated solutions to simplify compliance processes, reduce costs and improve operational efficiency. Regulatory technology can benefit companies in a number of ways. Among other things, it helps them comply effectively with government regulations. 

This helps reduce non-compliance costs and allows companies to focus on more strategic initiatives rather than manually managing compliance processes. 

Buy now, pay later” services will continue to grow

“Buy now, pay later” services offer payment options allowing customers to buy and pay for items later. This usually involves registering with a provider who then facilitates payments over time. Consumers favor this service, providing immediate item access without the need for immediate payment, leading to its increasing popularity. These services gain popularity due to rising demand for flexible payments and increased accessibility to digital solutions, such as apps. Many retailers adopt this model to attract new customers and boost sales for its convenient and user-friendly nature. As more retailers offer this payment option, more people will likely use it, further contributing to potential growth.

The future of AI and automation

AI and automation continue to evolve rapidly across all sectors. As they advance, natural language processing, robotics and machine learning push the boundaries. An era of AI-driven solutions, digital transformation and smarter industries is upon us. AI and automation are forces transforming industries. Their impact promises lasting change by providing opportunities, driving innovation, and ensuring responsible deployment.

In this dynamic context, the partnership between humans and machines is paramount. The capabilities of AI, combined with human expertise, translate into revolutionary advances; automated financial reporting software is finance departments’ future. As AI handles repetitive tasks and data analysis, professionals can focus on problem-solving and strategic decision-making. Embracing tech responsibly, finance departments pave the way for an innovative, growth-oriented future with limitless possibilities.

Take away

Companies willing to implement automation must identify the processes they want to automate, starting with repetitive financial operations. The company must also weigh various internal factors, including size, financial transaction volume, process complexity, and budget allocation. Still, the world of finance has a reputation for being risk-averse. However, the sector has every reason to embrace new technologies as they emerge to reduce costs and improve efficiency. 

Dimitri Raziev
Founder, Kolleno
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