The new role of finance

The world is changing. Business is changing. The role of finance is going through a major evolution. In today’s business environment, finance organisations are becoming even more elevated as corporations increasingly rely on the financial and strategic prowess of their financial leaders. Today, finance professionals are facing an array of newrisks, responsibilities, and challenges, from managing a globally diversified business to mitigating new technology risks. They are responsible for reporting on the past, managing the present, and creating the future. Their role of finance has become ubiquitous throughout the organisation, and its influence only appears to be growing.

Banking across the globe has been going through a major transformation over the last few years, and this evolution looks set to continue well into 2018, and indeed beyond. The financial institution of today is more oriented towards the customer than ever before, and as such, a much larger proportion of its resources is being apportioned to making the customer experience as frictionless as possible.

To successfully achieve many of these challenges, it is perhaps of little surprise that technology will play a pivotal role, particularly as the buoyant fintech sector continues to disrupt the industry and attract a greater proportion of banking customers away from traditional financial institutions. Arguably, it will be the accelerated adoption of application programming interfaces (APIs) that will have the most pronounced technological impact on banks this year. Although such interfaces—which facilitate the connection of applications (including mobile apps) to the information-technology (IT) infrastructures of banks’ back offices—have been used by the financial-services industry for quite some time, the coming weeks and months are expected to witness marked growth in usage as banks look to increasingly partner with fintech companies. According to market-intelligence leader International Data Corporation, half of Tier 1 and 2 banks globally will offer at least five external APIs by the end of the year.

Much of this drive, moreover, is being prompted by new regulatory requirements; the Revised Payment Services Directive (or PSD2), in particular, is set to open the floodgates to any company seeking to access a bank’s customer-account information and payments services—something only the banks themselves were able to control previously. As such, customers will be able to use external non-bank third parties to manage their finances, while the third parties themselves will be able to leverage the use of banking infrastructure to offer their own financial services. With regulators pushing for more collaboration between banks and such fintech companies, therefore, APIs are being implemented to effectively facilitate the sharing of such data.

PwC predicts that the regulatory burden for banking providers will generally ease under a Trump administration. Like many other financial industry analysts, they don’t believe that Dodd-Frank will be repealed, but many of its provisions could be significantly revised. According to PwC, Trump’s broadest impact on financial regulation will come from his appointments to the federal agencies. They also forecast that stress-testing and resolution expectations will continue easing for smaller banks and stop rising for the largest ones.

The good news is that interest rates should continue to rise slightly — enough so that higher net interest margins can give banking providers the wiggle room they need to better offset whatever regulatory and capital requirements they face from government supervisors.

According to Deloitte, the residential mortgage business will likely grow despite this rise in interest rates, as housing starts are expected to jump to meet continuing demand. Deloitte also sees higher wage growth, rising household incomes and consumer confidence bringing new retail and small business lending opportunities. However, Deloitte cautions that retail deposit costs could rise faster than expected, as liquidity coverage ratio requirements place a premium on high-quality, stable funding.

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