Financial leaders have faced an increasingly dynamic commercial, regulatory and technological environment in 2023 in banking. From geopolitics to financial instability and the rapid advent of AI-focused-everything, CFOs are dealing with an increasingly volatile market. The demands on systems in the front and back office are changing rapidly.

Among the events that have marked this year, two indicate a long term risk for the industry. The re-emergence of banking crises and the intrusion of technology giants into the financial space. While seemingly distinct, they in fact point to a similar challenge facing major institutions. How to make the most of the industry’s vast data reserves to be more compliant, more agile and more focused on the needs of modern customers. For the CFOs who sit above these systems of record, the need to get to grips with the data foundations behind large institutions looks to be a defining task of the period to come.

We spoke to SAP Fioneer Managing Director Sascha Maric and President of Americas Mitch Bouchard to understand what these issues mean for institutions going forward, the risks and opportunities they present and where we go next.

Shifts in the 2023 banking landscape

“Banking relies on three pillars: trust, information and regulation. We’ve seen all three of these tested this year.” says Mitch. “These were areas where banks held all the cards. But these have been tested in recent years and we’re seeing some of the results of that now.”

The slow-motion crisis

The collapses of First Republic Bank, Silicon Valley Bank and Signature Bank were the second-, third- and fourth-largest bank failures in the history of the United States, all happening within five days. In true cyclical fashion, they were driven by weakened regulations that had been put in place to prevent such an event, then watered down by the industry itself.

Here the story of compliance and technology are tightly coupled. “When Dodd-Frank first came in after the 2008 crash, banks came out to say that no technology at that time was capable of achieving what regulators were asking.” says Sascha. “Now, we have those tools, but it’s not yet clear that banks have made the investments they need to keep on top of these responsibilities.”

In the case of Silicon Valley Bank, the first domino to fall, the business lacked the information to accurately predict the effects of rising interest rates and falling bond prices. Regulation didn’t mandate sufficient capital reserves to reassure the market, and the bank lost the trust of its account holders.

“This really is a critical time for banks. I don’t think we’ve seen the last of these issues and we may well find more banks in a perilous position come the end of the year.” says Sascha.

Shadows of the future

2023 has seen a bold move from technology giants like Apple into the financial domain. We’ve seen this with the arrival of Apple Pay Buy-Now-Pay-Later, following on from Amazon’s move into insurance last year.

While both initiatives have been executed in partnership with existing institutions, they also show a potential disintermediation risk, with Big Tech becoming the consumer-facing shop front for financial services and formerly major-player institutions becoming mere clearinghouses in the shadow of these tech behemoths.

For both the insurance and banking sector, this risk highlights the challenges of adapting and innovating in an increasingly data-driven market. Despite sitting on oceans of data, large institutions have struggled to leverage their information to create new routes to market and keep up with regulatory oversight.

“Regulation is currently the only thing keeping technology companies from fully entering this space,” says Mitch. “The risk for banks looking to weaken regulatory burdens on their own balance sheets is that they’re also shrinking the moat around their services.”

To safeguard their positions, banks and insurers will need to grapple with the issues underpinning these trends.

Pressure on data and digitization

The rising complexity of financial data management has become a significant challenge, particularly for large banks. The ability to provide accurate and transparent data to regulators is increasingly expensive. Gartner reports the cost of poor data quality at $15 million per organization per year. And in some cases, the data credibility has been called into question, leading to hefty fines for institutions like Citibank.

However, the cost and complexity of driving change in the financial arena often outweigh the perceived return on investment, pushing data management improvements lower down the priority list.

There are indications that attitudes may be shifting – a 2022 Gartner survey found that 92% of CFOs plan to increase investment in technology, up from 70% in 2021. But to yield the results the industry needs, this will need to focus not just on the shiny front-end of banking, but the nuts-and-bolts back office processes that underpin the system.

This starts with granular data. As finance departments move to modernize and digitize, this requires accurate, granular, and timely finance data across many systems. However, for many banks, data remains siloed in multiple locations, often duplicated between systems and requiring significant manual work to manage.

To fix this, a single point of truth is necessary for financial products subledgers, placing finance professionals more in control of data. Connecting operational and finance systems through a single hub enables finance departments to launch products and keep up with important regulations including IFRS 9, IFRS 17 and US GAAP.

Risk management and regulations in banking

Regulations have always served as a barrier to entry in the financial sector. However, their role has evolved from simply enforcing compliance to shaping banks’ strategic decisions.

“Banks have traditionally viewed compliance as a preventative measure, a bulwark against violations of policies, rules, regulations, and laws, but when compliance and business stakeholders work side-by-side, institutions can protect against downside risks while also capturing more of the upside opportunities.” says Sascha.

For institutions operating in a shaky financial system, the ability to project trust and confidence is paramount. However, the sub-optimal data conditions of many banks mean that any regulatory updates or remediation can come with an eye-watering cost, requiring extensive IT and business-side collaboration, bespoke data modeling and multiple rounds of manual review. One McKinsey report found a bank spending $100 million over a few months to document the data lineage for a handful of models.

A lack of integration between modules and a deficiency in the level of needed granularity to support statutory and regulatory reporting demands creates a situation where these systems often fall short of the out-of-the-box flexibility that finance leaders need most.

This is not a scalable model – IT spending from banks is forecast to total $652.1 billion in 2023, an increase of 8.1% from 2022 – and as regulation continues to evolve, banks and insurers will need to find less resource-intensive ways to source and structure data for business users.

Emerging technologies and AI

AI has been a focal point for leaders in every industry this year, often driven by external questions about its application. However, the reality is that AI in finance is still in search of a purpose.

“AI may have its uses for front-end customer service or sentiment analysis, but when it comes to the core work of finance and risk that CFOs need to own and manage, the models just aren’t there yet,” says Sascha.
That hasn’t stopped the most ambitious banks taking big steps towards an automated future, with 40% of all open job roles at digital-minded banks looking for AI-related hires such as data engineers and quants.

Many banks already use natural language processing (NLP) as an interface to understand text and spoken words for established customer interactions, RPA for logical and human anticipation and reaction to customer queries and machine learning reconciling millions of transactions.

The challenge will be turning these tools into compliant, trustworthy use cases. “Transactions and regulations produce data sets for FSIs in massive dimensions, but for many organizations, the data quality to run these models is just not there.” says Mitch.

While these tools point towards a bright future, there will be a significant amount of less–glamorous legwork to do when it comes to creating a stable data foundation from which to build the AI-first bank of the future.

ESG and sustainable banking

The growing emphasis on Environmental, Social, and Governance (ESG) considerations is shaping financial institutions’ strategies and risk management practices. However, North American banks lag their European counterparts in implementing ESG reporting standards, and some have been accused of ‘greenwashing‘ their practices.

The number of ETFs carrying an ESG label more than doubled in the past two years, reaching almost 1,300 at the end of 2022 –in reality, Gartner highlights that many lack the ability to effectively measure and demonstrate progress, making real progress slow and inefficient.

“There’s still some questions about where in the business ESG will sit, but it seems likely that at some point it’s going to come under the purview of CFOs.” says Mitch. “This adds yet another layer of complexity and detail to the information these leaders need to access – but one that can come with public outcry if it falls short.”

The role of modern CFOs

Finance leaders are increasingly expected to manage their traditional responsibilities effectively while simultaneously guiding their organizations through digital transformation and ensuring that systems remain fit for purpose.

Given the progressive expansion of disintermediation of financial services, through embedded finance, insurance and lending, banks – especially mid-sized institutions – have to rethink their market positioning. Digital firms, including neo-banks, have gained market share by focusing on customer experience, but still lack the scale, regulatory expertise and risk experience of incumbent institutions.

The challenge for legacy providers will be to balance finding new products and routes to market with keeping ownership of customer experience, with internal and external collaboration an essential skill for modern CFOs.

Finance departments do search for new ways to collaborate with other business units, including operations, marketing and sales to align financial goals and business objectives. Additionally, there is a push by CFOs and finance leaders to think creatively and embrace innovation as a vehicle by which to transform data collection, reporting, information, operating models, talent acquisition and retention, and systems.

“The power balance in these relationships will depend on who can own more of the value chain – the more banks can create their own digital journeys based on robust digital infrastructure, the more they can protect their place in the customer journey.” says Sascha.

Looking ahead

To be successful in tomorrow’s market, finance departments must shift their thinking about tech and transformation. The short-termism that has held back major investments in the core infrastructure that manages risk, compliance and data insight has now left the industry in a tough position as conditions evolve.

Institutions who embrace innovation and foster forward-thinking cultures will be the leaders in tomorrow’s financial services arena. Transformation may not necessarily mean an overhaul of a sub-ledger, but rather a re-think of how data is collected, structured and shared to improve reporting and modeling throughout the business. This is a shift away from legacy systems to new innovations, outdated working models to current efficiencies, complex infrastructures over to simplified and harmonized analytical systems.

In a market where rules, partnerships and competition are becoming more complex, finance departments will need to focus on simplicity, making the work of analysis, reporting and planning more intuitive and transparent.

  • Innovation is the new standard: CFOs and finance leaders will adopt more innovations internally and work with external vendors and partners to create solutions which best suit the business and can scale.
  • Shiny new solutions: Software will be more focused on outcomes specific to company and business needs. Tech products will move further to improving operating systems and helping to link data silos.
  • AI to spec: Opportunities for efficiency will be everywhere. Data will move closer to absolute precision via AI customization. It will move slower than other industries, given current regulations, customized AI will be the future for financial services, enabling platforms to ask questions and finance able to respond in real time via AI chat functions.
  • CFO with a crystal ball: the role will evolve and drive further efficiency, giving more time back to CFOs to be predictive and prescriptive on business outcomes.
  • Consolidation intoxication: fewer but bigger banks, especially in the U.S.
  • Regulatory rollout: Reporting will be table-stakes in FSI, placing further pressure on CFOs and Finance Departments to not only provide business data, but to also help in mitigating unforeseen risks.


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