Date posted: 1/12/2016 5 min read

Digital disruption transforming the finance sector

A wave of digital technology is causing massive changes in the finance world. Will your business survive or drown?

In brief

  • New technologies have brought about a redistribution of power
  • Accountants will integrate non-traditional financial options; finance will be less bank-centric
  • On the stock exchange a millisecond can be worth billions in competitive advantage

By Chris Riddell

The financial sector has been, and continues to be, massively affected by a tidal wave of technological change.

If you listen to the pundits and panic-merchants, you may be thinking that digital disruption sounds like the end of life as we know it, that the future looks bleak and that your job as an accountant may be about to disappear under the rising waters of new technologies.

Let me begin by saying: “Don’t panic!”

I don’t want to stereotype anyone and I’m sure that many accountants are wild, crazy, spontaneous party animals.

But that’s not why clients or employers hire you. They want an accountant who is level-headed, responsible, well-informed, professional, competent and capable — who can give good, sound advice and help them navigate the often-treacherous financial waters.

In fact, in this rapidly changing environment, your employers and clients need an accountant like this more than ever.

  • Firstly, I want to cut through the hyperbole and demystify “disruption”giving you a clear and helpful description of this digital revolution that is happening all around us
  • Secondly, I’ll examine some of the emerging trends in technology and explore the impact that they are having on the finance industry in general and on the accountancy profession in particular
  • Thirdly, I’ll leave you with some practical suggestions, some action points to consider so that you can not just keep your head at a time when many professionals are panicking and losing theirs, but also continue to provide a valued and essential service to your clients and build your business in the process

Let’s begin by taking a look at this phenomenon they call digital disruption.

Teen sex and digital disruption

Disruption. It’s a lot like teenage sex:

  • Everyone’s talking about it
  • Many people are concerned about it
  • Lots of people say they’re doing it
  • The reality is there’s more talk than action
  • The people who talk about it the most probably aren’t doing it
  • The people who are doing it are too busy doing it to stand around talking about it

So, what is the reality? How should we understand disruption? What does it actually mean?

There is no question that “digital disruption” was the buzz-phrase of 2014.

While the phenomenon it describes is real, the term itself isn’t actually that helpful for several reasons.

Firstly, disruption implies problems. The changes brought by advances in digital technology are perceived as issues that need to be fixed.

Secondly, people tend to think of disruptions as temporary. Once the problem is solved, they can go back to business as usual.

Lastly, disruptions are often seen as minor interruptions.

The reality is that digital disruption is neither minor nor temporary.

The changes that advances in digital technologies have brought are both major and permanent. This is a total paradigm shift.

Some view disruption as a problem, but ultimately that depends on your view of change.

Digital technologies are creating exciting solutions in the financial sector — improving efficiency, streamlining formerly labour — and time-intensive jobs and opening up new opportunities for accountants to improve their own productivity and add value to their clients’ businesses.

Personalised customer service is the key to success in the future. Big data analytics is one of the tools you can use to predict what customers will want, before they know they need it.

Redefining disruption

If talking about digital disruption can be unhelpful, how then should we redefine this phenomenon?

Perhaps the most accurate way of understanding the changes occurring in business and society is to see them as a digital redistribution. The bottom line is that new technologies have brought about a redistribution of power in three fundamental ways.

Power is being redistributed away from institutions and businesses to citizens and consumers. Digital technologies and social media have given ordinary people better access to more accurate information and opened the door to a global marketplace and much greater freedom of choice.

Power is being redistributed from larger, slower-moving corporations to smaller, more agile businesses that can innovate quickly and with lower capital investment. Economies of scale are no longer so important. Smaller businesses can harness the power of the internet and the cloud to maximise their bang for buck and compete with companies that are many times larger.

Power is being redistributed from slow adopters of more customer-centric business models to businesses that are able to successfully engage with their clients at a deeper level.

The first question to ask yourself in the light of these changes is: “Where am I currently positioned in this power redistribution?”

The second question is: “Where do I need to move to and how do I get there?”

Where is it all heading?

In 1965, Gordon Moore, the founder of Intel, realised that the number of integrated circuits they could fit on a transistor had doubled every 12-24 months.

It turns out that Moore’s Law of exponential growth has continued to hold true when it comes to digital technologies — speed and power keep doubling whilst the size of components halves at a regular rate.

Some have argued that Moore’s Law has now become a self-fulfilling prophecy, driving the speed of change. But, whether Moore’s Law is descriptive or prescriptive, there are three trends that no one is disputing and which underpin the changes happening in the financial sector:

  • The amount of data available – about everything – will continue to increase. Smartphones, website interactions, ATMs and POS devices, not to mention the growing number of smart devices that will make up the “internet of things”, all generate mountains of data. As the amount of data increases, so will the depth at which it is analysed.
  • Access to data will increase. The amount and detail of the data that is already available to ordinary citizens about their finances, their health, and their world is staggering. A young guy in a hoodie, sitting in his bedroom, now has access to more accurate information from across the globe than a top CIA operative had less than 20 years ago.
  • Speed of access to information will increase. Information and analysis can be accessed instantly and viewed on user-friendly dashboards via mobile technology. A CEO can now take the pulse of his company while sipping a cocktail on the beach in Tahiti. The “monthly figures” are now a thing of the past — everything is available in real time.

To put it simply, more people will have more access to more information more quickly. In the areas of finance and accounting, where traditionally knowledge is the key to both power and money, this is radically changing the game.

Trends in the financial sector

A spectacular example of the impact of Moore’s Law can be seen in the stock market. Digital communication advances have minimised latency in the capital markets and algorithmic trading has radically changed the way orders are processed. Speed is everything.

Electronic trading now makes up almost 70% of all volume on the New York Stock Exchange and half of that is algorithmic trading.

It has got to the point where a millisecond improvement in network speed can be worth billions in competitive advantage and the next stock market crash could happen literally in the blink of an eye.

Outside the volatile world of stock trading, the biggest shifts caused by new digital technologies in the financial sector relate to the move towards cloud-based solutions and the ability of companies to harness the power of big data.

The advent of mobile money is also having an impact. It has changed the face of banking in the developing world and, in the West, banks are starting to feel the pressure from new and non-traditional providers of financial services like PayPal.

The ground is shifting under banks and they risk being left behind in the battle for consumers’ digital wallets.

The future of accounting in the digital age

Accountants work in a “middle ground” often sandwiched between their clients/employers and financial institutions or the taxman.

At any moment the role you play in your employer or client’s life can shift from financial guru to nagging parent to trusted confidante to backroom number cruncher to angry schoolteacher to voice of reason to rescuing superhero. And that can be all in the space of one meeting.

Because you are the go-betweens, accountants will feel the impacts of changes wrought by digital disruption keenly.

So, what will accounting look like in the next few years? Here are my top six predictions:

  1. Accountancy will all be cloud based: Cloud technologies will continue to transform all businesses, but especially accounting. It’s a paradigm shift away from worrying about data storage, updating computer programs and logging in to the office network to access information. Updates are automatic, information can be accessed anywhere and anytime from a variety of devices by staff and clients, data is securely stored, capital outlays are minimised, fees are predictable and you have increasingly powerful tools at your fingertips.
  2. Accountancy will harness the power of big data: Analysis of the vast amounts of data now being generated will allow accountants to model and benchmark information, generating insights that will improve executive decision-making and transform and streamline organisations. Predictive analytics will be used to assess investment risk and will aid the budgeting process. And these insights, once the exclusive domain of multinationals, will now be available to SMEs. Accountants who develop skills in big data analysis will play a critical role in their employer’s future.
  3. Accountancy will integrate non-traditional financial options: The future of finance will be much less bank-centric. Increasingly, accountants will be interacting with non-bank financial organisations. Online payment providers, telecommunications companies and even crowd-funding platforms will all be part of the future financial picture.
  4. Accountancy will be more efficient: Most of the transaction and compliance work that took up accountants’ time in the past will be fully automated, as will report preparation and a myriad of other tasks. Accounting processes will also be more streamlined for the client, allowing them more time to develop their business. Tax returns, invoice payments and everyday transaction management will all be available online in real time.
  5. Accountants’ roles will change radically: With most of the financial “hack work” being done automatically, traditional revenue streams will dry up. The challenge for accountants will be finding new ways to add value for their clients. Accounting firms will become leaner and more efficient. The services that accountants provide will widen to include big data analysis, assisting their clients to move into cloud computing and business advice and consulting. Rather than becoming expendable, a good accountant’s expertise will be even more valuable to their clients in this time of rapid change.
  6. Accountants will become increasingly mobile: Modern digital communication means that the virtual office is now a reality. It won’t be just CEOs who do business from their yachts. Accountants with specialist skills, especially in the area of big data analysis, will be widely sought after. There is no reason why you couldn’t have clients from across the globe or take your business on the road with you.

Four keys to surfing the digital wave

Rather than being the end of life as we know it, digital disruption (or redistribution as I prefer to call it) brings with it a raft of new possibilities for those professionals who are prepared to step out of their comfort zone and dare to try something new.

Let me leave you with four simple, powerful steps that you can take so that you stay on the right side of the digital redistribution.

  • Embrace change: I understand that this is not easy, especially in the context of a traditionally conservative profession. Interestingly, although many accountants have encouraged their clients or employers to adopt new digital technologies, they themselves have been slow to integrate them. Begin by exploring ways that you can use these new digital tools — for example, cloud technologies — to streamline your own business. Develop expertise through your own experience and then share this with your clients and employers.
  • Get rid of the SALY mindset: Same As Last Year is an accounting cliché that we joke about every year at tax time, but it’s also a way of thinking that is incredibly counter-productive. To be agile and nimble means experimenting. My own research indicates that clients and employers are actively seeking accountants who are willing to embrace the new, who are exploring digital options and who are not simply doing what they have always done.
  • Reposition yourself as a business consultant: The role of accountant as simply a number cruncher and details person is gone. What clients and employers need is an expert, a go-between who understands where this digital wave is taking them and who can help them navigate the future. Develop expertise and expand your skill set. Explore the power of big data analytics, help streamline businesses through adopting new digital technologies. Quite simply: employers and clients need your skills more than ever.
  • Create a more personal customer experience: What is it that clients and employers need? How can you scratch them where they are itching? How can you offer them the services they need before they ask? Personalised customer service is the key to success in the future. Big data analytics is one of the tools you can use to predict what customers will want, before they know they need it. 

One thing is certain: as more and more data goes online, the issue of trust within the financial area will become even more important. Develop a trusting relationship with clients and employers and they will stick with you, as the digital wave swirls around them.

As accountants, you are at the forefront of the digital financial revolution.

I believe you face a clear choice — stick with a Same As Last Year mindset and sink beneath the waters or take the initiative, reposition yourself to make the most of the incredible opportunities that are presenting themselves and ride the digital wave into a bright future.

Happy surfing!

Chris Riddell is an Australian futurist and award-winning industry recognised keynote speaker on digital. He is also a renowned strategist and global emerging trend spotter for businesses and leaders in today’s disrupted world.

This article was first published in the June 2015 issue of Acuity magazine.