Archives For Faye Chua

Emmanouil Schizas-3770

By Manos Schizas, senior economic analyst, ACCA

ACCA’s Beijing office recently teamed up with the China International Center for Economic and Technical Exchanges (CICETE) and the China Association of Microfinance (CAM) to hold an excellent event on the future of small business financing in the world’s second largest economy. It was a privilege for me to address this event and to learn first-hand from some of the pioneers of small business lending in China. It was also a great opportunity to meet a 50-strong delegation from ICBC, one of ACCA’s biggest employers in the region.

One question that came up as we were planning the event was this: What does the future hold for SME financing? More specifically, does Big Data have the potential to transform the industry and extend access to the large numbers of under-served small and micro-enterprises? It’s a reasonable question. After all, here at ACCA we stress that information is one of the four key inputs into business finance – alongside control, collateral, and risk appetite. It is, in fact, the most important one, as financial systems over-reliant on the other three can become unfair, unbalanced or unsustainable.

Unfortunately, I am no expert in Big Data. I was, however, able to fall back on the work of my colleague Faye Chua, our Head of Futures Research, as well as ACCA’s Accountancy Futures Academy, who are looking into this topic regularly and published an excellent review only a few months ago. Their report on the promise and perils of Big Data for the accountancy profession can be found here. What follows is a summary of what I told our audience in Beijing based on this reading, and although I must credit my colleagues for the insights, all errors and misunderstandings are entirely my own.

It’s good to start by defining what we mean by Big Data, because the term is often misused. My colleagues adhere to Gartner’s ‘Three Vs’ condition for Big Data, which says that ‘Bigness’ comes from the high Volume, Velocity and Variety of data. Gartner’s definition adds that Big Data “demand cost-effective, innovative forms of information processing for enhanced insight and decision making.”

Thus defined, what kind of Big Data are we seeing, and what could we soon see, in SME financing? The possibilities are significant – both for ‘soft’ and ‘hard’ data.

The easiest input imaginable is real-time transaction and payment data integrated from online payment systems, card terminals, accounting software, and credit databases. Finance providers such as Kabbage are already integrating this information to inform short-term lending decisions (more on this here).

More difficult to imagine, but still within the realm of ‘hard data’, would be trade credit data along supply chains – information about which businesses owe each potential borrower money, and how many sources of finance an SME is tapping at once. Mapping the web of trade credit flows makes it easier to spot vulnerabilities that wouldn’t show up in the financials of an individual business. Credit rating agencies are already able to provide some of this information, although mapping the web of business-to-business claims in real time could be many years away. You’ll know that day has arrived when governments start pre-emptively recapitalising corporate supply chains in the same way that they do banks today.

Finance providers could source almost real-time information about business’ capacity utilisation from utilities providers (electricity, water or telecoms) – giving them great insights into the business’ performance and potential finance needs. I recall that, in China, economists already used this method back in 2010 to estimate the effect of lending constraints on SMEs – they found at the time that electricity consumption by very small industrial users was down 40% year-on-year. Similarly, tracking data from logistics companies and GPS information could also provide a clue to the efficiency and capacity utilisation of a logistics-heavy business, helping direct finance to the right ones and making it much easier for providers to provide vehicle leasing or fleet insurance services.

In the realm of soft data, the possibilities are also substantial.

Integration with social media, family records, or the archives of large employers and educational institutions, could provide finance providers with a map of any entrepreneur’s social capital – who they know and who they can call on, as well who might be able to help them when in difficulty. Online crowdfunding would benefit strongly from this type of information, but credit providers could also use it as a measure of social capital when evaluating young businesses with no track record. Social media could also provide a tangible measure of a business’ ‘word of mouth’ – its stock of loyal customers, its reputation, and the uniqueness of its brand. Not all business models depend on this, but those that do can turn it into a tangible cash equivalent.

Entrepreneurs’ own personalities could become a target for data analysts, as it they are highly relevant to financing decisions. Not that long ago, ACCA’s own research demonstrated how executives’ personalities interact with business infrastructure to produce innovation. Forbes’ post on our findings is still ACCA’s most popular article ever, reaching about 800,000 people to date. The behaviour of entrepreneurs’ personal current accounts, for instance, can be correlated with anything from the way they speak on social media and the leisure activities they take part in, in order to populate a profile. Even language analysis could help. It’s already known, for instance, that CEOs’ and CFOs’ use of particular language on investor calls correlates with deceptive behaviour and through this to negative stock returns; or that the laughter of Federal Reserve interest-rate setters correlates with asset bubbles.

Realistically, the area most likely to see significant interest would be compliance, as Big Data is leveraged to allow easier identification of finance applicants and simplify due diligence. This can help control some of the most significant cost drivers in small business lending, especially in emerging markets. And given the small amounts involved, shaving off even a small percentage of the cost of due diligence can make a huge difference to financial inclusion.

That’s the potential.

However, as my colleagues pointed out in their review of Big Data, it’s easy to get caught up in the futurist dream and forget the reality. Big Data insights are expensive and the people that can help build them are few in number and increasingly well paid. The raw data that finance providers would need are not Open Data (indeed it helps to remember that most Big Data inputs are not); they are owned by providers with substantial bargaining power. Not to mention, their use will increasingly become heavily regulated as governments catch up with the industry.

Even then, my colleagues note that insights this tailored are bound to be short-lived. Big Data might be able to answer the question of ‘how likely is this person to need a business loan?’ very well, but only as long as the context has not materially changed. Meanwhile, competitors will each be building their own insights platforms, which other lenders will only be able to beat with even more investment. It will be undoubtedly progress, but not profitable progress.

Overall, it’s worth remembering the teachings of the Resource-Based View of the Firm. If you can’t own the raw data for your insights, or appropriate the gains from them, or if your competitors can replicate them, you have nothing of value in the long run. With no choice but to follow the leaders, many SME lenders will focus their energies on creating, buying in or replicating proprietary data.

Is this future imminent? Not as far as I’m concerned – SME lending will take a long time to catch up. The real reason for this, I think, is not cost; it is the fact that banks have such better uses for their money. I’m particularly thinking of a recent review of SME financing by uber-consultants McKinsey & Co. McKinsey found that the typical SME lender is already making really good risk-adjusted returns on equity, and they can double those by taking relatively simple analytical steps (see slide 13 on their deck), most of which don’t come close to using Big Data. If Small Data can double your returns, Big Data will almost certainly have to wait.

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social technologies

By Warner Johnston, head of ACCA USA

People have been using computer-based networks for decades to create, share and exchange information and ideas. The rise of social media was driven by people, not organisations. Historically, IT innovation was driven by big business and the military, but blogging, instant messaging, and sites for sharing pictures and music have become established as popular personal communication and collaboration tools. These have then attracted the attention of businesses, government bodies, charities and other organisations that also wanted to exploit them to improve communication and collaboration with and between their many internal and external stakeholders.

As more organisations explore the possibilities offered by public social media and ‘enterprise’ social tools they are finding that they can help to:

  • improve communication and collaboration (inside and outside the enterprise)
  • enhance decision-making and productivity
  • open up new routes to investment
  • support the development of new products and services
  • improve understanding of customers and clients
  • personalise customer experiences
  • analyse and respond faster to feedback
  • tap into and exploit intelligence outside the enterprise
  • source, attract and engage talent, and
  • develop a brand and build brand loyalty.

When businesses began exploiting social technologies they tended to focus on many of the same types of social media as had gained popularity with personal users. At one end of the spectrum businesses are using LinkedIn for recruitment and Facebook for brand management. At the other end, sites such as Crowdfunder and Kickstarter are being used to raise investment for start-ups and established businesses. The Securities and Exchange Commission in the USA has announced that social media outlets such as Facebook and Twitter can be used to make disclosures to investors (SEC 2013).

The appeal of a Facebook-style interface tends to be generational, but research shows that social technology ranks second behind analytics as a technology innovation priority. Adoption is expected to increase as accountants in practice and the finance function understand what social collaboration can do to improve their performance.

Research by ACCA on the technology trends that will impact the profession shows that a significant portion (59%) of respondents expect widespread adoption by the profession within the next two years, and 29% within the next two to five years. Over 9% expect to feel the impact on the finance function between five and ten years from now, and just 2% expect no impact on accountants and the finance function.

As enterprise social functionality improves, social tools will become more useful to the finance function. In an ideal world, collaboration software will develop situational awareness that enables it to contextualise processes and the roles and relationships of participants. In the context of finance, for example, software needs automatic understanding of the difference between general exchanges and any that must be tightly controlled – such as exchanges between tax and finance departments.

Read more about the technology trends that are impacting on the accounting profession at http://roleofcfo.com.

payment services

 

By Faye Chua, head of futures research, ACCA

ACCA’s report on Digital Darwinism: thriving in the face of technology change, focuses on 10 technology trends with the potential to reshape the profession and business landscape significantly. One of the trends identified was the developments in payment systems.

Money has existed as a unit of measurement for more than 5,000 years. Since then, as cash has evolved, it has gradually increased the speed of trade, and money can now move between accounts electronically in the blink of an eye. Traditional notions and concepts of money and currency are fading. The use of cash is diminishing, cheques are being phased out and use of debit cards, pre-paid cards and the myriad of alternative electronic payment platforms is increasing. Banks increasingly provide their services online; statutory payments are increasingly made electronically; payment options using mobile phones are proliferating; there are many ways to make and accept payments for goods and services and to access start-up and working capital finance and trade finance instruments.

Developments in electronic payment technologies, e-commerce and e-finance are reshaping financial activity by:

  • creating safer, smarter ways to receive and make payments
  • automating complex transactions
  • improving cash flow management
  • broadening access to financial resources
  • expanding the market for banking and other financial services
  • increasing consumption in emerging markets
  • underpinning the development of new financial products and services
  • supporting the development and use of alternative currencies, payment platforms, and ways of defining and exchanging value, and
  • disrupting traditional business models.

There are virtual ‘digital currencies’ such as Bitcoin, Linden Dollars and Ripple in today’s marketplace. A virtual currency has a value in real-world currency and/or can be used to buy goods and services. Although most electronic payments are still made using traditional currencies, and traditional payment systems, the array of electronic payment mechanisms and service providers is expanding.

Peer-to-peer (P2P) lending sites such as Crowdfunder, Kickstarter and Zopa are also broadening both access to finance and investment opportunities. These can lead to financial rewards and more esoteric or intangible non-financial rewards, such as tickets to a film premiere, having a supporting character in a novel named after you, or the satisfaction of helping someone realise their dream.

Over the next decade, these and other developments in payment systems will bring even more change, as the impact of technological advances dramatically transforms the traditional landscape of financial transactions.

Over the next 5 to 10 years future purchasing decisions will become cluttered by more payment mechanisms and platforms, and wider access to alternative currencies. In the longer term there may be fewer currencies, though not necessarily because of the spread of alternative and virtual currencies. Some futurists predict a return to a few strong currencies or even one single global currency, used as gold and silver were in the past.

Read more about the technology trends that are impacting on the accounting profession at http://roleofcfo.com/

cloud computing

By Raef Lawson, Ph.D., CMA, CPA, vice president of research, IMA

Some metaphors are perfect, enabling you to conjure up a precise image in your mind. Other metaphors: not so much. If you’re confused by the term ‘the cloud,’ you’re not alone. But ‘the cloud’ is easier to understand than you think – and it has the potential to reshape the business and accountancy profession over the next decade and beyond, according to a recent report from ACCA and IMA, Digital Darwinism: Thriving in the Face of Technology Change,

In the early days, ‘the cloud’ was simply a metaphor for the internet. As this evolved from a network that connects millions of computers into a network of interactive computing platforms, the metaphor evolved too.

Organisations of all kinds now supply and use a growing range of cloud-based IT resources ‘as a service’ rather than ‘as a product’. Physically remote software applications, computing power, and data storage can be accessed online from fixed and mobile devices, providing benefits that can include:

  • 24/7 access
  • ability to scale up and down to meet demand
  • reduced up-front costs
  • pay-as-you-go charges based on consumption
  • lower management overheads
  • reduced maintenance costs
  • rapid implementation times
  • easier data-sharing and collaboration.

As with many types of technology, levels of adoption vary across geography, industry, size and type of organisation, and profession. In our profession, accountants are already exploiting different types of cloud and cloud-based services. For example, systems for bookkeeping and accounting were among the first software applications available as online services.

There are two types of cloud deployments – public and private – and each brings its own challenges. A recent survey of IT professionals (IDG Enterprise 2013) found that private cloud deployments outnumbered public ones. That’s likely the result of concerns over public cloud resources, including data security, privacy and sovereignty, and the transmission and storage of data outside national boundaries. Many of these concerns are driven by regulations, such as the UK Data Protection Act and the US Patriot Act.

There are other areas where public cloud services and their consumption-based, pay-as-you-go approach can create challenges for accountants and their organisations. For example, lack of integration between systems and their associated data can be a barrier to efficiency. Other concerns range from the expectation that IT systems will be (because they are online) available at all times to the widespread misconception that pay-as-you-go is always the most cost-effective way to resource IT.

Despite these and other challenges, most organisations will continue to access IT resources using both traditional and cloud-based systems well into the foreseeable future. What’s more, the ACCA and IMA research found unanimous agreement on the significance that cloud computing will have as it becomes increasingly adopted by accountants and the finance function; some 72% expect this to happen during 2014-2015.

You can read more about this and other technology trends that are impacting the accounting profession by visiting the ACCA and IMA website, www.roleofcfo.com.

education

By Raef Lawson, Ph.D., CMA, CPA, IMA Vice President of Research

Take a glimpse inside any classroom today and you’ll notice something obvious: digital technology is reshaping education. And it’s not only changing what’s inside the classroom, but what’s going on outside classroom walls as well, in the comfort and privacy of learners’ homes and offices.

This fact, and its implications for the accounting profession and business landscape, is just one of the trends identified and analysed by a recent report from ACCA and IMA, “Digital Darwinism: Thriving in the Face of Technology Change,”

Of course, the advent of digital technology is nothing new. It began with the internet and as digital technology has evolved and expanded, so has its capacity to allow access to innovations such as live and interactive online classrooms, as well as their latest incarnation: massive open online learning courses, or MOOCs.

In tandem with the acceleration of digital technology, educational techniques also are changing, reflecting the new demands of computer-based learning and exploiting the new possibilities created by emerging technologies.

Employees, employers, teachers, and education providers are just beginning to explore the myriad possibilities, but as the role of digital technologies grows, so does the potential for:

  • increasing flexibility, access, and choice in education
  • customised, personalised, and optimised learning
  • attracting and retaining younger generations in the workforce
  • increasing the global mobility of professional talent
  • higher levels of student engagement
  • innovative approaches to lifelong learning
  • new educational business models
  • a rich, diverse, and inclusive virtual education ecosystem, and
  • a global, knowledge-based economy where creativity and innovation are the benchmarks of success.

Digital technology is underpinning an even more radical educational delivery system – MOOCs – which offer access to interactive online courses on a vast scale. Among their unique features, MOOCs usually offer enrolment to anyone, regardless of their level of education, and many (though not all) MOOCs and their learning materials are free.

Fortunately, accountancy training has been quick to employ emerging technologies and tap into their potential to enrich learning. For example, there are several global web-based classes where students can interact in a virtual classroom, in real time and with a live tutor.

Among other examples, the software provider SAP (known among accountants for its enterprise resource planning systems) is working with the Hasso Plattner Institute to provide MOOCs on topics that support people who work in the SAP ecosystem. And employers such the insurer Jardine Lloyd Thompson (JLT) are using MOOCs as an alternative to classroom-based solutions and off-the-shelf e-learning tools.

These developments, and others like them, make it clear that digital technology is here to stay. The question now is only how best to adapt and use this technology to enhance access and ease of learning for all.

You can read more about this and other technology trends that are impacting the accounting profession by visiting the ACCA and IMA website, www.roleofcfo.com.