This past year has offered us many lessons. Some have been bright and full of optimism; others are probably best left behind us. Looking forward, there is much to draw from as we look toward a positive 2022. In finance and technology, the key is to know which trends to build on for a successful new year. Here are my top five.
1. Digital currencies
Cryptocurrencies began to emerge as a mainstream alternative asset this past year, with notable organizations such as Tesla, Square and Microstrategy continuing their exploration of bitcoin as a storage of value and source of growth. According to a study by Fidelity Digital Assets, 33% of investors currently invest in digital currencies, a group which includes hedge funds and pensions alongside financial advisors. While corporates are largely on the sidelines when it comes to holding digital currencies on their balance sheets, an increasing number of eCommerce retailers are embracing the trend of accepting digital currency payments.
2022 will see not only an increased acceptance of cryptocurrencies as an online commerce payment method, but also a maturing of liquidity and hedging options to mitigate the risk of holding cryptos as well as simplifying the exchange to fiat currencies—another key requirement for corporate CFOs to increase their comfort with the bitcoins and ethers of the world.
What 2022 won’t see is the U.S. and other western governments rolling out central bank digital currencies (CBDC), although as China continues its extensive piloting of a digital yuan across their economy, G20 governments will be eager to progress their multi-pronged CDBC programs.
2. Managing market risk
2021 offered two new risks for CFOs to consider: supply chain disruption and inflation. The two interwoven risk factors were largely Covid-induced, although many economists will argue that the strength of global economies and decreased unemployment was the true driving factor, as it put money in people’s pockets and drove demand for labor that inevitably made goods and services more expensive to bring to market.
2022 will offer a true picture of transitory vs. sustained inflation, giving central banks and governments the data they need to manage growth more efficiently. While many won’t celebrate interest rate increases, those CFOs that understand the vulnerability of their balance sheets and earnings per share (EPS) to interest rates increases and currency volatility will be able to properly set expectations for future earnings and cash flow guidance.
While it’s inevitable that interest rates will increase in 2022, it is a matter of who is prepared for rate changes and can mitigate the impacts of rate and currency movements that will prevail.
3. Liquidity planning
Cash has always been king, with the ability to generate cash now or in the future being the primary driver for investors to evaluate their investment choices. A soon to be released enterprise liquidity study by IDC finds that up to 80% of leaders, who demonstrate best practice digitalization and financial transformation, have a firm grasp on managing liquidity as a strategic asset, optimizing the visibility, controls and processes to generate cash more efficiently than their peers.
This points to the continued importance of cash flow as a requisite to maintain company growth and shareholder value. It also emphasizes the management of liquidity as a resource to increase the creation and protection of cash flow. This thinking aligns with the increased liquidity planning scenarios that CEOs and boards are asking of their finance teams.
At the height of the pandemic, CFOs were asked for KPIs such as “how many days of survival do we have?” Leading organizations recognized the value of the improved liquidity insight and continued asking for this insight and more—building out increased operational metrics to encourage improved working capital, borrowing efficiency, cash mobilization and enterprise liquidity management—directing more cash to shareholder value initiatives.
The result is that liquidity planning in 2022—visibility, control, insight and action—will evolve into a mainstream practice to reward liquidity performance.
4. Artificial intelligence
Artificial intelligence (AI) remains an infant practice in most finance organizations, with a minority of CFOs employing cognitive or machine learning algorithms within their enterprise technology. Use cases are limited, with most implementations focused on spot tasks such as predicting accounts receivable and spotting anomalous payments.
While these capabilities offer value, especially as the CFO’s treasury and FP&A teams are tasked with improving the efficacy of liquidity forecasting as well as reducing vulnerabilities to payments fraud, AI has more to offer than an additional stream of task automation.
The next level of intelligence for CFOs in 2022 is to rely on AI, in combination with other apps and technologies, to offer decisioning and action. This progression will take ERP, treasury, planning and payments platforms from systems of record and engagement to modernized insight and intelligence platforms. AI will enable CFOs and CIOs to deliver a network of interconnected tools that identifies and recommends action empowering finance teams to deliver bottom line efficiency and value.
5. Data as a Service
Data is the most valuable asset an organization has. In addition to unlocking opportunities to leverage artificial intelligence and data visualization (a.k.a. business intelligence), data is the driver for more effective enterprise decisions.
CIOs are increasingly employing data scientists—in their own teams or embedding talent throughout the organization. Data science is uncovering new information from financial processes from how to make customers happier to measuring the effectiveness of supplier financing programs to improve top line revenue.
For the CFO, the key is building KPIs to not only measure enterprise liquidity but capture the value of liquidity and efficiency in how it is deployed to drive growth. This includes measures to reduce the amount of cash balances used for working capital and KPIs that demonstrate the financial benefit offered by complex liquidity structures such as payments on behalf of (POBO), multi-lateral netting and in-house banks.
2022 will see data-as-a-service, exemplified by data lakes/warehouses/pools, data streaming and a network of APIs to ensure effective data unification is practiced. 2022 is undoubtedly the year that CFOs harness data in the mainstream and data-driven decisions unlock more value than ever before.