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AP Automation, Industry Trends, Payment Automation

An Interview with JP Nicols on the Changing Role of the CFO

Adam Frazier
Adam Frazier
July 31, 2017

Interview: Bank Innovation Consulting Expert JP Nicols on the Changing Role of the CFO

JP Nicols is a leading voice for innovation, strategy, and leadership in the financial technology (FinTech) industry. He is also a top-rated keynote speaker and advisor to startups and Fortune 500 companies. JP has been named to multiple lists as a top influencer and thought leader, including: FinTech influencers you should be following in 2017 (#15), Top FinTech Influencers in the United States of America (#5), and FinServ 25: The Most Influential Voices in Banking.

We sat down with JP to talk about FinTech trends, the changing role of the CFO, and what financial technologies companies should budget for this year.

How are emerging tech trends, like AP automation, changing finance?

JP: I spent most my career in the banking business. For a long time, bankers have misused the word “disintermediation.” They’ve used it for everything from disruption to losing market share. Historically, banks have been intermediaries – a trusted financial entity who could translate excess deposits into loans, translate currencies, and become a trusted party between two unknown parties. When we talk about emerging tech trends in finance, the banks are being disintermediated, meaning that the middleman is being removed from the process.

It’s now possible for members of executive leadership to do more without going through a traditional financial institution, whether that’s crowdfunding, or moving money directly through a peer-to-peer or even B2B transfer. The big takeaway here is that business owners and financial professionals are becoming more empowered.

There’s been a lot of talk around how the role of the CFO is changing. How is technology reshaping the role?

JP: There are two things I think about:

The first is more of a pronounced change, and that is as CFO, your primary job is the effective allocation of financial resources. Where do we put our money? How do we borrow at the most favorable rates and terms? Increasingly, there’s an emphasis on nonfinancial assets. How do we utilize our back office more efficiently? I think that trend is continuing to exacerbate and accelerate.

Secondly, the trend that’s new is the CFO’s role in innovation and creating new value streams for the company. It comes down to the same question: How do we allocate our limited resources as effectively as possible? If we want to enter a new market, launch a new product, or reinvent the business model, then that requires the CFO to be on board. Many CFOs are learning to be more comfortable with ambiguity and funding things that they don’t have full visibility into.

Historically, CFOs have been used to receiving thick project packets that outline how much money is going to be spent over a certain period and what the return on that investment will be. They’re very good at challenging those assumptions and making adjustments to that. It’s another thing altogether to have someone say, “Well, we don’t know exactly how much this will cost, but we know that something is happening in artificial intelligence that’s impacting our industry.” CFOs need a CapEx (capital expenditure) approach to innovation, they measure things differently, as opposed to the KPIs they typically use. That’s one of the big changes that’s happening, and we’re still in the early stages of it.

Do you have any advice for how CFOs can be proactive about the rapidly changing technological landscape?

JP: My first suggestion is adopting a mindset of thinking long-term and embracing that ambiguity and uncertainty. They’re used to very concrete numbers and being able to quantify things. It’s taking an approach that says, “Well, we know we’re going into an uncertain future and a cardinal direction is good enough, right? We know that we’re going to have more automation or we know that our competition is increasingly going to come from foreign shores. Well, we’ve never seen that before, and that’s alright.

My second suggestion is to put practices in place that support that—the test and learn mentality. There’s this notion that we can think about all the contingencies and all the variables upfront and create a very solid plan, and then simply execute that plan. I’m not sure if that ever was a reality, but it’s certainly not reality now. We’ve got to be much more iterative in our approach and in our process. We need to look at where we’re making very small bets and seeing how they go along the way, instead of trying to make big bets more carefully. So, how do we break up those big bets into smaller bets and make them based on little bits of evidence that we accumulate along the way through user testing? It’s all in the approach.

Increasingly, whether it’s the CFO or somebody else on the leadership team, you need somebody’s job to be an idea scout. And that doesn’t mean going to the typical industry events and talking to the people that are already in your business. It means going to other industries and events, things like South by Southwest, Mobile World Congress, and the Consumer Electronics Show. Those things may not seem like they’re perfectly connected to the CFO role, but if you’re going to take a long-term view, that means you’ve got to look outside of your industry and get a bigger picture of the landscape.

Are there any must-have technologies that CFOs should be budgeting for next year?

JP: One of the reasons why I’m a big fan of AvidXchange is that they’re changing the payables process with automation. AP and payment automation fit into what I said earlier about not just allocating financial resources well, but allocating human resources very well. By automating a manual process, companies can get more out of their employees and have them focus on high-level tasks instead of data entry.

At my company, we use Expensify to keep track of expenses. I go to lunch, take a picture of my receipt, the app scans the image for all the relevant data and puts it into a report for my CFO, which makes his job and my job a lot easier. I don’t have to sit down and do hours of expense reports. I just fill in a couple blanks and it knows how much I spend, what I spend it on, where I spend it, and what it was related to. These kinds of technologies that are improving the efficiency of the back office and are always going to be worthy of the attention of a CFO.

At some companies, legal work rolls up to the CFO. There’s a program by JP Morgan Chase, COIN (for Contract Intelligence), where they use machine learning and artificial intelligence to scan legal documents like commercial loan agreements. They’re able to accomplish in seconds what took lawyers and loan officers 360,000 hours. Any technology that automates mundane tasks and create new tools for bankers and clients is a must-have.

I keep hearing about blockchain technology. What can you tell us about this emerging trend?

JP: Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain. Everything is maintained in an incorruptible decentralized digital ledger that can be programmed to record not just financial transactions but virtually anything of value.

Blockchain is really interesting in that it gives the CFO an opportunity to allocate his human resources in different ways – ways that are a lot more strategic and forward-looking — rather than just ensuring compliance, making sure that they’re living up to agreements, or that a third party is living up to their side of the deal.

There’s a great quote from Bill Gates, who says, “We tend to overestimate the amount of change that will occur in two years, and underestimate the change that will occur in 10.” With that in mind, we’re in the hype stage of blockchain where everybody’s claiming it will do everything, from washing your socks to sending your kids to college. While it’s an incredibly powerful technology, it still has its limitations, and every use case isn’t a blockchain use case.

Going back to the notion of disintermediation, blockchain is the definition of the word. It removes the intermediary and replaces it with this distributed system.

Beyond blockchain, what do you think the next big thing is going to be that revolutionizes the finance industry?

JP: We’re still in the very early stages of APIs and open banking. European banks are being forced into it via legislation. The same thing is beginning to happen in Australia and New Zealand. In the U.S., however, it’s not going to come from legislation; it’s going to come from competition. The largest, most sophisticated banks are opening up their tech stacks through APIs and encouraging developers to build new applications that connect to the APIs they’ve made available. That’s going to force the hand of institutions who will not, or cannot, spend on that kind of technology internally. They’re going to need to partner with someone like Microsoft or Oracle, unless they pay someone to help them dig into their antiquated stacks and allow that stuff to be open.

Again, it’s going to take a while; this isn’t next year or the next couple of years. But over time, I do think the focus is going to be, “How do I think oaf my financial institution as a platform? And how do I enable my customers to do the things that are important to them on their platform?”

We’re actually more than 20 years into this already, if you think about the early days of Quicken, establishing the Quicken information exchange file, and getting banks to agree that customers have a need for their transactional data. Everything is going to evolve more in the next five years than the past 20. We’re going to see the idea of intermediary be deemphasized even more. I don’t know if it will ever go completely away, because I think there may be some use cases for intermediaries. Instead,I think that the entire value proposition of a bank will shift from being, “We’re a trusted third-party,” to being a valuable piece of a complex ecosystem going forward.

About JP Nicols

After spending twenty years as a part of the leadership team growing a $6B regional bank into an industry leader with over $400B in assets, JP is working at the intersection of FinTech, innovation, and financial services to help others turn potential into performance. He is a Managing Director of the FinTech Forge, which extends the innovation capacity of financial institutions while dramatically lowering the cost and risk of innovation.

JP was also a founder of the Bank Innovators Council, which is now a part of Next Money, a global community committed to reinventing finance through design, innovation, and entrepreneurship. For more information on his work as a speaker and innovation consultant, visit his official website. For social media enthusiasts, you can follow JP on Twitter @JPNicols.

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Adam Frazier

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