November 25, 2024
Balancing Innovation and Risk: Why Fintech Adoption is a Struggle for Modern Finance Teams
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The convergence of advanced technologies and traditional practices has created a unique moment ripe for transformation. As businesses look to fintech to enhance efficiency and streamline operations, they face various challenges that slow adoption and impact productivity.
PayEm recently surveyed 270 professionals to gather insights on various aspects of their roles and industries and how that influences the adoption of fintech in 2024. The goal was to capture hidden data that would illuminate the challenges and opportunities faced by finance professionals as they navigate this transformative change.
The survey revealed that while automation, AI, and fintech tools offer clear advantages, traditional tools like Excel continue to dominate, signaling a significant gap between potential and actual practice.
The survey results underscore the reality that finance teams are grappling with manual processes, regulatory compliance, and resistance to change, even as they face the promise of digital transformation.
In this article, we explore the primary difficulties faced by finance teams and why fintech adoption remains slow despite the evident need for modernization.
Overreliance on Manual Processes
Although fintech solutions have evolved to address inefficiencies, manual workflows still dominate many financial operations. A staggering 86.14% of finance professionals surveyed rely on spreadsheets for budgeting and forecasting.
This reliance on manual systems results in issues across all types of workflows, from data entry to report generation. This can cause major bottlenecks, particularly as transaction volumes increase.
Key challenges include:
- Time-Consuming Workflows: Manual processes, like entering transaction details or reconciling accounts, require a significant amount of time and resources, diverting finance from more strategic tasks.
- Human Error: Manual data entry carries a high risk of errors caused by humans, potentially resulting in costly mistakes or misreporting.
- Limited Scalability: Manual processes struggle to keep up with increased complexity and volume as organizations grow. This often requires additional personnel and higher labor costs without corresponding productivity gains.
Manual processes also delay access to real-time information, leading to slower decision-making. Without timely access to financial insights, finance teams cannot quickly respond to changes in cash flow or market conditions. This delay undermines the agility finance teams need in today’s competitive environment.
High Cost of Adoption
One of the primary barriers to fintech adoption is cost. While solutions promise long-term savings, the upfront investment can be prohibitive for small and medium-sized businesses. According to the survey, 33.33% of respondents cite high costs as a significant barrier.
These costs include:
- Purchase and Setup Fees: Licensing, software purchases, and implementation costs require considerable initial outlay.
- Customization and Integration Expenses: Customizing fintech solutions to align with existing workflows or integrate with legacy systems involves additional costs for consultants or IT staff.
- Recurring SaaS Fees: Many fintech platforms are subscription-based. This means ongoing monthly or annual fees that accumulate over time, especially when multiple solutions are required.
Additionally, training finance staff to use new tools means both direct expenses for training programs and indirect costs due to lost productivity during training periods. Many companies must also bear the costs of scaling these tools as they expand, further burdening their budgets.
Regulatory Compliance Challenges
The regulatory landscape for financial technology is incredibly complex and continually evolving, which can be scary. Compliance requirements such as Know Your Customer (KYC), Anti-Money Laundering (AML) laws, and data protection regulations like GDPR require stringent record-keeping and regular internal policy and procedure updates.
Maintaining compliance across multiple jurisdictions adds another layer of issues for multinational or regional organizations.
Finance teams always struggle to adapt to these compliance needs while still trying to adopt new fintech tools. This is particularly true as solutions introduce automated reporting and auditing capabilities that may not fully align with traditional compliance processes.
Seamless integration between financial technology and compliance can be costly and time-consuming. This is especially the case in heavily regulated sectors where non-compliance risks are severe and is something to keep in mind.
Change Management Resistance
Fintech adoption often requires a shift in everyone’s mindset, yet 18.35% of survey respondents indicated resistance to change within their organizations. This resistance comes from many things, like:
- Cultural Resistance: Finance teams accustomed to manual workflows may see new tools as disruptive. Employees may resist learning new workflows or fear losing control over established processes.
- Fear of Job Displacement: Automation and AI can be perceived as a threat to job security, creating emotional barriers to adoption, which creates passive resistance.
- Skill Gaps: Implementing new fintech tools requires upskilling finance staff. Without proper training and support, finance professionals may feel unequipped to navigate complex systems.
Leadership hesitation also plays a significant role, particularly in highly regulated industries. Concerns about cost, potential disruption, and the risks of rapid change sometimes prevent decision-makers from fully committing to adoption, even when the benefits are obvious.
Integration with Legacy Systems
Many established companies rely on legacy systems that may not be compatible with modern platforms, creating huge technical and logistical challenges.
Our survey revealed that 32.96% of finance teams experience difficulties with complexity and integration issues.
Key issues include:
- Compatibility Challenges: Legacy systems often require custom solutions to integrate with modern fintech tools, increasing cost and implementation time.
- Data Silos: Financial information stored in disparate systems limits the effectiveness of fintech tools, which are designed to consolidate data into a single source of truth.
- Operational Downtime: Integrating new tools with old systems may temporarily disrupt financial operations, delaying critical processes like payment processing and reporting.
Finance staff must invest in ongoing IT support to maintain compatibility between legacy and new fintech systems. This creates additional maintenance costs and requires dedicated resources to manage updates, troubleshoot issues, and ensure long-term operability.
Cybersecurity and Data Privacy Concerns
As financial systems become increasingly digitized, cybersecurity risks grow. With 6.37% of respondents highlighting security and compliance concerns, finance teams must prioritize data protection to mitigate risks associated with fintech adoption.
Key concerns include:
- Cyberattacks: Digitized financial and customer data make companies more attractive to cybercriminals.
- Reputational Damage: A data breach can result in significant financial losses and long-term damage to a company’s reputation.
- Third-party Vendor Risks: Using fintech platforms often involves sharing data with external vendors, increasing the risk of data breaches from vulnerabilities in third-party systems.
Finance teams must implement strong security protocols and encryption standards to address these issues. However, these protocols come at a cost, as businesses must allocate resources to audit systems and monitor for potential vulnerabilities regularly.
Looking Ahead: The Balance Between Innovation and Risk
While the survey reveals the complexities, challenges, and hesitations surrounding fintech adoption, it also shows the growing demand for innovation in financial processes.
Automation and data-driven financial technologies hold the potential to transform finance teams, shifting their focus from repetitive tasks to strategic decision-making. But, to fully realize this transformation, companies must overcome the barriers of cost, resistance to change, compliance issues, and cybersecurity concerns.
The first big steps are investing in change management, creating cross-functional collaboration between finance and IT, and prioritizing cybersecurity. Leadership should also be committed to a phased approach to help teams gradually embrace the tools, build skills, and maintain control over evolving processes.
As modern finance teams work to balance innovation and risk, adopting fintech solutions will increasingly become a strategic goal rather than a technological experiment, setting the foundation for more agile, resilient, and forward-looking financial management.
