4 Reasons Why the Financial Services Is Looking beyond Spreadsheets

Over the past three decades, spreadsheets, particularly Microsoft Excel, has remained the go-to tool for businesses across industry verticals. The financial services sector, in particular, relies heavily on Excel to handle business-critical functions from processing mathematical equations to storing, managing and analysing data.  

Although organisations have realised the inefficiencies and shortcomings, many of them, regardless of their size, continue to use Excel. Proclaimed by Microsoft CEO Satya Nadella as their most important consumer product, Excel is used by an estimated 750 million people worldwide.

Led by the new wave of cutting-edge digital innovations, today’s financial services industry is on the cusp of radical change. While extensive use of spreadsheets is still prevalent,  factors like the explosion of alternative data and the need for faster execution have compelled the portfolio and asset managers to look beyond Excel.

Here are four key reasons why the financial services industry is ditching Excel for new and innovative cloud-based software solutions.

Excel Doesn’t Support Quick Decision-Making

Excel spreadsheets store the data in silos, which makes it hard to analyse the information across the business. Investments in financial markets require quick decision-making and complete and instant visibility of risk information. However, the blind spots created by the data stored across multiple spreadsheets hide various what-if scenarios, new business opportunities, and anomalies from the users’ view. Financial services companies require software platforms that can help them analyse real-time data on a single dashboard.

Excel is Complicated

Excel is highly-reliant on a lot of manual data entry to carry out complex financial tasks, which is challenging to master and time-consuming. The user needs to sift through numerous spreadsheets to reach the desired information. The formatting is haphazard, the formulas difficult to read and interpret, and multiple tabs add to the confusion. The graphs created with the spreadsheet can be unattractive and misleading. The spreadsheet files are often too bulky, making it difficult to share them through email.

Excel is Prone to Errors

A minor error can have a devastating effect on a financial investment company.  Manual data entry in Excel leaves a lot of scope for mistakes. Increasing financial risk is one of the primary reasons that companies are moving away from Excel. Fidelity’s Magellan Fund is one such example wherein the accountant while entering the data manually accidentally omitted the minus sign on a net capital loss totalling $1.3 billion; this led to the company overestimating its profit per share at $4.32, which later proved to be false. TransAlta is another example where a minor error cost them over $24 million in losses. The mistake was traced back to a simple copy and paste error in Excel.

Excel Can’t Handle Large Amounts of Data

Excel’s inability to handle large amounts of data running into Terabytes makes it unsuitable as a primary tool in this paradigm. Portfolio managers now leverage ‘alternative data’ such as satellite imagery, weather forecasting, daily news, etc. to augment human expertise in risk assessment and analyse business performance across demographics, geography, and product lines in real-time. Asset managers need a unified analytics platform to validate, ingest, and clean this data aggregated in different formats from different sources. This process involves the 3 Vs of big data: variety, velocity, and volume. Excel isn’t scalable and robust enough to support the processing of such large amounts of data from disparate sources.

The Path Forward

Managing revenues and financial planning is becoming increasingly challenging in today’s marketplace and entails complex currency conversions and meeting stringent government regulations. The COVID-19 outbreak has only accelerated the disruption for the financial services industry due to the investors delaying their financial commitments and investment decisions. Driven by the need to improve returns and achieve operational efficiency, businesses are opting for software applications that can help them avoid the pitfalls of Excel by providing enhanced agility and accuracy.

At Kellton Tech, we have helped a few financial services companies achieve operational efficiency by building innovative software solutions and moving away from Excel.

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