Banks shift to drive value with data

Gear shiftBank executives are facing unprecedented pressure to outperform the competition – and the list of competitors keeps growing.

As new competitors and services accelerate the speed of innovation, bank executives are pushing their internal teams to contribute more value. Even operational teams are looking at how they can help to increase earnings per share, boost shareholder value and reduce the effective tax rate – but these business pressures can seem new for departments that have traditionally focused on compliance and other operational functions.

Innovative tax departments have already started to help drive value for their banks. How do they approach this new role? Grant Thornton Tax Reporting and Advisory Managing Director Mark Quiroz noted “You can really hit it from two angles – tax departments can both eliminate inefficiencies and add new value.” Technology can help them win on both of those fronts.

Higher efficiency, lower costs Tax departments need to process huge volumes of daily data to ensure banks are compliant in every transaction. This analysis is ripe for automation through technology that can analyze and highlight concerns faster and more consistently than human analysts. Sales and use taxes are one great place to start with automation, due to the sheer volume of transactions to process. On the direct tax side, provision and tax return processes can also yield automation efficiencies.

To get the greatest benefit from automation, it’s important to fully understand the business processes in question, Quiroz said. “Then, we structure the data in a way that’s aligned for automation,” he explained. With clean structured data, the bank team can make sure to gain the greatest speed and efficiency from an automated process.

Of course, that automation process not only yields efficiency – it yields clean structured data that can be used elsewhere as well. That data offers real value, and real insight into areas that have been opaque in the past. “Data collection around tax provisions, tax compliance and sales and use tax has often been a struggle,” Quiroz said. This new data helps the tax department share value across the organization.

Shared insight, shared value Grant Thornton National Tax Industry Leader for Banking and Capital Markets Steven Winter said that tax departments have traditionally been asked for insight into the tax consequences of potential business decisions. But, with the power of clean and comprehensive data, the tax department can become a source of information for a broader range of applications. “If a tax department sets up its systems correctly, and optimizes its technology, it can provide insights to other areas of the bank – operational areas that can use the data to make business decisions outside of tax consequences,” Winter said.

The tax department can also help analyze that data, since automation efficiencies can free up time that employees used to spend on manual analysis tasks. Better analysis means a better understanding of tax obligations and how to best itemize deductions, re-evaluate tax reserves and project valuation estimates. Moving employees to analysis roles also expands employee skill sets and effectively creates value-added liquidity for the bank.

“If you want to drive value in your EPS, a great way to do that is to lower your overall effective tax rate,” Winter said. Quiroz added “Now tax departments can really focus on what’s driving the ETR, whereas they haven’t had time to do that in the past. They haven’t had the right technology, but with the advent of advanced tax analytic tools and automation within the tax department, they have more time to do tax modeling and figure out how they can improve their ETR.”

Winter noted “Tax departments and CFOs are very interested in getting better insights into the drivers for the overall effective tax rate. If you have better insight into what’s driving your ETR, you may be able to make business decisions or put in the tax planning to lower your overall ETR and drive up your EPS. And that’s where a lot of the value is being driven from the tax department.”

The tax departments at many banks are already making the move to analysis. “What we’re finding now is that banks are shifting their tax department’s focus, away from people-based solutions to technology-based solutions that also help to fill data gaps,” Winter said. “Where they have holes in their information, they’re using technology to pull in data for a more holistic picture.”

How to shift the tax department’s role Using the power of data analytics and automation, tax departments are re-defining their roles within the banks they serve. “They can use the data they gathered to become more competitive against other banks in their regions – or globally,” Winter said. “And I think that’s really driving the integration of the tax team as part of overall operations, instead of just a compliance function.”
Technology provides some powerful tools that tax departments can use to participate in a bank’s growth strategy. But where is the best place to begin?

Identify the need To truly drive value, a tax department needs to help meet a need or pursue an opportunity. The department can find needs and opportunities by considering the bank’s five dimensions:

  1. People: Is there a shortage of staff, or particular skills?
  2. Process: Are there legacy or overly manual processes that are no longer efficient?
  3. Technology: Are competitors using technology to create a disadvantage for us?
  4. Data: Do we lack information that our competitors have, or do we have information that we aren’t fully using?
  5. Organization: Are there missed opportunities or problems blocking our enterprise objectives?

These five dimensions are valuable for helping an organization consider problems in each area. But they’re equally valuable for helping an organization consider all areas holistically.
“If you focus too much on the people aspect, for example, you might conclude ‘The reason why we’re so swamped in the tax department is because we don’t have enough people – so let me hire more people.’ That’s not best practice,” Quiroz said. “You really want to look at the root cause.  Is it really because the process to complete filing requirements is so manual? Nine times out of ten, it’s not a people issue. It’s usually a process, technology or data issue. So, a tax department needs to look at those dimensions holistically to truly isolate the root cause and then, most importantly, what the plan of action for the solution should be.”

Plan the solution Tax departments are sometimes new to driving change. And the turbulent nature of technology can create some tricky terrain when it comes to meeting a bank’s needs.

The best way to begin is to understand that technology is a transformational journey. Solutions – and problems – evolve over time, so it’s best to consider the department’s current skills and resources, potential skills and resources, and plan a realistic approach to achieving small goals over time.

“It’s not a big bang sort of thing,” Quiroz said. “It’s a question of how the business can maintain control while they transform their business or their department.” Once the department develops a business case and a road map to achieve the transformation, it can confidently share its potential value and needs with the broader organization.

Streamline today and accelerate the future A multinational investment bank and financial services corporation was struggling with its manual tax filing and information gathering processes. Using a tax-specific data warehouse, the company centralized critical tax data, automated tax processes and improved global tax data analytics.

“The chief tax officer explained to the chief financial officer that this investment can streamline automated tax reporting worldwide, which lets tax departments shift from compliance-based functions to more value-added liquidity,” said Grant Thornton Tax Reporting and Advisory Managing Director, Mark Quiroz.
Secure the budget Tax departments can also be new to aggressive budget discussions. “I think tax departments need to be more aggressive as part of the budgetary process – to be more conscious about their allocated dollars and be more wise about where they’re going to be making strategic investments,” Winter said.

“Instead of saying the prior year budget is the same this year, they need to be more involved with the budgetary process, and be a voice to say that the tax department needs more future investment over the next several years. That’s how they start this journey of transforming the role of the tax department,” Winter said.

A new perspective When tax departments identify the needs they can meet – and new solutions they can provide – for a bank’s future, they can take a larger role in driving value. Technology now provides the tools for tax departments to mine the value that’s been hidden within their data. The departments need to understand and share their new value and their new role. “Understanding and balancing technology integration is becoming a larger and larger part of what tax departments – and tax directors – do each and every day,” Winter said.

By preparing the roadmap – and the budget – to drive more value, tax departments can shift their role from simply business compliance to include business collaboration.

Steve WinterSteven Winter
Partner, Banking & Capital Markets
T +1 212 624 5434