Month: January 2017

The Office of the Comptroller of the Currency (OCC) recently announced that it will consider FinTech Company applications for a national bank. This decision is very progressive of the OCC, but after considering the cost effective nature of online banking, and its ability to reach consumers at any point in time, the OCC decided this was the best move for customers. If FinTech companies became nationally chartered banks they would have the ability to provide lending, deposit, or payment systems services. State chartered Fintech Banks are also a possibility but would have to be approved by individual states. New regulation will slow the process of these banks becoming established, however, we can expect these institutions in the coming years.

If these banks are established they will create strong competition for existing financial institutions. The author says if these banks are established credit unions could become “uberized”. Credit unions are limited by the amount of customers they can serve, their strict corporate structure, and their restricted lending authority. I would recommend credit unions establish alliances with the Fintech companies before they become strong competitors. This way they would be able to profit off Fintech’s imminent growth.

http://www.natlawreview.com/article/fintech-banks-new-uber

This article discusses how there is a large market in developing nations for fintech companies because of their ability create a whole new mobile banking services where traditional banking services do not exist.  These companies will be able to do this because there are great indicators that mobile cell usage in developing nations is rapidly increasing across many income levels.  The first thing that popped into my mind at this point in the article was the challenges that these companies were going to face when digitizing a country that lacks the infrastructure to do so.  The article goes on to highlight the exact challenges that I was thinking of.  These challenges are lack of infrastructure and efficient cloud services, users without a data footprint, and consumers who have chaotic and cash based lives.  The most important of these issues is the users whose access to the internet is very limited.  I believe that market that these fintech companies can actually reach is going to be smaller than they believe due to the fact that people in these developing countries cannot afford smartphones and have access to the internet needed to utilize these fintech services.  Once the internet accessibility infrastructure in these countries is much better, these fintech companies will begin to thrive and grow even more.

 

Article link: https://hbr.org/2017/01/fintech-companies-could-give-billions-of-people-more-banking-options

London, considered by many as the financial capital of the world is bound to be affected by Brexit. It remains to be seen if Brexit is going to be beneficial or detrimental for the UK Fintech industry. While reading about the effects of Brexit on Fintech I came across a lot of conflicting articles and experts have varied opinions. I personally feel Brexit is going to be detrimental for the UK because

• The loss of passporting which gives London-based business access to all the European Union nations to sell their services is going to be a big blow for the UK fin tech industry. This could result in a loss of 30,000 fintech jobs and 40 billion pounds in revenue.
• VC-backed Investment trend in the UK has been decreasing whereas in Europe the Fintech industry is booming.

 

• Limited market access might result in less foreign investment which in turn would prevent many fintech startups in the UK. Also, the existing startups would be tempted to move to other countries where it is easier to get funding.
•  The biggest problem is going to be the talent pool. The loss of passporting will result in an exodus of highly skilled talent in the UK.

http://www.techworld.com/news/e-commerce/uk-could-lose-30000-fintech-jobs-after-hard-brexit-3652882/

http://www.businessinsider.com/brexit-is-already-hurting-uk-fintech-2016-12

Articles for why Brexit will be beneficial for the UK fin-tech industry:

http://www.businessinsider.com/a-hard-brexit-might-actually-be-a-good-thing-for-fintech-2016-10

http://www.marketwatch.com/story/brexwhat-why-brexit-wont-necessarily-kill-londons-fintech-scene-2016-08-31

 

 

The article comes from the journal FinTech Weekly and is written by Bryan Yurcan. A group of Fintech companies has recently created a lobbyist group, based on the premise of allowing consumers to share fin data with certain third parties. Companies included in this effort include Kabbage, Ripple, Envestnet-Yodlee, and Varo Money. This effort stems from a larger struggle between banks and FinTech firms such as these regarding users sharing their bank information with users consent. Banks claim that these practices can be dangerous in regard to information and identity theft, but these firms seem to think that the banks are trying to keep away the competition. The lobby group also puts forth a plan for easing the process of allowing this type of information to be shared, stating that a risk hierarchy should be established and the customers should be allowed to note this and continue with their data sharing. It is in the customers interests to be able to view their financial situation in its entirety.

Citigroup has recently been focused on figuring out how to counter the challenges that the fintech companies are bringing, as these new startups are penetrating almost all of the functions that traditional financial banks offer. This is an important step to combat their threatened business, and Citigroup is taking a smart approach when dealing with the tech startups. CEO of Citigroup, Stephen Bird, decided to create an elite group within Citi of about 40 employees from varying backgrounds. Their purpose is to work on projects in a rapid manner. In 4th quarter of 2016, they were able to release a new version of their mobile banking app, after only 10 months of development. Historically, this project would have taken years to complete. Because financial institutions offer so many services, it may be hard to understand how fintech startups can disrupt almost all the aspects of their business. This graphic shows which areas are being affected by fintech companies.

One way that Citi is evolving to keep up with fintech competitors is by having their new mobile app have open architecture, allowing customers to have access to the best functions of the fintech apps. Interestingly, Citigroup may be most vulnerable to fintech companies, as 51% of their revenue come from consumer banking. Their analysts view this area as the most vulnerable. This may be a reason that is spurring Citigroup to adapt to their new challenges.

Article Link: http://fortune.com/citigroup-fintech/

2016 has been a very eventful year for technology hacking. According to a new report from CyberScout, there has been a 40% YoY increase in 2016 of US data breaches. This might have been overshadowed by claims of Russian hackers tampering with our election, but it is very alarming.

The reports elaborates stating hacking, phishing, and skimming attacks accounted for 55.5% of instances. Many of these cases involved CEO’s being phished for sensitive information. One would believe that executives overseeing a corporation have the capability to discern cyber threats. Unfortunately, this is not the case. In 2015, Mattel was phished for $3 million. Chinese hackers posed as the new CEO and ordered a wire transfer to a bank account. The email looked valid and received the proper approvals almost immediately. This technique is used in conjunction with knowledge of a company’s financial procedures.

This is the status quo — technologically illiterate executives lacking the critical thinking skills of a teenager. I propose that all executives must pass a cybersecurity course each quarter. These tests would update frequently to capture all developments in hacking technology. This should be a mandated training exercise to prevent further data breaches. This report should be alarming for all industries.

Link: https://www.finextra.com/newsarticle/30014/number-of-us-data-breaches-jumps-40-in-2016

Artificial intelligence is set to make huge strides in banking. While it has some present applications, going forward the technology is likely to increase immensely. AI can identify patterns that humans generally cannot through taking in immense amounts of data, making it incredibly useful with numerous business applications (Marous).

Artificial Intelligence is growing so quickly that “Ray Kurzweil from Google estimates that AI will surpass human intelligence by 2019” (Marous). While many praise this as objective success, it is hard to not be even a little nervous. The film industry has portrayed numerous situations where robots/AI take over society and humankind is in danger, though this is unlikely in reality. While I do not personally believe we need to be afraid of the terminator, we should all gain a better understanding of what AI really means for banking and business applications. In this context, AI will improve customer personalization, productivity gains, fraud detection, and better customer recommendations (Marous). Ultimately, I believe that AI should be pursued in business as long as security is considered as well.

Source: https://thefinancialbrand.com/63322/artificial-intelligence-ai-banking-big-data/?utm_medium=email&utm_source=fintechweeklycom

Technology has swiftly evolved and disrupted the financial services industry (payments, banking, capital markets, insurance and wealth management). It has led to the rise of startups offering digital payment services that are disrupting the way old school banks offer services to customers. The increased adoption of AI, IoT and big data technologies has led to the development of enhanced techniques that help identify risks, create algorithm-based investment plans and platforms for users to optimize their banking portfolios. The rapidly evolving Fintech industry does present its fair share of threats and uncertainties. In my opinion the key security challenges to this industry are as listed below:

1. Data Security and Ownership: With the increase in the penetration of online banking services, enterprises are now able to accumulate huge volumes of customer related data. This data is available in digital formats, which makes it easier to analyze and generate insights but also makes the data more susceptible to security breaches. Also, the challenge of establishing the ownership of this data remains grave. Personal recommendation: Companies can overcome the potential threat of litigation by enforcing methods that securely dispose customer data once they have unsubscribed from the use of the said financial services.
2. Privacy: As organizations aim to provide an integrated omni channel experience to customers by extending a host of banking and payment services in a unified fashion, managing the digital identities of customers becomes challenging. Personal recommendation: While digital identities have become safer at one level, given the ubiquitous nature of their use in the evolving Fintech world, cloning of these identities can lead to greater risks. The use of mobiles as authentication devices and one time passwords can reduce the reliance on conventional authentication mechanisms such as passwords and PINs.

As increasing computing power becomes available to customers through smart devices, there is a greater need to revisit the conventional security models. The security architectures being deployed by organizations need to be modified and redesigned while taking into account these trends, as they have greater implications on the financial services sector. While security remains an integral part of Fintech solutions from the customers point of view, the liability for which lies with the service provider.

In conclusion, moving forward, security and data privacy are going to play a key role in winning consumer confidence and driving the adoption of Fintech.

Reference: https://www.pwc.in/assets/pdfs/consulting/cyber-security/banking/security-challenges-in-the-evolving-fintech-landscape.pdf

Rocket Mortgage is a super fast service portal of the company Quicken Loans, which caters to self-service users who want to apply for a home loan without talking to loan officers. It’s only a tool that collects information such as pay stubs, bank statements and tax returns to calculate how much money you are eligible to loan, and not a money lender itself, despite being called rocket-‘mortgage’.

Although I wouldn’t say that you get the best deals out there, I feel it makes the lending business more transparent by helping you steer clear of lenders with low advertised rates but “fine-print disclaimers”.

How it works:

• When you make your profile with rocket mortgage, it can instantly verify employment and income details for more than 60% of working Americans.
• With your authorization, it downloads asset statements from 95% of U.S. financial institutions. This helps you easily fill personal information and click “See my Solution”
• The app displays a customized loan amount you’ll qualify for within minutes based on your credit score and debt-to-income ratios.
• Slider bars allow you to change the closing costs, loan term and interest rate. Then you click the “See If I’m Approved” button.
• Using automated data extraction (ADE) technology, lenders are able to verify checklists in minutes, cutting the time it takes to evaluate loan files by up to 80%. Thus re-defining traditional “stare and compare” approach to verifying data across several documents.
• If you’re approved, first-time homebuyers FHA-backed loans. You can lock your interest rate and print out an approval letter, then go house hunting.

Contrary to public hesitation, such developments in Fin-tech improves the mortgage experience by:

1. Saving the client time, but limiting the use of alternative credit data.
2. Giving lenders easier access to borrower’s bank information
3. Making approvals less prone to human error

So to wrap it up, digital lending is here to stay because it created a whopping $79 billion in mortgages in 2015.

References:

• http://www.housingwire.com/articles/36277-reasons-the-rocket-mortgage-actually-decreases-mortgage-risk
• http://www.mortgageorb.com/expanding-the-definition-of-digital-mortgage
• https://www.nerdwallet.com/blog/mortgages/quicken-loans-and-rocket-mortgage-review