Month: January 2017

Traditionally, wealth management services such as personal budgeting and portfolio management were only affordable to the wealthy. With the increased development of FinTech, these services are now available to consumers through finance applications and online marketplaces. FinTech companies are providing the average consumer the ability to receive these services at lower costs than from traditional banks.

The increased competition in the financial services sector has forced Banks to rethink their business strategy. Traditionally, banks offer checking accounts to customers at below market value in order to attract customers to their more profitable services such as loans. With FinTech companies providing the same services as banks at a lower cost, banks will need to reevaluate their business strategy and either increase the cost of their base checking accounts or acquire the growing FinTech companies.

From a consumer perspective, FinTech’s disruption to the banking industry could lead to greater costs for holding a checking account. The increased fees could bar lower income families from being able to access a transaction account. Overall, innovation in FinTech is rapidly affecting the finance industry and legislators need to ensure that this disruption does not lead to a detrimental effect on most consumers.

Reference:

http://time.com/3949469/financial-technology-boom/

Within recent years, fintech revolving around mobile devices have gradually become common. Since mobile devices are now widely used, the technology behind paying with a mobile device has been incorporated within each smart phone. In the article, “What is a Mobile Wallet, Origin, and History in Financial Technology?,” by Angela Scott-Briggs, it mentions four different types of mobile payment processing models: mobile-based billing, SMS-based transactions, mobile web payments, and near-field communications (NFC). According to Scott-Briggs, the first introduction of mobile fintech was from Coca-Cola in 1997, where consumers made a transaction through text message. Today, there are multiple ways to use mobile payments.

With seeing how apps today, such as Venmo, are becoming more commonly used, I can predict the rise of mobile wallets and the increasing use in the future. With more people becoming comfortable with using technology to pay, the technology behind mobile payments will be improved. However, the question comes with how mobile payments, in particular, the google wallet and apple pay, will change the way people make transactions. It might take a while for businesses to integrate this feature, but once it is widely available, then the public will be more inclined to use it.

 

Source: http://www.techbullion.com/mobile-wallet-origin-history-financial-technology/

Let us ruminate on how critical financial information systems(FIS) are to a company and how fragile the security systems around it really are. Consider the data breach at Target few Christmases ago in 2013. Around 40 million credit card details were stolen and Target CEO Gregg Steinhafel had to end his 35 year career with the company. It cost the company $252 million in total and after insurance reimbursement, the losses fall to $162 million. For the customers, the possibility of financial losses due to identity theft is still high. Here is a flow table explaining how it occurred (from bloomberg.com):

Like professor explained last class, a good way to fortify your FIS is at the entry point itself. To avoid such hacks we can encrypt critical information before storing in the system. While the rest of the world migrated to chip cards long ago, it’s adoption in the US has been slow and bumpy. Did you know our credit card number and other details are stored in a magnetic strip card without encryption? We still continue to use it in merchant stores and gas stations exposing critical financial information to hackers everyday. On that note, I’d like to start our foray into FIS stating that the system we create is as reliable as the data we feed it and as secure as the measures we take to protect it.

 

Coming into this class, I had heard of financial fraud within organizations, but had never taken the time to read a case study.  After some browsing of the internet, I stumbled upon an article in the Journal of Accounting titled, “Lessons from an $8 million fraud.”  A series of flaws in the company “ING” allowed an individual to personally embezzle 8 million dollars over 5 years.

Nathan Mueller’s ability to log into his coworkers accounts for the sake of being able to complete the work; automatically put the information system at risk.  Combined with the overarching mistake, allowing Nathan to both request and approve checks of up to $250,000 opened the door for large scale financial fraud.

Despite claiming that he knew that he would someday be caught, he continued to embezzle more and more money in an attempt to continue living his newfound luxurious lifestyle.  When it was all said and done, Nathan was sentenced to 97 months in prison.  These facts made me ask myself two questions.  One being, if Nathan could do it all over again, would he do it differently?  The second being was the risk worth the reward?

Nigrini, Mark J., and Nathan J. Mueller. “Lessons from an $8 Million Fraud.” Journal of Accountancy. N.p., 01 Aug. 2014. Web. 15 Jan. 2017.

Website: http://www.journalofaccountancy.com/issues/2014/aug/fraud-20149862.html

According to the Research and Markets, the Australian Financial Technology market produced A$247.2 million in 2015, and has grown substantially since then. Three areas are predicted to continue the upward trend by 2020: digital payments, personal and business finance, and financial infrastructure and data analysis.

Australia has billions invested in this industry each year, and is home to numerous world leaders in FinTech. Last year, the treasurer of Australia increased the amount of clients that businesses can test without a license or approval from the Australian Securities and Investments Commission. This opened up many opportunities for new FinTech firms to establish themselves.

Source: https://www.cryptocoinsnews.com/report-australian-fintech-will-exceed-aud-4-billion-2020/

Bitcoin’s blockchain is often touted as a revolutionary step forward for network security. But August 2016 theft of nearly $68 million of customers’ bitcoins from a Hong-Kong-based exchange demonstrated that the currency is still a big risk.

But massive bitcoin US:BTCUSD  security breaches like the one at Bitfinex and the attack that bankrupted Mt. Gox in February 2014 highlight the need for the cryptocurrency community to find a compromise that would allow the so-called blockchain to be more flexible so victims of theft can recover digital currency that has been spirited away by hackers.

The blockchain is the universal record of all bitcoin transactions. Each computer running the bitcoin software keeps a copy of the ledger encoded in its system. And every time a group of transactions are processed by bitcoin’s global network, they must be checked against each computer’s stored copy of the blockchain.

This digital ledger is both one of the biggest assets of bitcoin-like currencies and one their biggest liabilities. Because once a piece of information has been added to the blockchain, it can’t be altered, and that makes it difficult to remedy thefts.

The security flaws that make these hacks possible aren’t inherent; instead, hackers exploit specific security flaws at cryptocurrency exchanges. Although Bitfinix has not released any details on how it was hacked, this hack shows how hackers exploit Bitcoins underlying infrastructure to hack it.

Source: http://www.marketwatch.com/story/bitfinex-hack-shows-how-bitcoins-blockchain-can-be-a-liability-2016-08-03

This article talks about how the future of money is going to change from what it is today to cryptocurrencies. The article points out that human beings use currency of their country or other countries because it is backed by their central government. They do so because they have trust and surety from their government that their money is valid and they can use that in exchange for goods and services. Currently with cryptocurrencies that is not the case. Even though bitcoin uses block chain to function and reduce the risk of manipulation it is still created by an unknown identity which cannot be trusted. Instead this article suggests that the technology used to create bitcoin is fine but if this is done by a centralized government or a recognized world organization then it will have more credibility and people will be willing to switch to cryptocurrencies. I am unsure if it is still completely safe as bitcoin users are hacked everyday. If the world has to go completely digital, then Information systems would need to be more secure and definitely be formed by an authority that can be trusted by common man.

 

https://magazine.fintechweekly.com/articles/the-future-digital-currency-may-not-be-the-bitcoin?utm_medium=email&utm_source=fintechweeklycom

 

Hackers are constantly coming up with new ways to commit fraud as it relates to real estate agents and their clients. The issue of securing who can access a transaction management system is becoming more important. Hackers use phishing emails to gain login credentials to such systems and identify target transactions along with client information. This allows the offenders to request wire transfers at the appropriate time to an account that the hacker can access. This security issue is not surprising given the fact that so many transactions take place online. In addition, communication commonly takes place through email or unsecure messaging further allowing hackers to gain private login information. Therefore, partial responsibility falls on the information system login to provide necessary security to prevent such fraudulent behavior from occurring. Segregation of duties and restricted access can be two methods to further provide security to a transaction management system like the ones hackers are exploiting.

 

Citation: “The Latest Evolution of Real Estate Wire Fraud.” RISMedia. N.p., 13 Jan. 2017. Web. 15 Jan. 2017

McKinsey conducted a study that estimates there will be significant monetary impact for those using Distributed Ledger Technology, with widespread adoption in 5 years. Their adoption will save global financial industries more than $100 billion. This technology change in the way FIS are developed. Finextra believes there will be a “blockchain” gold rush in the next few years, and I believe the current trends are supporting that.

As discussed in class, Bitcoin is founded on blockchain Technology. Each block in the chain contains data that cannot be altered, but can be added upon. This creates a transaction history and consistency for Bitcoin. This concept is derived from Distributed Ledgers. Blockchain is just another form of it.

Distributed Ledgers are often implemented in the form of permissioned ledgers. They allow for the ledger to be a secure, dynamic, and collaborative data source that only certain members of an organization can see. This keeps the ledger secure while keeping intact its intrinsic efficiencies. There will be growing pains with new systems, but companies who can utilize this technology properly will be swimming in their savings.

 

Link: https://www.finextra.com/newsarticle/29977/blockchain-impact-timeline-speeds-up-massive-cost-savings-forecast

https://www.google.com/amp/s/amp.ft.com/content/f493d7c4-d9a0-11e6-944b-e7eb37a6aa8e?client=safari

This discussion focuses on different financial technologies that facilitate payments between users and different companies. Companies, Bango, Gresham, and Paysafe all reported geoth and optimism for 2017 despite Brexit and London leaving the EU. Bango processes mobile payments , Gresham offers financial technology services for banks, while Paysafe focuses on digital payments for gambling. This isn’t surprising due to the rise of technology in all sectors of business, as well as the burst in mobile transactions as well as we all become more dependent on our phones. I’m interested to see which companies will last in the future before we see a financial technology titan for mobile users. Eventually there will come a time where smaller companies can’t maintain a large enough market share to stay competitive and only a few will remain. All we know for sure is that financial technology, especially in mobile, will only grow in years to come. Continue reading Financial Technologies optimistic earnings and outlook