Month: January 2017

Finance is said to be, “ultimately the business of collecting, storing, processing, and trading in information, unbounded by geography.” Periods of exponential growth in finance are commonly due to advances in the use of technology within the sector. With increasing reliance on financial technology in today’s world, the International Monetary Fund published an article highlighting the broad impact, financial inclusion, and technological risk associated with advances in financial technology.

Financial technology is moving forward in ways that effect both consumers and firms. One of the most notable outcomes from the intersection of technology and finance is the increased quantity of people around the world who have access to financial services. The increased ability for companies to process transactions and the increased ability for consumers to use financial services is helping increase economic efficiency. While this is a positive effect, the increased use of technology that manages valuable private information comes with increased security risks. Increased dependence on financial information needs to come with increased emphasis placed on information security. Breaches in security will be disastrous for users and economic prosperity. Financial technology advancements will be most impactful if the need to mitigate information security risk remains a top priority.

http://www.imf.org/external/pubs/ft/fandd/2016/09/narain.htm

This article is about how WorldCom’s failure happened. According to the article, “more than $9 billion in false or unsupported accounting entries were made in WorldCom’s financial systems in order to achieve desired reported financial results”. As an example of corporate malfeasance, the fraud was deliberately executed by CEO and Board of Directors due to their unrealistic business goals and personal interests. As the article mentioned, one of the measures could have saved WorldCom from bankruptcy was “formalized and well-documented policies and procedures, including a clear and effective channel through which employees can raise concerns or report acts of misconduct.” I totally agree because if every accounting entry had been required by law to made in the company’s financial systems with adequate, transparent and sufficient supporting documents, the fraud couldn’t have had horribly accelerated and could have been stopped. This case also made me wonder how the company’s auditors who were both internal and external did their jobs. Were they not skillful enough to suspect unreasonable accounting entries; or were the financial systems not designed in a systematic and secure way for them to fully inspect; or did they uncover the issue but for some reasons they could not raise the truth? Here comes the significant importance of well-designed & managed financial information systems and business ethics.

Source: http://www.ecommercetimes.com/story/45542.html

With the inauguration of Donald Trump imminent, law changes specifically in financial technology will surely be seen. Big players in this industry are “lenders such as Lenders Club, bitcoin and blockchain technology, also known as distributed ledger technology (DLT), money management applications such as Mint, money transmitters such as Venmo, and digital wallets,” as stated in a recent article.

Luckily for these companies, Trump’s campaign is pro for reducing regulation in the industry and similarly Congress, who is now a majority Republican is regularly against raising regulation in financial services. Furthermore, the Consumer Financial Protection Bureau (CFPB) is taking steps to be proactive with financial technology companies in that they will “review their products and services, as well as their compliance program,” while these companies are first forming so that they can set and understand compliance standards early on. I think is proactive approach to regulation is smart and government agencies should actively work with financial technology companies.

Finally, Congress is currently working on creating a Financial Services Innovation Office (FSIO) through a new act that would deal with all regulatory standards needed in the industry as it is a rapidly growing one and is likely here to stay.

Source:

Financial technology rules are set to change in the Trump era

The IRS believes that some US citizens who utilize Bitcoin may be evading taxes. Bitcoin transactions are recorded publicly, but there is no identifying information connected to these transactions making it difficult for the IRS to bring a case against anonymous Bitcoin users. The Treasury Department put the IRS under pressure for its lack of involvement which lead to the IRS investigating Bitcoin records for 2013-2015. The IRS found three potential tax evasion cases leading to a court petition for Bitcoin to provide information on its users.

Bitcoin is facing similar issues that previously established banks have faced in regards to tax evasion. Since services like Bitcoin are out of the scope of traditional regulations set for banks, the government is seeking for regulatory insight into the companies and the people who use such services. This is due to the importance of the government and financial institutions needing to know who exactly is moving money and where.

Such regulations can change the scope and evolution of such fintech companies as well as affect customers’ behaviors when utilizing these services. We may see that with the increased regulations, such institutions become more traditional in structure in order to meet government demands.   

https://www.nytimes.com/2016/12/05/business/dealbook/as-fintech-comes-of-age-government-seeks-an-oversight-role.html

The ecosystem of global fintech continues to grow actively, from blockchain technology to mobile wallets, as the capital market has poured huge investments into the fintech startup sector. While most fintech entrepreneurs are dominated by western countries historically, Asia’s fintech landscape is developing differently in last five years by four factors.

1. Geographic Fragmentation.

Countries with small market need to obtain license to do business in diverse foreign markets.

2. Growing Consumer Class.

The middle consumer class is growing and E-commerce retailers is guiding customers to go cashless.

3. Unbanked Populations.

50% of the un-banked are in Asia. Cash payment is still common in used because of not having enough money to deposit after living consumption, high flexibility to use in rural areas, and lack of trust in banks.

4. Mobile penetration.

The mobile phone penetration rate in India has reached to 80% and 99% in Indonesia. However, consumer credit reference is still relatively new to the financial markets in Asia. Data is recorded on the mobile devices, but how to utilize existing data to predict creditworthiness is an opportunity and challenge for fintech companies.

 

Source:

http://www.forbes.com/sites/falgunidesai/2016/04/29/asias-fintech-potential/#3fd37b7d72a3

 

Advancement in fintech has led conglomeration of financial industry with digital industry like never before. But while merger of two worlds helped broadening the reach, flexibility, and level of innovation to finance industry, this also bought along the bad side, i.e. cybersecurity. To give a perspective, just a year ago, in 2015 there was a cybersecurity attack ‘JP Morgan hack’, which is considered to be ‘the largest theft of customer data from a U.S. financial institution in history’. Incidents like such proves that there is a constant need to improve and enhance cybersecurity.

Hacks, security breaches, and a lack of trust by consumers is becoming commonplace. The need for new solutions is becoming more obvious, and IT and fintech security budgets across the private and public sectors are increasing accordingly. As a result, cyber security has become the fastest-growing sector in IT. The global spending for cyber security was nearing $76.1 billion in 2015—and that number is expected to rise to $170 billion by 2020(Source: Gartner).

The last thing any financial institute wants is to become the victim of a crime. The result could be a massive loss of customers, a damaged brand reputation, and legal and financial liabilities that may be impossible to recover from.

 

(reference: https://centricdigital.com/blog/fintech/is-your-data-safe-fintech-security-challenges-and-solutions/)

The White House FinTech Summit has finally published a whitepaper, A Framework for FinTech, on this Friday, January 13th, 2017, aiming to develop a policy framework for regulating the FinTech ecosystem and to encourage public-private collaboration in the FinTech industry.

This is the first time the U.S. government, engaged with stakeholders across the country, published its regulation principles in the industry. The Framework including 10 principles that encourage stakeholders to:

“1. think broadly about the financial ecosystem;

2. start with the consumer in mind;

3. promote safe financial inclusion and financial health;

4. recognize and overcome potential technological bias;

5. maximize transparency;

6. strive for interoperability and harmonize technical standards;

7. build in cybersecurity, data security, and privacy protections from the start;

8. increase efficiency and effectiveness in financial infrastructure;

9. protect financial stability; and

10. continue and strengthen cross-sector engagement.”

The publish of this Framework shows that, first, the U.S. government rates highly on the rapid growing FinTech industry, and second, the government begins to make great effort in regulating the industry. The Framework also illustrates the right approaches to ensure the promising growth of FinTech in the near future as forecasted p by scholars and regulators.

Source: https://www.whitehouse.gov/blog/2017/01/13/framework-fintech

The article, “Verifone, FIS and Modo are creating a new way for consumers to pay with loyalty points” by TechCrunch talks about how their new system will allow customers to pay for products and services with their loyalty points at locations that offer them. While this is a great way to use an existing service in a new way, I do not believe that it will be that wildly adopted. First of all, the pay with your loyalty software application has to be enabled by the merchant. Some merchants might not enable it based off of the belief that it is too much trouble. Another issue is that in order for the merchants to use this software application, they will need to have a specific Verifone credit card terminal. Hopefully there are a lot of terminals that can use this application because purchasing a new terminal just for this application while the old terminals are still working will be a very big roadblock. The idea is great, but until a more detailed plan is given, I cannot see this service being used by merchants and customers.

Verifone, FIS and Modo are creating a new way for consumers to pay with loyalty points

 

Market penetration of supply-chain management is only at 10% globally according to McKinsey, and only 30% of businesses worldwide have supply-chain financing computing according to Deloitte. Prevalently in the world, there is a lag between payment to buyers from suppliers, which was due to the financial crisis in the 1990s as companies tried to stretch internal resources. Supply-chain management can help improve the cashflow between suppliers and buyers by making payments fast and convenient for buyers.  Fortunately, companies are realizing these benefits, and supply-chain financing is growing. Fintech firms are driving this growth due to the ease of the platforms they offer.

Fintech firms are shortening payments by paying sellers on behalf of buyers. Once a buyer approves of an invoice, it is sent to the fintech lender, who then pays the supplier at the agreed date. The fintech lenders are also able to pay buyers on a earlier date less a discount, which are minute due to low interest rates, short financing periods, and risks only associated with the market. Although banks offer this kind of financing, fintech firms are able to help out smaller businesses, meeting the need of the growing market.

How Fintech Firms are Helping to Revolutionize Supply-Chain Management 

Healthcare delivery is accompanied by a series of complicated financial transactions between the patient, provider, and insurance companies. Currently, most of these transactions are done manually, involving extensive labor hours conducting phone calls, and mailing and faxing documents. In particular, claim attachments, which providers use to give additional information required for certain claims, take up a significant amount of additional time. In total, these tasks are estimated to take up to 1.1 million unnecessary labor hours (Lagasse).

However, this does not have to be the case. New findings show that switching over to electronic transactions through a financial information system could potentially save $9 billion through an average savings of $6 per claim (Lagasse). Evolving industry standards and advances in technology have likely contributed to greater adoption, but many processes remain to be performed manually. Dental providers could potentially see even more benefits, as they tend to adopt electronic systems at a 30% lower rate than medical providers (Lagasse). Ultimately, healthcare payments are relevant to most people and should be performed in an efficient manner. Adoption of financial information systems would show significant cost savings in the healthcare delivery industry.

Source: http://www.healthcarefinancenews.com/news/electronic-business-transactions-switchover-could-save-healthcare-9-billion-report-says