Month: January 2017

Algorithms is now playing a crucial rule in innovating the Fintech industry. Nowadays, Fintech startups are implementing new technologies to provide low-cost financial services. LeadingRobot recently launched an automated hedge fund using blockchain technology. The automated hedge fund buys credits from online lenders and move investors funds based on risk tolerance and investment horizon. Unlike traditional hedge fund firms that charge a certain performance fee and management fee, LendingRobot only charges a 1% management fee and no performance fee.

Clearly, new technologies enable Fintech startups to disrupt traditional banking and financial service industry. At the same times, new technologies allow customers from different financial situations to manage their money at a very low cost comparing to traditional financial services.  Despite some risks related to new regulatory agenda and managerial changes within the startups, companies providing Robo-advisors or automated hedge fund services have highly chance to succeed. In particular, millennials tend to adopt these new Fintech services because they provide lower cost for more people and are easy to use as mobile phone apps. Moreover, a high mobile penetration rate in the US provides a large group of audience for Fintech startups.

 

Fintech Startup LendingRobot Uses Blockchain To Launch Automated Hedge Fund

Out of the ashes of the banking meltdown, small financial technology startups sprung up in their places. Since 2008, one of the biggest fintech startups to succeed is Venmo. Venmo is an app based peer to peer transaction app. The race to dominate the mobile transaction market has been a competitive race for the last 10 years, however, Venmo has proved to be the victor in the market with over 2.1 billion dollars transacted every quarter.

Many people have wondered how Venmo won the race for an everyday p2p transaction app when the market has been so competitive for so long. The answer lies in multiple variables. Venmo was the only app that required users to sign in through Facebook. This helped Venmo secure a large millennial user base while helping users process transactions quicker with their Facebook friends already being linked to their Venmo account. Another crucial factor to Venmo’s success was their timing. In 2010, mobile pentration in the US had surpassed 75% of the population. People felt more comfortable using mobile application to handle sensitive tasks such as the exchanging of money. The culmination of these factors led Venmo to win the P2P transaction market.

How Venmo Won In One Of The Most Crowded Spaces In Tech

India’s government is in the process of universalizing its Public Financial Management System. The goal of a universal system is an efficient digital system to replace its manual one. This large-scale information system will be run by India’s Department of Expenditure instead of individual states.

The individual states and union territories are hesitant to accept this transition because they view the change as a loss of control and independence. They do not feel that the Department of Expenditure has the right to interfere with the workings of state governments.

Overall, I can understand the states and union territories’ trepidation with the roll-out of a universal financial information system. Joining a larger system increases oversight and scrutiny which may imply that the government doesn’t trust its states. However, I think that the states should embrace this system because it will increase efficiency and transparency.

With India’s twenty-nine states, seven union territories, and over 1.2 billion people, there are vast amounts of financial information to track and manage. State treasury departments must communicate with both Parliament and local ministries. A single, uniform system will allow transaction details to be more accessible and understandable. The increased accessibility can help fraud detection as well.

http://economictimes.indiatimes.com/news/economy/policy/government-to-universalise-the-use-of-public-financial-management-system/articleshow/53231185.cms

http://economictimes.indiatimes.com/news/economy/policy/march-deadline-set-to-integrate-states/uts-to-public-financial-management-system/articleshow/53835598.cms

In November last year, India demonetized around 86% of the total value of the currency in circulation overnight by abolishing the largest denomination bank notes of Rs. 500 and Rs. 1000 bringing the country’s economy to a grinding halt. In a country that is heavily reliant on cash, this demonetization drive inflicted by the government has received varying levels of support from the society. While the common man remains the worst hit, having to deal with numerous hardships, the “FinTech” firms on the contrary have gained an unprecedented advantage. Indians who are otherwise averse to use any other means of transaction apart from cash are now forced to adopt a cashless economy by using digital payment options like e-wallets, online banking, debit and credit cards, etc.

In a country where there are fewer than 25 million credit cards for a population of over a billion, will the FinTech industry find a strong foothold? While I still have my doubts and believe it’s a far fetched dream to attract Indian consumers to adopt a cashless economy, numbers published in a recent article by Bloomberg (1) left me baffled. Amidst the demonetization shakeup with people being compelled to switch to a non-cash mode, Indian FinTech companies like Paytm have seen manifold growth in transactions and their customer base:

A 700% increase in their overall traffic, 1,000% growth in the amount of money added to the Paytm wallet, User base of around 150 million and over 5 million new users added since demonetization and around 7 million transactions worth Rs. 120 crores a day.

In India the “FinTech” software market is now forecasted to touch $2.4 billion by 2020 according to NASSCOM. While these numbers seem promising and India could end up being a rare bright spot for financial technology investors, I believe they still have a long bumpy road ahead of them. Listed below are a few roadblocks that I believe will continue to haunt the growth of FinTech in India:

1. One of the major hurdles in my opinion is the current digital infrastructure in India.The lack of smartphones and internet connectivity are the prime reasons preventing India from going cashless.
2. India is home to around 21% of the total unbanked population in the world where around millions still do not have access to formal banking services.
3. Shops in rural towns that account for the vast majority of the country do not have a point-of-sale terminal that accepts digital payments.

Thus, until the “Cash is king” mentality still remains prevalent in India, it will take years if not decades to part ways with paper bills posing a serious threat to the growth of FinTech in India.

Reference (1): https://www.bloomberg.com/news/articles/2016-11-23/cash-ban-the-best-thing-to-happen-to-indian-digital-payments

 

 

 

Media has labeled Fintech as “the big bank disruption”, and Fintech’s growth has been substantial in recent years: the global estimated value of Fintech was $3 billion in 2013, $12 billion in 2014, and over $20 billion in 2015. Industry experts believe that 2017 is merely the “tip of the iceberg” of what we can expect for Fintech disruption.

The expected trends in 2017 include a growing focus on artificial intelligence, which will help Fintech companies make better decisions using predictive analytics to understand big data. With the increase of smartphone ownership, there will also be an increasing demand for mobile transactions. By 2021, contactless card transactions are expected to double worldwide, making physical cards obsolete. However, as contactless transactions increase, fraud prevention measures must be put in place. Multi-factor authentication, such as fingerprint or face recognition and iris scans, will become necessary.

While contactless payments are gaining traction, I believe the transition period to adopt this form of payment will be slow. For example, businesses were required to upgrade to EMV-enabled terminals in 2015, but I have seen many businesses yet to do so. Also, I am curious to see how traditional banks will to respond to Fintech disruption.

Reference: https://letstalkpayments.com/hottest-fintech-trends-2017/

Bitcoin is a cryptocurrency and payment system introduced in 2008. New bitcoins are created by a process called mining where users are rewarded by bitcoins for providing their computational power for providing computing power to verify the transactions.

In the http://finance.yahoo.com/news/why-chinas-central-bank-fears-bitcoin-192321568.html article shows how the counties are increasingly monitoring virtual currencies and operators.  This has resulted in changing of terms for the firms. In my view, this might cause people to refrain from using this currency.

Here are my views on Bitcoin advantages and disadvantages

Advantages:

• Global currency can be used anywhere.
• Can be transferred anywhere in the world in very less time across the world.
• Protects from geographic and currency fluctuations
• Reduced no of intermediaries in payment system

Disadvantages:

• No physical backing: can collapse anytime
• Illegal activists can use it to avoid any suspension
• Bitcoin price volatility greatly affecting its holders
• A Safe haven for holders. Difficult to be monitored by countries
• Countries like china are increased monitoring the bitcoin companies

 

Reference: http://finance.yahoo.com/news/why-chinas-central-bank-fears-bitcoin-192321568.html

https://en.wikipedia.org/wiki/Bitcoin

http://www.coindesk.com/china-bitcoin-exchanges-trading-policy-updates/

 

 

 

Singapore’s central bank and financial regulator, Monetary Authority of Singapore (MAS), has a fintech lab that aims to attract fintech companies through the “sandbox.” The “sandbox” allows fintech innovators to conduct small-scale experiments and test them in a low-risk environment before pushing it out on a larger scale.

A big reason why Singapore has created the “sandbox” is because of reports that state a huge loss in jobs due to fintech. According to a 2016 Citigroup report, European and American banks could lose about 2 million jobs in the next ten years due to fintech’s ability to allow customers to do more online. Naturally, Singapore fears this could happen to them as 12.6% of its GDP is reliant on finance.

Singapore aims for a flourishing fintech industry that supports rather than interferes with big banks. In three years, the MAS plans to invest $158 million dollars in the fintech sector. The goal is to combine the strength of both fintech and banks. Fintech firms are more nimble and cost-effective, while banks have built an image of credibility and stability, as well as being better equipped with resources.

I can see the benefits of working in a partnership between banks and fintech innovators to expand the market. It will be interesting to see whether banks and fintech merge or collide in the near future.

Reference: http://www.economist.com/news/finance-and-economics/21714384-city-state-wants-fintech-bolsters-not-disrupts-mainstream

Traditional accounting system is usually a single stand-alone system. The current accounting system is integrated with other systems to improve efficiency and boost revenue. Rather than relying on a huge data center, Accounting system is moving to the cloud computing to serve more clients with less spending on hardware infrastructures.

First, system on cloud can help CPAs to better serve their clients. CPAs take note that “the customization options cloud computing offers bring more efficiency, strategic insight and automation”. CPAs can work on higher-margin roles such as consulting and analysis rather than dealing with backend manual workflows. Cloud-based accounting systems can also create an audit trails as part of general ledger, which makes auditors’ job simple.

Cloud-based accounting system is also secure. The advance encryption technology and safeguards minimize the worry of moving data to the cloud. Since multiple copies are kept in data centers at different location, the likelihood of lost data is also reduced.

Reference:

http://www.cpapracticeadvisor.com/news/12294496/how-small-accounting-firms-find-big-advantages-in-the-cloud

The benefits of using a Financial Information System are:

• Rapid Decision Making: The Financial Information systems enable you to make quick and rapid decisions as it provides accurate, verified and consistent information.

• Better Planning: The system gives you a realistic and accurate view of your overall financial situation. This enables the company to make predictions, forecast and plan accordingly.

• Efficiency: With validations and security features of FIS there is no need to re validate and confirm the facts multiple times before making a final entry. It also provides historical information. It helps improve efficiency by minimizing efforts.

• Collaboration/Integration: FIS provides a platform or a base to integrate all the various business processes, functional processes and financial information of your company. This leads to better accessibility and improves performance.

• Numbers to action/ Reporting: FIS enables better analytics and reporting of financial information than traditional financial systems. They aggregate all the information together and has high scalability.

Reference: http://smallbusiness.chron.com/benefits-financial-management-information-system-71943.html