Month: January 2017

 

The growing market for financial technologies is greatly improving efficiencies for institutions.  Mark Carney, governor of the Bank of England and chair of the Financial Stability Board, notes that new entrants such as peer-to-peer lenders, payment service providers, and innovative trading platforms are bringing  new technologies to reinforce economies of scale.  Carney discusses the risks that come with new underwriting models causing a change to credit quality and macroeconomic dynamics.  Fintech is able to capture new types of data.  For example, as customers rely more and more on machines, they are able to gain the best rates possible.  The new technologies are used to improve credit underwriting, create better matches between products and customers, and grow peer-to-peer lending.  Of course with the increase in technology comes an increase in privacy issues and the handling of customer information.

https://www.cryptocoinsnews.com/bank-of-england-governor-fintech-brings-great-promise-and-risks/

 

 

Cryptocurrencies have come a long way since the first use of 10,000 Bitcoins to buy 2 pizzas in 2010. According to coinmarketcap.com, there are 7 different cryptocurrencies with a market cap of over $100 million, though none come close to Bitcoin with a market cap of nearly $15 billion. With companies like Microsoft now accepting Bitcoins as payments, the future of cryptocurrency is important to pay attention to. Kathleen Breltman, COO of a new blockchain platform called Tezos, offers her five predictions for cryptocurrency in 2017. Here I will touch upon a few and offer my own views.

“Investment funds will look to invest in cryptocurrencies”

It is important to understand that cryptocurrencies are still currencies, subject to wildly fluctuating economic forces. Though Bitcoin’s value is rising right now, its value fell significantly after its last peak in 2013. That said, some cryptocurrencies may be more stable than some real currency.

“Exchanges will become a source of scrutiny”

If cryptocurrencies want to be legitimized, then governments must be involved for the sake of regulating and protecting consumers – assuming governments can keep up with rapidly evolving technology.

My brother often says he regrets not investing in Bitcoin earlier. Of course, hindsight is 20/20.

Source: https://techcrunch.com/2017/01/23/whats-next-for-blockchain-and-cryptocurrency/

https://coinmarketcap.com/

 

Cleo, a London-based startup, has developed a chatbot that helps people manage their finances. The company has recently received funding from a number of angel investors, including Skype founder Niklas Zennstrom. Zennstrom has invested his personal assets instead of going through the VC firm he founded, Atomico.

Cleo can be accessed either through the Cleo app or Facebook Messenger, and through integration with Google Home and Amazon’s Alexa. This AI-powered financial assistant allows you to ask it about your current bank account balance, how much you’ve spent at what store, and set budget or spending reminders. CEO Barney Hussey-Yeo wants to make “managing your money incredibly simple” and says that typical users are young professionals and graduates. He also notes that the “manage your money” space is increasingly competitive. With companies racing to become the financial interface of this generation, Cleo has managed to make money management mobile, which I feel has a lot of potential for the millennial generation. The concept seems very convenient and easy to use, however, I would be concerned about the security of the application handling banking information.

Skype’s Niklas Zennström backs London fintech startup Cleo

This article discusses the new wave of robo investor applications and how millennials are flocking to these environments in record numbers. Robo investors are able to give millennials an investing service much cheaper than the traditional financial advising system. Fintech has enabled these companies to create a low cost solution that does not require the large marketing costs that come with many of the traditional players. Millennials are using more of these applications because they are able to trust the technology behind it. There is a need for this area of fintech from Millennials as this generation has one of the highest savings rate of two thirds of the group putting more than 5% of their paychecks into savings. Millennials enjoy putting their savings into a service that will automatically invest, re-balance, and adjust their capital.
Many of my friends are avid users of these types of services that have a very intuitive user face and make setting up the service friction-less. I believe much of my generation will likely shy away from the mutual fund or high fee route in favor for a more ETF and index approach which is widely used by the fintech applications.

http://www.forbes.com/sites/hbsworkingknowledge/2016/12/07/why-millennials-flock-to-fintech-for-personal-investing/2/#727a16524f47

 

 

Fintech startups have been the new trend for the Silicon Valley. Many of these startups have been challenging financial service offered by traditional lenders for some time. Like any new technology, Fintech companies have gone largely unregulated for the past several years. Towards the end of 2016, the Office of the Comptroller of the Currency said that they will officially begin accepting applications for companies that wish to be regulated like a federal banking institution. The benefits will include being an established company in the eyes of the government, but they will also be subject to the same anti-money laundering controls and consumer protections of traditional financial institutions.

Seeing as the government is usually slow to react with regulation of new technology, now that the government sees that these fintech companies have replaced some functions offered by traditional financial institutions, it will only be a matter of time before they demand all fintech companies to be regulated like traditional financial institutions. This first step of allowing fintech companies to apply to be monitored like a traditional financial institution is the government allowing fintech companies to voluntarily choose to be regulated. Even if companies do not volunteer at first, eventually all fintech companies will be regulated like traditional financial institutions.

Reference: https://www.bloomberg.com/news/articles/2016-12-02/fintech-firms-get-chance-to-be-regulated-like-wall-street-banks

POS (Point of Sale) payment is one of the categories of mobile payment ecosystem. It is also known as tap-to-pay as the user just taps his device on the terminal to make the payment.

User stores his card details in his smartphone (or any compatible wearable). Instead of swiping the card, user can just tap the phone on the terminal. The device then requests for user authentication via fingerprint to confirm payment.

Tap-to-pay system uses NFC (Near field Communication) technology that allows two devices placed within a few centimetres of each other to exchange data. In order for this to work, both devices must be equipped with an NFC chip. So, when user taps the device on the payment, the NFC-powered terminal subtracts money from the balance written to the card.

Apart from making payment, now mobile payment can also allow you to withdraw cash from ATM. From end of 2016, Bank of America has services allowing the customers to withdraw cash from the user’s bank account by simply tapping their NFC device.

According to nfcworld.com “value of transactions conducted via NFC handsets will grow from US$30bn in 2016 to US$45bn in 2017, US$70bn in 2018, US$110bn in 2019, US$160bn in 2020 and US$240bn in 2021”

Major players: Apple Pay, Android Pay and Samsung Pay

More than 100m people will make an NFC mobile payment in 2016

 

This news article talks from fortune.come about the global trend of blockchain technology adoption by financial institutions, with a specific focus on Chinese banks.  Fortune.com reports that 80% of financial institutions in the world have stated that they would adopt blockchain technology in this year. However, most of the financial institutions may only apply blockchain as experiments to some special projects.

In my opinion, Chinese banks are interesting to study in this terms of blockchain adoption. First of all, unlike many other financial institutions who may only implement blockchain in their peripheral products, Chinese banks are trying to integrate blockchain technology in their central banking system.  Second, the adoption of blockchain of Chinese banks could revolutionize the way Chinese banking systems work now. Despite that four of Chinese banks rank among the top five in the world in capital, they are still using paper, fax, and stamps to verify transactions.

According to fortune.com, 86% of surveyed companies in China reported fraud, which was 4% above the global average, as a result of the outdated banking system. Therefore, the initiatives to invest in and adopt blockchain technology were backed up by the Ministry of Industry and Information Technology, as a fraud-fighting tool.

Source: http://fortune.com/2017/01/27/china-banking-fraud-blockchain/

After the recent takeover of the fintech industry, analysts have been attempting to identify which financial sectors can benefit the most. In a recent fintech conference in London, VC’s unanimously said that the insurance sector would desperately need technology guidance to further advance the field. With the rise of artificial intelligence and more efficient bank transaction processes, insurance falls behind in innovation and user experience. Insurance is seen as old-fashioned and rely primarily on brokers and paper while not being adaptive to the changing auto and home industry. Insurance Technology or “InsurTech” has seen a sharp increase in interest from VC firms due to its scalability and early profit projections. Startups such as Cuvva, a 150 million pound valued pay-as-you-go car insurance app and Trov have been the benefactors of an opportunistic market for insurance. With the high volume of startups appearing both in the U.S and internationally, we can assume that a wide variety of them will attempt to saturate and revolutionize the insurance industry. While InsurTech may be in line to replicate what fintech did to the market, some struggles initial struggles will occur. Insurance requires a more personal approach as it deals with humans and situations that are out of their control and too unique to automate. Auto payments are expected but it is believed that innovation will illuminate a discovery that technology can improve with insurance. Overall, it will be a few years until we see a substantial impact in insurance publicly but it’s important to know how early to target InsurTech companies for investment purposes.

URL: http://www.businessinsider.com/fintech-hot-insurance-insurtech-vc-economist-finance-disrupted-2017-2017-1

ICICI, India’s largest private bank, and Emirates NBD,  recently announced successful international transactions for both trade finance and remittance purposes using blockchain technology.

This pilot transaction  was executed to showcase confirmation of import of  “shredded steel melting scrap” by a Mumbai-based export/import firm from a Dubai-based supplier, and to exchange and authenticate original international trade documents. The blockchain trade application co-created by ICICI Bank “replicates the paper-intensive international trade finance process as an electronic decentralised ledger”.

The information contained in the blockchain transaction included a purchase order, an invoice, shipping and insurance papers. Each participant was able to access and view a single dataset, to authenticate ownership of goods digitally, transmit their trade documents, check the status of their applications, and transfer their titles, while maintaining confidentiality. Further, it allowed each participant to check online the status of the application, transfer of title and transmission of original trade documents through a secure network, while preserving client and commercial confidentiality.  The application is designed to work with existing banking systems and processes, allowing banks to “plug in their systems and process.

Source: https://www.finextra.com/blogposting/13593/blockchain-accelerated-activity-in-trade-finance

For the 2017 year, David Klein of TechCrunch, has made five (safe) predictions on what he thinks will happen for the Fintech industry. I will make my prediction and provide reasoning on whether or not these things will come true this year.
Prediction 1: Fintech lending will further stratify as an industry
I feel that this will be correct, but not to the extent that he states it will be. Klein believes that from the 400+ lenders of 2016 will whittle down to around 10 lenders in total. I believe that this number will shrink but not to the extent that he believes, more likely there will be around 100+ lenders this year.
Verdict: Somewhat True
Prediction 2: The asset side of fintech will find its groove
I believe this will also be true because fintech companies are constantly looking for ways to disrupt traditional banking processes and digitize them for the 21st century.
Verdict: True
Prediction 3: M&A activity will start to become real
Similar to the same reasoning as the first prediction, there will be market consolidation as these companies become more established and companies will want to consolidate industry power.
Verdict: True
Prediction 4: Blockchain will have an impact on the financial services industry
I don’t really know what blockchain is or how it works. Because of this I really can’t make any comment on this prediction with any confidence.
Verdict: Unknown
Prediction 5: International investors will come to the U.S.
I don’t think that this prediction will come true. In my research I have found that there are robust fintech industries in foreign countries where investors are probably more keen an likely to invest. While the United States is a secure investment with minimal risk and decent interest rates, I believe foreign investors would rather work in their home country and try to develop a fintech company for their culture instead of a foreign culture.
Verdict: False

Article Link: https://techcrunch.com/gallery/fintech-predictions-for-2017/