Month: January 2017

Human financial advisors usually charge 1 percent of assets per year, regardless of the outcome of the investments. Until robo-advisors, the only other option was to manage accounts independently, which often underperformed the market. Robo-advisors offered a solution by being more efficient than working independently, and by being cheaper than a human advisor. The average rate robo-advisors charge is 0.15 to 0.5 percent a year, a fraction of what human advisors charge. Robo-advisors use computer algorithms from the same historical data human advisors use, and select investments based off the client’s risk profile. Deloitte Consulting predicts that within a decade robo-advisors will be managing $5 to $7 trillion. Asset management firms are creating robo-products to stay competitive.

Although robo-advisors are still making way into the market, I believe that in the near future they will replace human financial advisors. With the advancement of artificial intelligence coupled with more complicated algorithms, robo-advisors will be able to outperform human advisors. I also believe robo-advisors have the advantage of not having financial interests in the client, being able to custom-tailor to each client’s specific needs, and being useful for any time horizon. If asset management firms don’t adapt quickly enough, fintech firms will be taking over the market.

Source: The Rise of the Robo-Advisor

Over the past few years, it has become increasingly popular to use your phone to complete payment transactions. This technology is great for consumers because it is fast and sometimes more convenient than having to deal with credit cards or other forms of payments. However, the video I watched this week, “Mobile Payments: The Good, the Bad, and the Confusing”, raised the issue that regulation has not been able to keep up with the trend of mobile payment systems. Therefore, customer’s funds may not be as safe as they appear on mobile platforms. The first unclear rule they bring up is whether banks are allowed to take overdraft fees without warning from an account due to mobile payments, unlike the standardized processes of dealing with overdrafts from debt cards. There is also no clear indication of who should protect data of people using mobile wallets. Finally, mobile wallets do not have the same protection as checking accounts, so money can be stolen more easily.

I think more regulation needs to be made to protect consumer’s money online. I understand that technology moves so fast it is difficult for lawmakers to keep up with changes. However, these are legitimate threats to people, and currently there is not a clear path on how the government is protecting us.

1) Bank-owned P2P model: In this model, the sender’s bank does the transfer of funds. There are a number of banks which operate in this way. The financial institutions have developed their own applications so provided P2P service.

Example :

clearXchange: It was founded in 2011, and it was owned by Bank of America, Capital One, JPMorgan Chase, US Bank, and Wells Fargo. Customers of either of the banks could send/receive payments. The sender only has to enter the recipient’s email or phone number. It was sold to Early Warning in 2016 and rebranded as Zelle.

2) Processor/partner P2P model: In this model, the sender’s bank uses a processor/partner to transfer the funds.

Example:

PopMoney was developed by Cashedge is now a part of Fiserv. Popmoney is slightly different from other P2P payment services in the sense that the transactions execute from sender to receiver directly, eliminating the need for a stored value account. Pop is an acronym for “pay other people” and provides services for several banks and credit unions.

3) Third-pparty-ownedP2P: In this model, the sender interacts with a third party to transfer the funds using ACH or credit/debit cards. This is the most popular model and there are a number of players in the market such as Google Wallet, Amazon, Dwolla, Venmo, and Square Cash. PayPal is the most widely used service. In 2015, PayPal processed $41 billion in mobile person-to-person payments, up 42% from 2014.

 

References:

http://marketintelligence.spglobal.com/our-thinking/ideas/big-banks-take-on-paypal-s-market-share-in-mobile-payments

http://www.paymentsjournal.com/WorkArea/DownloadAsset.aspx?id=22928

While smartphone manufacturer keeping improving its feature and performance, so as thousands of applications, the technology revolution continue expanding services scope to meet the market demand and providing benefits to customers. Apple, Android, Samsung are top three mobile pay app providers, and rivals to seize market share. Although more customers have reported using Apple Pay, Android Pay and Samsung Pay have adoption rates on par, which are competing to win more customers by its distinguish payment features.

Conducting reliable secure process for transaction is still a priority topic that tech companies working on. Apple Pay and Android Pay must exclusively rely on Near-Field Communications (NFC), which requires newer terminal equipment at the checkout counter. Instead, Samsung invested in Magnetic Secure Transmission (MST), which transmits card information to older terminals that only accept magnetic stripe cards by creating a magnetic field similar to that of a mag stripe card as it’s swiped. However, it is not a significant factor in adoption because Samsung pay users reported that they use NFC payment more often than MST mode.

Source:

https://arstechnica.com/business/2016/06/apple-android-samsung-whos-winning-the-mobile-pay-app-race/

The world’s largest financial technology company, Ant Financial Services Group, is in the process of acquiring U.S. money transfer company, MoneyGram International Inc. for about $880 million. Ant Financial Services Group is affiliated with Alibaba Group Holding Ltd. Ant is also the leading the online payment company in China and worth about $60 billion. China’s fintech companies are on the rise and it is said that China’s fintech companies are accounted for 46 percent of all venture capital investment globally in 2016. The combination of MoneyGram’s expansive networks and Ant’s technological knowledge, can create a strong and competitive multi-national company. However, Ant Financial Services Group has to get approval by the Committee on Foreign Investment in the United States (CIFIUS) in order to acquire MoneyGram International.

It is great to see fintech companies and traditional financial services companies converge as we are headed to an increasingly technology enhanced world. It will be interesting to see the transformation of the fintech industry especially since there will be more overlaps between domestic and foreign fintech companies.

 

Source:

http://www.nytimes.com/reuters/2017/01/26/business/26reuters-moneygram-intl-m-a-ant-financial.html

FIS, a global leader in financial services technology, and PayPal created a partnership to increase customer engagement and increase spending with FIS’ banking partners.  This partnership will make it easy for consumers who bank with FIS clients to link a payment card or other financial account to their existing PayPal account.  It will also allow these users to display the financial institutions’ brand within PayPal, and allow the customers of financial institutions to set their default funding source in PayPal.  With digital commerce showing no signs of slowing down, this move by FIS and PayPal seems very strategic.  By enabling the bank branding within the checkout process, customers will be reminded of the ease with which they can shop, which will make them more likely to use PayPal accounts to shop, benefitting both the merchants and consumers.  Avidia Bank and the 15 chartered banks of Wintrust Financial, two FIS clients, will begin account linking in the first quarter of 2017.  This service will be available to all FIS clients beginning in the first half of 2017.

https://www.finextra.com/pressarticle/67467/fis-strikes-paypal-deal-to-embed-fi-clients-in-digital-payments

Below tips will assure your company has a robust internal monitoring strategy:

1. Hiring a CPA and tax attorneys to “Self-audit” your business  not only improves your business but also protects you from an IRS audit.CPA can ensure information is valid and in accordance with accounting standards (like the Generally Accepted Accounting Principles, or GAAP) .
2. Hiring a tax attorney, an accountant or installing accounting software program,will ensure you are following General Accepted Auditing Standards (GAAS) .They can also provide education to the business owner about how their business is running and how it can be improved.
3. Financial audits make sure all legal and tax rules are being complied with, which can prevent different legal issues that can arise when fraudulent or incorrect information is presented to the public or investors. In the U.S., keep tax receipts on hand for at least 7 years, as this is the statute of limitations on tax fraud.
4. If you have physical products or use equipment in your business, you will need to conduct physical audits as well. For example, inventory or equipment should be counted and visually inspected.
5. Cross-reference each part of your company’s accounting system. If you have a very large number of transactions, make use of statistical sampling.
6. Ensure your use of expenses for business meals, travel, and entertainment are believable. Daily commuting to work at a regular job or claiming any personal expense as a business deduction is not a valid. A good rule is if the spending is required to make money, then it can be deducted.Be sure you have proper receipts and records for any and all deductions.
7. Note major discrepancies between years and have documentation supporting why. If you contribute much more to charity one year than another, include an explanation as to why when you file your return, and include any receipts or other associated documents.
8. Determine whether your business has a sufficient accounting audit trail: Does your accounting software store associated documentation for every transaction, with relevant explanations for transactions that will be used for deductions?
9. System should monitor your company’s internal controls , and do reconciliation checks regularly on financial documents.
10. Separate accounting duties as much as is reasonable.Try tricks like internally numbering checks. Safes should be locked when not in use, and company software and computers should be password protected. Camera systems are beneficial for monitoring the execution of internal controls at retail businesses.

Reference: http://www.wikihow.com/Perform-a-Basic-Accounting-Audit

A startup in Africa has begun an attempt to stop property fraud through the use of blockchain technology. This service allows users to search for specific land information and perform property transactions. The goal behind the service is to provide people with the ability to receive land transactions like mortgages. This makes it easier for financial institutions to lend to people in emerging countries. The startup, BenBen, believes that secure land information with fast transactions will encourage property investments. Without the service, the process of registering land can take two years, which allows individuals to commit the fraud.

Blockchain is becoming a popular tool in countries with unsecured financial systems. Allowing people to feel safe when transferring money or applying for loans is a major step in developing a country. Blockchain refers to a ledger of transactions that can only be changed through consensus among the users. I find the concept interesting given the fact that there is no overseeing authority but the system is still so secure. I am interested to see if new forms of fraud will infiltrate the new transaction process.

 

 

https://www.cryptocoinsnews.com/blockchain-tech-used-prevent-property-fraud-africa/

Ripple, a silicon-valley based fintech company, specifically a distributed ledger start-up, has been elected to fill 1 out of the 16 seats in the Federal Reserve’s Faster Payments Task Force, a US regulator’s flagship of payments modernization, in June 2015.

The company is mainly utilizing distributed financial technology, built around an open and neutral protocol, to enable banks using different ledgers send real-time global payments across networks. The technology is secured by cryptography, where transactions flow end-to-end immutably with information backed-up redundantly. Moreover, it is designed to fit within a bank’s existing infrastructure, so that banks are the biggest potential customer and beneficiary for the company.

The key features of Ripple Networks include “direct bank-to-bank settlement with no central operator, capacity to process the world’s cross-border payments volume, complete transaction privacy for each financial institution, PII data stays behind each bank’s firewall, integration with existing systems and standards, ability to connect traditional and emerging financial networks”. The company already gained customers that are from 9 countries and 1/3 out of world top 50 banks for all these high-performance services, with one of its most important features–lower processing costs, as a huge plus .

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Source: https://ripple.com/

The Mitsubishi Trust has recently announced that it will be pursuing legal action in response to the news that Toshiba has been inflating profits over the past 8 years, the group reports.

In the suit, Mitsubishi is asking for over $8.7M attributed to the client losses caused by the accounting scandal. The fraud was determined to have impacted over $1.3B dollars in revenue. The news of the scandal caused a large drop in the share price of Toshiba which affected the Mitsubishi pension fund.

In response the number of lawsuits, Toshiba has announced that it will sell off a portion of its memory chip business which will allow the company to finance the litigation and punitory costs associated with the suits. Since the discovery an announcement were made, over 15 separate lawsuits have been filed seeking compensation for losses attributed to the negligence and fraud within Toshiba.

This would be on top of the recommended $60M fine imposed by Japanese authorities and put the company in a difficult position.  This scandal causes shareholders and potential investors to be wary of investing in the company and devalues public perception which could hurt one of the company’s many lines of business. Similarly, inflating profits is looked upon poorly by investors who see a retroactive reduction in investment value as well as a betrayal to the company’s public owners.

Source: http://www.reuters.com/article/us-toshiba-accounting-idUSKBN15E03A?il=0