Month: January 2017

This week in class we familiarized ourselves with the procurement process and the role of Financial Information Systems in automating the procure-to-pay process. Global universal banks have traditionally dominated Supply Chain Finance’s competitive landscape, but over the past few years, a multitude of fintechs have entered the market providing platforms and software-based services to support the Supply Chain Finance operations. These fintechs have revamped their value proposition by offering innovative business models, improved digital interfaces and rapid innovation in response to buyer and supplier feedback. So what exactly do fintechs bring to the table as opposed to traditional banks?

1. Focus on improving the operational capability through online tools to help suppliers onboard. Provide digital modules for training on how to use systems.
2. Ability to analyze spend-working capital status.
3. Ability to access the most credit capacity.
4. Attractive price offerings to suppliers.

The image below, shows the emergence of technologies that connect counter parties that have enabled the growth of the Supply Chain Finance landscape.

Fintechs are also looking beyond the pure Supply Chain Finance products and seeking to provide solutions for needs across the procure-to-pay cycle. The image below displays the various platforms provided by Fintechs in an ideal procurement process.

Having said that, it’s not all doom for the banks yet. They need to act fast to cope up with the challenges posed by Fintechs.

1. Banks need to identify gaps in their technology offerings and either develop innovative solutions or partner with fintechs to do so.
2. They also need to review their current portfolio and identify opportunities to improve performance by perfecting operational capabilities within their existing programs.

In conclusion, the Supply Chain Finance landscape is approaching towards an inflection point, and the winners will be the banks and fintechs that partner with each other to leverage funding and technological strength and continue to innovate with a deep understanding of the needs of both buyers and suppliers.

Reference: http://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Supply%20chain%20finance%20The%20emergence%20of%20a%20new%20competitive%20landscape/MoP22_Supply_chain_finance_Emergence_of_a_new_competitive_landscape_2015.ashx

Ever since FinTech has extended to the consumer market through alternative loans, personal finance apps, and other technologies, consumers struggle with what they are willing to integrate into their lives and what might be left at the expert level. Marketers of these technologies are also confused how to target consumers because users’ attitudes often contradict their behaviors.

Salesforce says retail financial institutions should develop customer-centric business models and simplify the user experience so it is appealing to consumers of all ages and familiarity with technology. The rest of the article on The Financial Brand goes on to cite business reasons and statistics regarding the FinTech usage differences between generations. Only at the end of the article is the issue of security of personal data addressed. Among Millennials, I argue that this is the primary reason why people who are skilled at using recent technology still do not have personal banking or finance apps like Venmo on their smartphones. Since security of digital tech is still insecure at times, it may only be when FinTech has shown to be sufficiently secure in the long run may more Millennials (and members of other generations) adopt more personal FinTech options.

Sources: https://thefinancialbrand.com/63386/banking-channels-switching-fintech-strategies/

https://consumercomplianceoutlook.org/2016/third-issue/fintech-for-the-consumer-market-an-overview/

There are a number of advances in certain technologies that can be implemented within fintech to change the financial services industry. Artificial intelligence, being one of them, can be applied to financial institutions to help automate certain tasks. Once this technology is fully optimized for the business, it will be very beneficial in terms of the efficiency of the business operations. However, there is the downside with the jobs that it has the potential to offset. AI can also be used in financial advising for areas like investing and wealth management. Machine learning will be able to use algorithms and find patterns that can assist financial advisers to make decisions. There is a lot of data in the markets, and AI will be able to sort through it and analyze it more efficiently than humans. I feel that AI should only go as far as providing information to humans, who are ultimately the ones who make the decision.
Another piece of technology that will obviously continue develop and grow is mobile payments. One of the more recent advances is host card emulation, where payment information is stored and transmitted through the cloud. With these new types of payments, biometrics will eventually be used to identify who is making the transaction. Biometrics that can be used are fingerprints, facial recognition, and iris scanning.

Article: http://www.biztechmagazine.com/article/2017/01/what-s-ahead-fintech-2017

Jude Scott, chief executive of Cayman Finance, believes fintech could revolutionize compliance in financial services and has the potential to streamline processes for firms and regulators. Scott promotes the use of a common ledger—blockchain—as the standard place for verifying customers’ credentials.

Recent money laundering scandals, however, have brought up potential regulatory issues with fintech: Blockchain has become associated with criminal activity due to its use of virtual currencies, and P2P lending can be done anonymously, without following global standards or certification, which would be difficult to trace for regulators.

Scott’s idea includes financial institutions following a global standard set in the common ledger, and customers who are transacting would be “certified and approved” following the standard. Regulators would have access to the ledger and transactions’ metadata, which makes compliance more efficient. Compliance officers would be relieved the burden of screening transactions for risky customers.

While I like Scott’s vision, it would be difficult to implement on a global standard. Current regulations need to be modernized to match the speed of today’s fintech, and regulations need to embrace, rather than fear fintech. Regulations take a long time to pass, and when they do, they might no longer be applicable.

Reference: http://blogs.wsj.com/riskandcompliance/2017/01/26/how-fintech-could-cause-a-revolution-in-compliance/

Mobile payment is becoming more common to use. You can use your smartphone to pay for grocery shopping. In 2015, the revenues from mobile payments reached $450 billion. The mobile payment also extends to wearable payment. Apply watch can be used to pay merchants who accept contactless payment.

MagicBands are wristbands is in Disneyland as a wearable payment. The band can be used to pay tickets, gifts, foods as well as opening rooms of Disney hotels. It eliminates bags to carry around when having fun in Disney.

Sources: https://www.mobilepaymentstoday.com/articles/will-mobile-payments-give-way-to-wearables/

In 2017, Fintech will continue to be influential. With Fintech becoming more and more widely used across the industry, it challenges the traditional models, gives business and customers better and easier solutions, and also provides better technical tools to companies.
Data will be more accessible to individuals and business. In 2017, there will be more data for business to analyze. Business companies can clean and compile the data they got and solve the business questions they come up with. By doing so, companies can come up with better solutions for the services and products they provide to customers, and help to operate the business well. The influence of Fintech helps artificial intelligence to emerge. Artificial intelligence will be more welcomed by advisors to track the account activities through products and services; and they analyze the data to understand customer behavior.
In addition, the mobile workforce will still be a trend. More and more companies will launch their own apps and mobile transactions will be greatly increased to make people’s life easier.
With Fintech becoming a trend in business, hope the new tools and processes will secure the systems, and make the fraud much easier to be detected.
https://www.finextra.com/blogposting/13503/five-key-trends-that-will-see-fintech-enhance-its-role-and-impact-in-2017?utm_medium=email&utm_source=fintechweeklycom

Chip card security is the latest standard in credit card security.  The data on chip cards is constantly changing, making it extremely hard to isolate and extract. To clone, someone would have to get into the physical chip circuit and manipulate things to get your bank information.

U.S. retailers who have implemented EMV have seen counterfeit fraud costs decrease 54 percent (compared to the period of April 2015 to April 2016). Meanwhile, counterfeit fraud costs increased by 77 percent YOY among merchants who haven’t yet upgraded Chip cards are different in that they have sophisticated encryption built right into the chip.

In 2014 US card Fraud,45% of them are online,37% counterfeit, 14 % lost/stolen 4% others. Overall we can see even though there would be proposed decrease of frauds like theft or duplicating other kinds of frauds like online frauds would not be affected by this change in features of the card.

Next generation of devices like Coin which can store debit, credit cards can be used for payment or cards stored in e-wallets like apple pay. As no card is physically visible in my view it would be difficult even to copy the card number which could make online fraud difficult.

References:http://www.creditcards.com/credit-card-news/emv-faq-chip-cards-answers-1264.php

http://www.vanillaplus.com/2015/08/07/10551-history-of-cashless-payments/https://squareup.com/townsquare/why-are-chip-cards-more-secure-than-magnetic-stripe-cards/

http://www.creditcards.com/credit-card-news/emv-faq-chip-cards-answers-1264.php

http://creditcardforum.com/blog/credit-card-statistics/http://www.creditcards.com/credit-card-news/credit-card-security-id-theft-fraud-statistics-1276.php

http://www.smartcardalliance.org/publications-end-to-end-encryption-and-chip-cards-in-the-us-payments-industry/http://www.bbc.com/news/business-38174011

Germany’s Central Bank president Jens Weidmann has expressed concerns about the current growth of fintech. He specifically sees it as a threat to current banking and financial industries because the technologies are new. He fears that firms will be overly vulnerable in implementing technology that hasn’t been tested in an economic downturn. He stated that “assessing the risk was impossible without reliable data” (Koranyi, 2017).

While his concerns about using untested technology is valid, he seems to be missing the point. Financial technology improvements allow for better user access, reduced clearing and settling times, and less reliance on intermediaries. The only way to see how this holds up in the real world is to try it. If Weidmann wants reliable data to assess risk, he needs to let people get data first.

Additionally, Weidmann is talking about fintech as if it were all one concept. It’s not. There’s blockchain technology; there’s cloud based advances; there’s biometric financial solutions, the list goes on. Each different financial technology should be assessed on its own merits and risks. Not all innovations are good, but we shouldn’t deprive ourselves of opportunity just because of this fact.

http://www.reuters.com/article/us-fintech-bundesbank-idUSKBN1591LV

Artificial intelligence has been introduced into the world of banking via a new application called Finie. This app uses highly specialized AI engines that adapt to and learn from user requests. Users can ask questions like, “Can I afford to buy groceries this week?” or “How much did I spend eating out last year?” This kind of technology is a step above the AI technologies we see in Siri, Echo, and Alexa which are more simply programed to respond to a preset cadence. The article brings up the point of Finie-type technology being integrated with Apple Pay. Although a great thought, I find possible future issues with this type of integration.

• Finie is already integrated into mobile banking applications
  • Apple does not have this technology so it is at a disadvantage to be truly competitive
• Type of regulations that will be put in place as mobile banking is still an emerging market
• Undercutting the number of jobs in banks and for accountants

Despite these issues, the promise of evolving financial applications like Finie, provide for a dynamic marketplace in which consumers have more options in how to manage their finances ultimately pushing for the banking industry to evolve.   

http://money.cnn.com/2017/01/19/technology/india-cash-biometric-payments-davos/index.html

This article reports on how India is planning on switching to biometric payments in the next few years. India has plans to eliminate physical cash and credit cards for their 1.3 billion citizens.
There are far reaching effects with India’s move to a completely digital payment method. The most concerning with moving towards this system relates to its security, the reliability, and implementation. Even though producing counterfeit bills is relatively difficult, producing counterfeit digital money seem to be much easier with a few clicks. With biometrics, there should be concern with how reliable the system is. If the system is down or doesn’t recognize the biometric identifier, people would not be able to trade, which could bring the Indian economy to a halt. Additionally, the sheer size of the Indian population will make this a very difficult system to implement which affects the upkeep of removing and registering new users. It will be interesting to see if India actually pulls through with this project.