Month: January 2017

Analysts from Citigroup released a report titled “Digital Disruption” which highlights the growing pressures on employment in the financial and banking industry caused by growing Fintech startups. The report offered data that suggests employment at American banks would drop to 1.8 million by 2025 compared with 2015’s American banking employment total of 2.6 million people. The percentage of people working for European banks who are predicted to lose their jobs is even higher. In addition to new regulations and market volatility, Fintech startups are blamed for this because of their aim to innovate many different parts of the financial industry.

The concern over a large reduction in the number of people employed by banks is valid but I believe the severity is not as high as what is being presented. The general purpose of Fintech’s is to create more efficiency, inclusion, and easy to use financial services and tools for consumers and businesses. Increases of employment in Fintech roles and an overall increase in economic efficiency and output caused by Fintech innovation will help offset jobs that may be lost in the banking industry.

 

https://www.nytimes.com/2016/03/31/business/dealbook/fintech-start-up-boom-said-to-threaten-bank-jobs.html?_r=

Investopedia forecasts that Fintect will disrupt the mortgage market, given that Fintech has already entered payments, banking and financial advisory markets. The article shows that non-bank mortgage lenders have taken a much larger market share in mortgage market since the subprime crisis in 2008, which provides the potential for fintech to grow in this market. It also identifies that “62% of respondents under 35 who bought a home this year stated that they’d use a mobile app to complete a mortgage application, if available from their lender. And 20% of buyers of all ages weren’t happy with their lender, providing further support that there is demand for a new type of mortgage service.”  In my opinion, the article has a point, but the disruption from Fintech on the mortgage market would be limited in the near future due to regulatory issues.

I agree with the article that because of the benefits of Fintech in mortgage market, such as lowered fees and reduced processing time,  the demand for more automated mortgage process is growing. Therefore, loan application and approval process would become paperless and more automated. However, one of the biggest challenges facing fintech in mortgage market is regulation. The single fact that online lenders are not considered banks and therefore need to “comply with the standards of 50 individual state overseers rather those of a single centralized (federal) regulator” inevitably makes development of fintech technology more challenging for companies who would like to deliver mortgage service across the country.

Source: 1.http://www.investopedia.com/articles/personal-finance/011917/how-fintech-can-disrupt-14t-mortgage-market.asp

2. https://www.bloomberg.com/gadfly/articles/2017-01-19/newfangled-fintech-meets-oldfangled-financial-regulators

 

The sudden blossom of “blockchain” technology is becoming the new talk in the business world due to its revolutionary technology that make all aspects of a business more efficient. With its abilities, blockchain will make tasks such as payment verification and the implementation of “smart contracts” that automatically enforce policies and procedure, more simple and enforces all legal activity amongst an organization. Many companies have adopted this technology, such as Microsoft, who has launched their “blockchain as a service” amenity to actively and accurately record any amounts of company transactions digitally in blocks of data. While blockchain is revolutionary, a lot of debate has begun about the enforcement level of its technology. For example, Toyota Financial Services has toyed with the notion of a smart contract for their customers and their cars. If payment for a car isn’t received, the smart contract would notice and legally transfer ownership back to the company and shutting off the car for the driver. Many people view this as a transfer of power from human to machines and eliminate the need for human hierarchy with its easy accessibility across all users. It unites different ideologies of how soon blockchain will be commonly used amongst most businesses. With the force that blockchain technology has and the impact it’s ready to make on our society, we must find way to control the technology before it controls us. A more automated approach also eliminates the need for some jobs such as accountants, lawyers and bankers if their roles can be done on a computer. We must utilize its skills meticulously and not heavily rely on its purpose to operate a business in order to reap its true value for our business cases and situations.

Link: https://www.bloomberg.com/news/articles/2016-08-25/this-is-your-company-on-blockchain

When we refer to ‘Open Source’, we usually stereotype it as something related to software (say Android or Python based application) especially when the context relates to a Financial Information Systems. However, Mozilla (the company behind the Firefox web browser) has managed to break this stereotype by making a low end smartphone that could prove to be a promising instrument in the world of finance based systems. Similarly, Allevo (a Romanian company) has put in a core banking transaction processing software in the market while UK’s OpenGamma is providing a risk analytics platform (a hot topic in a banking/ finance institution). But what does it take to make such a technology work ? There are a few must-haves for a financial system that aims to leverage open source technology –

• Accessibility
• Outreach for the Customer (using a Know Your Customer [KYC] system)
• Flexibility
• Open (should be based on Open APIs for new service providers)
• Complementary (Ability to combine services as needed)

But building an ecosystem adhering to the above stated requirements and expanding it across borders will take some effort even more so because the core requirement for this technology is a system that is – Open, Safe and Reliable.

Full Article – http://bankinnovation.net/2014/04/four-technologies-that-will-revolutionize-financial-services/

According to “Money may make the world go round, but at what cost?” by Matthew Wall, it talks about a new method of transferring money abroad. One company mentioned in the article, TransferWise, created peer-to-peer transferring by “matching people transferring money in one direction with people transferring it in the other.” What TransferWise aims to do is to create an affordable and also convenient way of moving different currencies without the bank’s “monopoly on moving money around the world.” The company saw a business need, such as lack of availability when it came to methods of moving/sending money, and created a platform by incorporating FinTech.

Through this innovation, consumers are no longer limited to bank transfers, which tends to be expensive depending on the currencies being exchanged. As the article mentioned, “the future of money is digital, given the continued rapid rise of mobile phone adoption.” With mobile adaption, it makes the process hassle free and convenient for users. However, with such ease comes skepticism surrounding security. Since it is still a new innovation, consumers will have to be convinced of its reliability. Until then, the market of international money transfers may continue to stay in the next few years.

Source: http://www.bbc.com/news/business-31639262

This article shows how financial technology can simplify and make it easier to understand financial data. Many people look to invest money and once they read about the different finance instruments they can invest in they research about these products such as equity, debt, insurance etc. The information on these products isn’t easily understandable and due to this people over pay through fees, choose the wrong instrument and sometimes don’t even go through with investing their money because of the financial jargon describing these products. To tackle this, they have created a financial interactive technology which is similar to a nutrition label for a financial product. The financial label is interactive which not only makes it simpler to understand but also increases your knowledge of the products you are trying to invest in. For example, you will be able to understand attributes of funds you are trying to invest in a simpler manner like expense ratio of the fund or that fund’s NAV. To me this is a great use of technology as people need to invest their money in the most efficient way possible even though they do not have a financial background. This financial technology helps them to do so.

 

https://knowridge.com/2017/01/interactive-nutrition-label-for-financial-products-helps-investors-make-better-choices/

Professors at Oakland University in Michigan researched the practices of their AIS program and concluded that the program would better prepare graduates if the accounting aspect was better integrating information systems into it. While reading the research, I noted many parallels between their program and ours. Our AIS program requires students to take accounting classes and MIS classes and similarly to theirs, few accounting classes have information systems rooted at the core. In addition, our MIS program does have a managerial focus which leads us to be less technical than the researchers were hoping for. However, we differ from their programs in that our AIS students are required to take this class, OMIS 150, which satisfies exactly what the professors believe would produce better professionally equipped graduates. After reflection about the different styles of programs, I am in agreement that the integrated approach is much more beneficial to graduates and that more programs should attempt to offer courses of this nature. For example, one of the recommendations was to introduce “how accounting data sits within the overall enterprise database” in principle of accounting courses.

http://digitalcommons.calpoly.edu/cgi/viewcontent.cgi?article=1024&context=acct_fac

As big banks are very risk adverse and small/medium sized business are often seen as quite risky, they have had a history of difficulty when it comes to dealing with banks and lending. In today’s world, there is good news for SMBs, because thanks to fintech, there is more competition in lending for loans, payroll, etc. The dual benefit of more competition is that these new fintech companies have a huge market of SMBs that want to work with them, and at the same time the SMBs can benefit from the increased speed, security, and convenience that the fintech companies provide.

Considering the banking industry is an oligopoly ruled by a few players, I think the rise of fintech provides the industry with a lot of opportunity for improvement through the use of technology and innovation like algorithms and encryption that will both improve the kind of services offered and lower prices for financial services, because many more players can now enter the industry. The use of technology in IS brings the great benefit of lower costs and less barriers to entry, while also allowing new and customised services to be created on company-by-company basis to provide for greater financial information service.

https://smallbiztrends.com/2017/01/fintech-trends.html

According to the article, Nanthan Mueller overused his position at company and caused a $8 million fraud. He worked as a manager and had power to request and approve the check. In addition, he knew everyone else’s password to the system, so he requested a check by using his colleague’s system and approved by himself. By doing that, he first paid off his credit card for several times by getting checks from “Universal” account, which stores transactions with an insurance company. Later he opened a bank account under the name of “Ace Business Consulting” and started getting checks from “Ace” account like other routine transactions.

I think there are still many Muellers out there, and it is significant to keep the financial information system under controls. First of all, FIS should have authentication controls that can restrict the access of authenticated users and limit the information and capabilities for each user. Moreover, the FIS needs more development within the system that can detect unmatched transactions automatically and avoid fake check requirements. In addition, physical safeguard is important. The same employee should not have the authentication to both request or approve the check and print the check.

http://www.journalofaccountancy.com/issues/2014/aug/fraud-20149862.html

As the industry of Fintech grows, more and more people and companies are utilizing a form of loans called micro-loans. Although micro-loans are still in its formative stages and there are many interpretations to what a micro-loan is, it is generally a small loan ranging between $500-$100,000. Historically they have not been very profitable, but fintech has changed the way these loans work. Fintech has made it possible for people to apply for a loan and instantly get cash. An app called Kabbage provides this service to small businesses who can get up to $100,000 in as little as seven minutes with the click of a button.

This has changed not only the way micro-loans are used, but it has changed the way small businesses approach loans. Traditionally, small businesses would have to put up collateral with a bank to receive any sort of loan, but fintech has given small businesses access to borrowed cash much quicker. Not only does it expedite the loan acquisition process for small businesses, but interest rates are often much lower than that of a bank. Fintech and micro-loans has made it a much easier process for small business to apply for a loan.

 

Reference: http://www.techbullion.com/micro-loans-fintech-influencing-loan-industry/