Month: February 2017

The financial services sector is bracing itself for an unprecedented period of disruption. Innovations such as smartphones, big data analytics, and the blockchain technology that underpins Bitcoin, are forcing banks, insurers, and Wall Street firms to adapt to an unpredictable future where some of the old rules no longer apply.

The FinTech revolution accelerated with the new regulations enacted in the wake of the 2008 financial crisis, which made certain lines of business less profitable for banks and created an opening for startups leveraging big data, new communications modalities, and other tools to serve more tech savvy consumers. At first, banks began trying to develop many of these technologies themselves in a bid to keep up with their rivals. But as the pace of innovation has accelerated, banks have found it harder and harder to do everything at the pace, volume, and scale required.

In order to assess which side will come out as a winner, it’s important to understand the core segments of the market.

SMB banking: After the 2008 financial crisis, heavy regulations were imposed on the banks, making it much more expensive to service SMB customers. This led traditional banks to pull back from this segment, creating a lack of available financial tools and resources for SMBs. Also, majority of surveys conducted recently state that small businesses face all kinds of barriers when applying for loans and other financial services in the U.S. FinTech startups have rushed into this void, offering more efficient technologies and tools for lending, payments, operations, underwriting, cybersecurity, know your customer, regulations, compliance, asset management, and more. This trend is expected to continue for new market leaders to be born in this category. The SMB market is the segment in which nimble FinTech companies are most likely to displace large banks.

 Corporate banking: Banks will be wise to invest in this segment. Not only must they double down to remain competitive against rivals, but it is an area where startups will face the highest barriers. While some startups are likely to attack these segments, they are much less likely to be successful due to the complexity of the products and services, the need for large balance sheets, the regulatory scrutiny, and the ongoing strong relationships banks enjoy with their major customers.

to be contd…

https://www.romexsoft.com/blog/fintech-vs-banks/

https://letstalkpayments.com/fintech-and-traditional-banks-a-beginning-of-a-beautiful-friendship/

At a conference hosted by the Australian Prudential Regulation Authority, the chairman both praised and criticized the large increase in spending on new financial technologies in the banking sector. He is quoted saying “Companies must continue investment in existing technology platforms while at the same time putting money into new technology which may well replace it”. His main point was that we see a huge uptick in new services offered to consumers and how they do their banking, but if the back-end hardware gets outdated, it will no longer be able to support the increasing number of transactions it is being tasked with processing. That’s why it’s important to still continue to investment in the infrastructure of the financial system.

Chairman Byres makes a valid point because when you update everything about a system besides the processes that truly drive the system, it will eventually be less functional. It’s like paying $5,000 for upgrades like a stereo, rims, spoiler, etc, to a car that costs $1,000. From the outside, it may look nice and flashy, but it won’t be able to perform as good as it looks.

http://www.fintechbusiness.com/industry/642-don-t-get-distracted-by-fintech-toys-apra

https://squareup.com/guides/pci-compliance

I discovered this topic while I was researching my last week’s blog post about Square. I wasn’t surprised that there are rules and regulations in place for online transactional services but I certainly did not know how extensive these rules are.

PCI Compliance is a standard put on by five big credit card companies that aim to reduce bank data breaches. These rules are set so that organizations and sellers can “safely and securely accept, store, process, and transmit cardholder data during credit card transaction to prevent fraud and data breaches” (Square). There are different compliance levels depending on the total transaction volume, annually, that also affect the fees that organizations need to pay. The burden of “maintaining compliance for all parts of the payment processing life cycle is on the sellers and organizations” (Square).

In my opinion, it seems unfair for an oligopoly of banks to issue a set of compliance standards that would disallow businesses to operate a credit card option for their customers. However, in a FIS class, having such regulations are a necessity given the sensitive nature of customers’ personal information. There is so much more history to the necessity of these compliances.

Robot Advisors functionality:

Trusting your retirement savings with a computer might be a frightening task. But the investment strategies/ideas devised and managed by them are something which can’t be only developed by computers themselves. To suggest your investment strategy and then manage your money, robot-advisers use a human algorithm—a complex mathematical formula that considers three main elements: 1) the historical data of assets 2) Information you’ve provided about your investing goals, timeline, and 3) What is your principal; and a menu of low-cost investments, primarily index funds and ETFs.

With the help of this information, the algorithm decides the best way to achieve your financial goals. It will suggest an allocation in terms of different types of assets likr stocks, bonds, and cash, then over time buy and sell specific investments to make sure your asset allocation goals are met.

Because the various robot-­adviser platforms draw on the same historical data and offer comparable ETFs and index funds, the portfolios they suggest for investors with similar profiles may differ little from one another. For example, no matter which robot-­adviser a young investor who doesn’t expect to retire for several decades, he will probably be recommended a portfolio that’s almost entirely invested in equities (or stocks). That’s because over the long-term, stocks have outperformed other investments such as bonds and commodities, offering someone with more than a few years to go until retirement time to absorb the higher risk and maximize gains.

 

Reference: http://www.consumerreports.org/personal-investing/rise-of-the-robo-adviser/

A London-based Fintech company called Soldo is adding a new service for UK firms that lets them use a company-wide online expense accounts. This technology allows companies to put spending limits on accounts as well as block non-approved payments. Companies can have one expense account with multiple users, but still track which user incurs which expenses. It also has a feature that allows paper receipts to be photographed and uploaded to the system. All of the expense data is stored in the same system so it easily integrates with business’ accounting programs.

I think that this service is useful for large companies that have a hard time tracking expense reports. The uniform reporting and user-friendly options make integration more likely to succeed. I don’t see why this technology has to be restricted to UK companies. If the technology works for an online expense account, it should be able to integrate with international companies as well. If a UK business is already working abroad then the technology will be in other countries anyway. It makes more sense to do a full rollout of services because it will increase market usage.

 

https://techcrunch.com/2017/02/14/soldo-business/

Many companies are trying to shift from on-site ERP systems towards cloud. The important question to consider is the timing of the shift, given the shift is inevitable. A few systems that do not have a commercial alternative would remain on premise. A good example would be a payment system for a credit card company.

According to predictions by experts, there would be a major chunk of businesses moving to cloud by 2025. Applications that can co exist like the suite providers might win over the market. Development testing is one of the most expensive IT segment. Hence the finance teams can cut the costs and save by moving into cloud. We can cut costs in the form of servers, operating systems and knowledge tools by moving from on premise testing to cloud.The major part in the shift would be played by CFO’s and financial teams.

In the areas of the storage, most of them are already preferring cloud than traditional data servers. The cloud storage providers also claim that their data is more secure in the provider’s servers rather than a company’s personal server. With the cloud being attractive to the financial heads by cutting down costs, we could see a shift in business model. The company’s contributing to this transition will benefit the most. The upcoming startups in this area would be Xero, Outright, Freshbooks, QuickBooks Online Simple Start and Kashoo. They offer their services mainly to small enterprises. Big corporations like Oracle and SAP would be targeting large enterprises.

Reference:

https://blogs.oracle.com/modernfinance/5-finance-technology-predictions-for-2025

Blockchain is described as a kind of database with built-in validation; however, its ledger is not stored in a master location or managed by anybody. Instead, it is distributed, existing on multiple computers simultaneously so that anyone who are interested in having a copy of it can easily do so. More noticeably, the block validation provides a security system in such a way that “old transactions are preserved forever and new transactions are added to the ledger irreversibly”. In other words, the data is immutable. As a result, it provides a wonderful benefit for FIS fraud detection and great help for not only auditors both internal and external but also financial regulators to generate useful analytics. Beyond financial sector, the system is also invaluable for “managing the provenance of assets, date-stamping events, geo-stamping those events in a specific location, establishing identity, and so on.” Nonetheless, as being a distributed nature, it requires constant computational power in many multiple locations, which could be a big challenge when volume and velocity of data increase quickly. With highly valuable potentials it brings, I believe that blockchain will soon become the norm for data records applied in many industries. There are already startups engaging in this blockchain-based cryptocurrency such as Bitcoin, Ethereum and Ripple.

Source: https://arstechnica.com/information-technology/2016/11/what-is-blockchain/

In this blog, I am going to introduce a revolutionary technology that utilizes blockchain, the DAO. While I believe that the DAO has great potential and could be a break-through for the development of Internet of Things, I hold doubts about its performance and security in its early stage of development.

To start with, the DAO uses a blockchain based currency called Ethereum, which was launch in 2015. Its currency is called Ether, and it is widely considered “Bitcoin 2.0”, and has outperformed most of its competitors and jumped to the second place in terms of market value in just one year. What makes Ethereum so popular and attractive is that it allows building smart contracts.  Smart contracts are general-purpose codes that execute on every computer in the network, and could be programmed rules or orders. Therefore, smart contracts are identified by developers as a means to build autonomous organizations.

A German company, Slock.it introduced the DAO in 2015 as a prototype for its ultimate decentralized Internet of Things project. For example, people can share rides without being governed by Uber. The DAO relies on codified business rules to govern the organization, which are contributed by developers in the network. In the DAO, users could purchase tokens as voting rights, and a decision is made on any project upon a 50% pass rate.  The DAO was so popular that it raised $150 millions in the first month and generated over 50 projects for users to vote.

However, is the DAO as promising in its security as in its ideas? We’ll find it out in the next blog.

Source: http://www.coindesk.com/understanding-dao-hack-journalists/

Blockchain is a distributed public ledger that was first introduced as the base technology for the digital currency Bitcoin. Currently, Provenance, a UK based blockchain company, is seeking to use the technology to provide consumers greater transparency in the supply chain journey of the products they are purchasing. The mission of Provenance is to provide consumers with the ability to effectively support companies whose business operations are ethical and socially responsible.

An example of how this technology could be used is with tracking the supply chain of canned fish. The blockchain technology would be used to illustrate to the consumer where the fish was caught, processed, packaged, and distributed for sale. Through creating supply chain transparency, Provenance is giving consumers the ability to combat the illegal fishing and human rights abuses that are common in the seafood industry. Overall, this technology will not directly reduce unethical business practices, but it will provide consumers with greater power in supporting ethical business operations. Provenance’s use of blockchain is just one example of the numerous applications of the revolutionary technology.

Reference:

https://www.theguardian.com/sustainable-business/2016/sep/07/blockchain-fish-slavery-free-seafood-sustainable-technology