Month: February 2017

 

Advent of Blockchain has opened up a plethora of value adding options that is transforming the FinTech from ground up. One of such service category is remittance industry. Bitcoin micropayment startup SatoshiPay is developing a new proof-of-concept with Visa Europe’s innovation unit.

Work on the project was first disclosed earlier this year, when Visa Europe Collab said that it was exploring bitcoin micropayments for connected devices. At the time, the company indicated it was looking at use cases like smart light bulbs that could pay for their own electricity. The concept, according to SatoshiPay founder Meinhard Benn, involves the integration of the startup’s technology with Visa’s card payments structure, allowing for automated micropayments from a person’s Visa account to a SatoshiPay wallet.

This project is aimed at remittance industry where making micropayment is currently infeasible and this is just one use case of of how Blockchain can add value to the FinTech creatively. Blockchain has huge potential that is yet to be tapped with novel ideas that could completely alter the way we do the transactions. Notable from the smart light bulb use case is how blockchain is used innovatively to address mundane transactions by automating it completely.

References:

1. http://www.coindesk.com/visa-europe-bitcoin-micropayments/

2. https://www.wired.com/insights/2015/01/block-chain-2-0/

 

As technology continues to advance, companies look into theses advancements to see what they can use to improve their products and services. SAP is no different in this regard, they have begun looking into artificial intelligence and machine learning in order to improve their products and services. This however is not the main point that has caught my interest within the article, the thing that has caught my interest is that SAP is looking to use the research in AI and machine learning to improve their cloud based services. By leveraging this new technology for their cloud services they are able to provide information on which vendor is the best overall within their system. However, by adding in AI and machine learning into their cloud product they had a need to shift to a quarterly update schedule of their products. By shifting to a quarterly schedule they are able to tweak the algorithms in their system to better reflect the needs of the customers. Now this is an interesting shift within their business model where traditionally their on-site products would only get updated annually. From what I can see, SAP’s customers that are using the on-site version of their software may want to have this new technology as part of their systems but it still remains to be seen if SAP will be willing to bring it to them with the large development cycle that is needed in order to make this function mature enough.

Reference: https://techcrunch.com/2017/02/09/sap-brings-ai-and-integrated-analytics-in-latest-cloud-release/

1.  There is a fundamental strategic contradiction between finance and tech.                                                                                                                                                                    Tech is a high paced sector whereas finance is historically a slow moving sector.  Investors who are funding Fintech companies are expecting to realize returns within 3 to five years.  This puts pressure on the companies to think short-term.
2.  Market realities encourage short-term thinking.                                                                                                                                                                                                                    The mentality of the industry has become to grow at all costs and companies are using investment dollars for quick growth rather than innovation. The increase in competition is forcing companies to make riskier and riskier decisions.  For an online lending company this means less desirable loans.
3.  Incumbents in the market are powerful and resistant to change.                                                                                                                                                                                     Incumbents in the Financial industry do not like change.  On top of that, working with the incumbents of the industry means engaging in deals that develop slowly just like the industry.

 

I believe that the Fintech industry is not failing and will continue to grow.  As technology begins to grow, industries are beginning to become more and more interconnected.  Investments in Fintech have jumped from $3 billion to $40 billion in the last couple of years and will continue to grow.

http://www.forbes.com/sites/chrismyers/2017/02/07/3-reasons-why-fintech-is-failing/#65978c477b6b

 

 

 

 

In 2016, 33 million users used Amazon Payments, which is up from 23 million the year before due to expansion into France, Italy and Spain. Amazon Payments’ service “allows customers to make purchases on other websites using details already stored on their Amazon accounts instead of having to re-enter personal details.” The average transaction size is around $80 in 2016 and $84 in 2015.

Amazon Payments direct competitors are PayPal, Apple Pay and Android Pay, with PayPal leading the payment industry with 197 million active customers in 2016. Despite Amazon Payments’ growth, big online retailers such as Walmart or Target who see Amazon as a competitor are fearful of using Amazon Payments because it will unintentionally share their company’s important sales data.

Amazon Payments has a lot of potential to be competitive in the online payments/transactions industry. There are around 300 million accounts stored in Amazon.com. Instead of going after big retailers, Amazon Payments can partner with thousands of smaller retailers. Also creating an incentive such as a discount for people to use Amazon Payments, will entice customers to use it instead of using PayPal.

Source:

http://www.businessinsider.com/how-amazons-payments-service-could-solve-its-biggest-weakness-against-paypal-2017-2

http://www.cnbc.com/2017/02/07/amazon-payment-arm-is-stepping-up-the-challenge-to-paypal-apple.html

Financial Technology startups of late have been finding new ways to try and help lower income Americans. This extends to those especially who don’t have the means to obtain a bank account or rely on payday loans to make ends meet. About 7 percent of all Americans do not have a bank account. Because the regular banking systems aren’t designed to meet the needs of those living day to day, there is an opportunity here for fin tech firms to help, and also create business. This includes easing access to money, and loosening the restrictions on credit and low cost services. The article looks at a fintech company called Wise Banyan as an example. WiseBanyan is a robo-advisor app that offers investment advice after taking in clients financial goals into account. Customers can also withdraw and deposit with no fees similar to Robinhood. The CEO says one of the motivations for this was to allow anyone regardless of financial situation to be able to achieve their financial goals. He also noted that over 25% of his customers have incomes of under 50,00 dollars. There are similar companies that act in a similar manner, but have many hidden fees which people of lower classes may not have knowledge of. While the lending industry is still geared towards high income clients, there are definite movements to face the needs of the lower class, and fintech companies seem to be trying to fill that void.

 

https://digiday.com/brands/are-low-income-can-americans-the-new-market/

In the past it was difficult to start a small business. The business would have to go to a bank to get loans or investment. And, if the business wanted to accept credit cards, they would have to contract with a credit provider.

Fintech has solved many of these issues making it easier than ever to be an entrepreneur. First of all, crowd funding services allow small businesses to raise capital without the help of a bank or investor. As Forbes writer Bernard Marr says crowd funding has, “It has democratized the process of finding startup capital and shortened the timeline from perhaps months of meetings to as little as a few weeks”. Also, through companies like Square and PayPal, small businesses everywhere are able to collect payment by debit and credit cards. There are even companies offering mobile technology payment systems to small businesses. Although these companies require a small fee, they are nowhere near the fees traditional credit providers required, and they include less hassle. Finally, Fintech has resolved the problem of international payments. Services like PayPal, automatically convert currencies, and TransferWise allows for larger international money transfers.

I really like the advancements FinTech has made for start-ups. I think by lowering barriers to entry Fintech is creating competition among businesses, which promotes innovation and efficiency.

http://www.forbes.com/sites/bernardmarr/2017/02/10/a-complete-beginners-guide-to-fintech-in-2017/#349284077542

For a long time, online currencies had a major problem. Users could duplicate their files and spend their money twice. However, when bit coin was invented it solved this problem with the blockchain system. Blockchain is “a distributed database, meaning that the storage devices for the database are not all connected to a common processor,” according to Bernard Marr, a writer at Forbes magazine. This database contains a list of transactions, called blocks, that are timestamped and linked to previous blocks, and ensures bitcoins maintain their integrity as a unit of currency. Also, through cryptography, users are only allowed to edit and change their portion of the blockchain.

Although Fintech companies are working to change this, most online money transfers still need to go through a financial institution. Blockchain technology could change this because it is able to record transactions, establish user identity, and establish contracts. Blockchain can be programmed to execute contracts whenever certain pre-coded conditions are met, and users enter their keys. These “smart contracts” could be used for many things including: billing, recording medical information, and controlling intellectual property.

I think these smart contracts will be essential in creating technology that will automatically process basic tasks. This will overall reduce costs, and create more efficiencies in all the industries it is used in. The one issue I see in implementing this is maintaining security of the information on the block chain.

http://www.forbes.com/sites/bernardmarr/2017/01/24/a-complete-beginners-guide-to-blockchain/#401fc15d66a6

Financial technology is the driving factor in the development of many industries and economies across the globe. Developed countries are investing huge amounts in such research and markets, while other countries have failed to setup any sort of system for adopting such technologies. The impact that financial technology has had is evident in the West through a person’s ability to conduct online transactions or a company’s ability to improve its delivery service through the use of Artificial Intelligence (AI). Rwanda is one example of a fast growing economy due to the implementation of beneficial fintech policies. The government has focused on making it easier for citizens to conduct financial transactions instead of having to walk 10km to access financial services of any sort. Rwanda’s goal in the next 10 years is to become a technology hub and cashless economy.

With the constant development of new financial technologies and the large investments some countries are able to make in the research, the gap between developed and developing countries is increasing even further. It is interesting to see the major developments that countries like Rwanda have had in recent years and their goals in the near future. I believe that the success of countries depends on the commitment of their governments as is evident by the sort of policies implemented. There is a sort of responsibility placed on successful countries to offer assistance to those struggling to implement financial technologies or even gain access to them. The next few years will be telling in the race to keep up with the changing financial technologies.
http://www.newtimes.co.rw/section/article/2017-02-07/207756/

Skimming is a type of fraud where cash is taken prior to being entered into the books.  Typically skimming fraud is a relatively small amount of cash, because of this, it is nearly impossible to detect for this reason.  Small businesses that typically deal with cash are more prone to skimming fraud because of the constant movement of cash.

In the given example, a sandwich shop similar to “Ike’s” is constantly receiving cash.  However an employee pockets this cash when the customer pays with exact change since there is no need to open the cash register and record the sale.  This kind of fraud is nearly undetectable because it seldom sets off any big red flags.  However; there are some safe guards for preventing this kind of small scale skimming fraud.

In the case of the sandwich shop, there are a few small changes that can be implemented in order to make skimming more difficult.  By making prices uneven dollar amounts it will almost always result in the customer receiving change and therefore the transaction to be noted.  However the easiest way to prevent this is to always provide a receipt since the transaction is put in the system.  If a company believes there is some sort of skimming going on, they oftentimes hire a certified fraud examiner (CFE) to look for any wrongdoings.

Wilkinson, Jim. “Skimming Fraud • The Strategic CFO.” ICal. N.p., 10 Dec. 2015. Web. 12 Feb. 2017.

 

Wealthfront, a digital wealth management company that utilizes technologies such as artificial intelligence (AI) to make decisions, will continue to invest more in AI to beat the competition. Traditional wealth management firms use human advisors, but Wealthfront believes that humans have implicit biases that do not allow them to always get the best return and charge significantly higher fees from portfolios.

Many people complain that this machine approach is dehumanizing. This announcement came right after Wealthfront’s competitor, Betterment, announced the addition of human advisors to their computer algorithms in hopes of adding a human element to investment.

These new types of wealth management services will give younger generations the ability to make investments at a younger age, thus a larger portfolio size at retirement. Whether machines will dominate the future, it will force management advisors to rethink their approach and pressure higher performance.

Reference: http://fortune.com/2017/02/02/wealthfront-robo-advisor-new-financial-service/