Month: February 2017

The mobile payment market in China reached $5.5 trillion last year, as reported by People’s Daily. The prevalence of mobile payments is evident in Nieslen’s survey estimating 86% of Chinese consumers paid with mobile apps, outnumbering other countries, with the People’s Daily quoting that 60% make small payments weekly. Even those in remote villages can make purchases. Being simpler than other payment solutions also allows smaller businesses to accept payments, and some Internet finance companies have begun spreading overseas. Alipay by Ant Financial Services Group now offers online payment and tax refund services for Chinese tourists. It will be interesting to see if the Chinese mobile payment industry will affect how other countries handle mobile payments.

The article does not make it entirely clear whether these mobile payment numbers only account for payment solutions like Alipay or Apple Pay, or whether they include proprietary options from individual businesses. Personally, I’m an advocate for the former, as having multiple apps to make mobile payments at different stores can be dangerous, since you’re storing your credit card information in multiple, potentially unsecure locations. The popularity of mobile payment solutions like Android Pay and Apple Pay in the US also largely depends on the willingness of businesses to adopt such payments. While I do shopping at Safeway a lot, for example, their terminals don’t accept mobile payments, even though they accept the new chip cards (which are theoretically more secure than the magnetic stripe). That being said, I’m encouraged by the growth of mobile payments in China and hope that more businesses will begin to adopt mobile payments.

Source

http://economictimes.indiatimes.com/news/international/business/china-third-party-mobile-payments-climbs-to-usd-5-5-trillion/articleshow/57344545.cms

Currently, many fintech products available to the financial advising market are targeted to either end clients or larger dealer groups and institutions, leaving the smaller advising companies behind.  The reason it is difficult to make technology for independent financial advisers is because the more money they spend on software, the less they have for their clients.  Independent financial advisors typically have 80-200 clients, and are unable to pay the expensive premium for a large piece of software without heavily effecting them or their clients.  In order to meet the needs of smaller firms and break into the market, Mr. Robinson, the CTO of InvestmentLink, says fintech firms will need to produce software that is “easily customizable by the technical layman” so that smaller businesses are able to invest in the technology and use it for their own needs.  The key to emerging in the financial advising sector is to release products that are targeted towards specific needs and best-practice ways for small and medium sized financial advisers and accountants, while still giving them all the control in how they present themselves to their end clients.  This way they can deliver the products as their products while still bringing a lot of value to their customers.

 

http://www.fintechbusiness.com/industry/643-ifas-being-left-behind-by-fintech-companies

A recent article on Forbes entitled, “Three Reasons Fintech is Thriving“, brought up a few points about the recent growth and expansion of the Fintech market and some future predictions that come along with it.

Slow to Grow and Change

The article started with an overall analysis of the market which caught my attention when it brought up the point that technology and finance are typically at odds. One of the major points it brought up was that Technology is typically a fast moving industry focused on growth and new development, whereas finance is a much slower industry that changes primarily in response to improvements in efficiency, regulations and international and domestic financial climates.

The shift from traditional financial companies to those with more technology companies has begun to pick up pace as younger investors begin to accumulate wealth that was once nearly entirely concentrated in traditional financial services providers. Technologically aided financial services are not only affecting the consumer areas, but also in a business context where providers seek to reduce costs and increase value through technology.

Giants Still Control the Market

With all of the recent developments in financial technology, many would be surprised to learn that traditional providers have retained a large majority of the financial services market share. This has been done through a combination of organic developments along with a growth-by-acquisition strategy that has allowed the traditional providers to sweep up smaller, technology-driven firms to scale up and provide more value in their offerings. In addition to this, traditional service providers have expanded their market by developing products and services specifically oriented for small businesses and entrepreneurs.

Overall, the growth in the Fintech industry is exponentially increasing on many different facets. The future of the industry seems to be open to interpretation, but look for the traditional providers to seek to acquire smaller Fintech firms or face a loss in market share.

Source: https://www.forbes.com/sites/rohitarora/2017/02/22/3-reasons-fintech-is-thriving/#266f19da1017

Chinese bankers are adapting to the new blockchain technology to help combat financial fraud in their country. The idea came from the non-transparent and non-automated process that Chinese banks use to verify documents and other statement that come through their doors. Demand for the recent bitcoin defined technology has been on the rise in China, having sharp increases in YoY growth and over $1.5 billion in total investments over the years. Transactions become more parallel and transparent by storing back data in crypto-encoded blocks away from corruption. Some of the fraudulent acts that occur include replacing real documents with newspapers to use the documents to increase margin or tampering with transaction detail that happens and cannot be traced. The conception of blockchain technology would eliminate the amount of fraud that occurs in a certain corporation but would many of the corrupt economies follow the same trend as technology? China, U.S and other developed nations that fight fraud within finance benefit from this technology but those who don’t prioritize countering fraud would actually benefit from not using blockchain technology. There is no doubt that more and more banks will adapt to blockchain only those who practice finance ethically will know to properly use it.

Edited 2/27/17 URL: http://venturebeat.com/2017/01/26/chinese-banks-are-using-blockchain-to-fight-fraud/

Despite Tyco being a security systems and services company, its CEO Dennis Kozlowski managed to embezzle over 100 million dollars from the company before finally being caught in 2012.  Kozlowski utilized commingling of assets to keep his fraudulent purchases hidden.  He would use Tyco as a secondary bank account in which he could spend at will.  These purchases including millions of dollars in artwork, all of which avoided sales tax in order to not raise any red flags.  Furthermore, Kozlowski spent a whopping 2 million dollars just on his second wife’s birthday party, and much more on various properties he purchased.

Kozlowski’s crime was not solely based around him, but also members of the companies Board of Directors.  By having higher ranking officials commingle funds at a lesser extent, he was able to make the practice a normal aspect of the company.  Furthermore the auditing firms lack of due diligence allowed this fraudulent activity to continue.  When it was all said and done, Tyco had to repay 2.92 billion dollars to investors and Kozlowski was sentenced to 8-25 years in prison.  What do you believe was the biggest financial weakness within Tyco and was there any singular way to prevent this fraud from happening?

 

Romero, Jonathan. “Tyco Corporate Scandal of 2002 (Ethics Case Analysis).” Panmore Institute. N.p., 09 Aug. 2015. Web. 26 Feb. 2017.

Website: http://panmore.com/tyco-corporate-scandal-2002-case-analysis

 

Ever since the tech boom, Silicon Valley has displaced a lot of industries with rapid growth of technology. After the financial crisis of 2008, many looked to Silicon Valley to take over Wall Street with all of the fintech start ups sprouting left and right. Wall Street proved to be a different animal to tackle because of the numerous restriction and lobbying efforts in place to protect the ancient financial service industry. The difficulty of denting the influence and power of the big banks was one of the main issues small fintech start ups have to overcome. There still has not been a single company to even come close to replacing even a small function of the big banks’ functions. Venmo and Bitcoin were seen to be the most promising companies but even they don’t even come close to reducing the influence of major financial institutions. Most new fintech startups aren’t really trying to challenge major financial institutions but instead are “add-ons” that build new services around the existing infrastructure like credit cards.

In my opinion, it will be a long while before fintech startups have the influence to upend Wall Street. There is too much influence and power within Wall Street and too much of our financial infrastructure has been built on services that they created.

 

Reference: http://www.seattletimes.com/business/silicon-valley-tried-to-upend-wall-street-now-it-works-with-the-financial-industry/

Organizations these days have a lot of data stored in the form of big data. One of the main problems organizations face is extracting knowledgeable information from such large amounts of data. Using the latest technologies such as machine learning, artificial intelligence and complex mathematical models they are able to glean information which can help to improve services, product quality and also efficiency.

Process mining is one of the approaches which allows organizations to make use of the data stored in their systems to identify trends, patterns, bottlenecks contained in event logs.

Uses cases for process mining
Discovery: in this use case it is possible to determine the structure of a process, the path taken by the process and determining what are the frequent and infrequent paths
Conformance Checking: In this use case, deviations from standard processes are detected. Anomalies or outliers can be determined by conformance checking
Enhancement: enhancement can be time perspective or organizational perspective. When time perspective, it is possible to determine cases which are the most time consuming, future problems which may make the process more time consuming and the time taken for completion of a process. When organizational perspective, it is mainly resource oriented which includes how resources are allocated and what processes require similar resources.

Conclusion: Process mining is going to be increasingly used by organizations in future because it opens up new ways of analyzing cases and event logs. With the advent of IoT, there is a definite need for mining IoT devices and process mining can help achieve it. Also, with machine learning and AI which can predict future performance, process mining tools are going to be widespread.

References:

http://wwwis.win.tue.nl/~wvdaalst/publications/p660.pdf

http://www.fit.vutbr.cz/study/courses/TJD/public/1415TJD-Rudnickaia.pdf

Start-up companies have been a major player in delivering innovative and revolutionary fintech solutions. However, it is still not common to see these start-up companies work with traditional banks.  One start-up Creamfinance, has stood out from the group recently, and demonstrated success in collaborating with big banks. Creamfinance specializes in using machine learning and data analysis to evaluate credit score. They give banks a solution to quickly identify loan recipients, and facilitate in the loan application process for the customers. Since its start in 2012, Creamfinance has established services in more than 6 countries across Europe and America, and has raised over $7.3 million in funding.

In my opinion, the success of Creamfiance company is very inspiring for other start-up fintech companies. Traditional banks usually face heavy regulations, which makes it hard for them to offer customers with innovative financial services. Also, newer banks would want to use disruptive technologies to compete with big banks. On the other hand, start-up fintech companies do not have the long history and credibility that banks have, which puts them in a disadvantage when dealing with customers. The need for collaboration is definitely out there, but there are also challenges for the start-up companies.  Many banks may not see some fintech solutions as promising or needed. Therefore, both being innovative and addressing the real needs of banks is critical for the success of any collaboration.

Source: https://www.forbes.com/sites/julianmitchell/2017/02/20/meet-the-fintech-ceo-making-money-easily-available-anywhere-in-the-world/#683fbfdff724

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. (For more details about blockchain please see my previous post:  https://blogs.scu.edu/finis/2017/02/12/blockchain-and-the-many-uses-of-smart-contracts/)

We all knew blockchain would move into new industries, and this has started in private equity. IBM and Northern Trust’s implementation of block chain is the first commercial deployment of the system. They decided to set up the blockchain to add transparency to the private equity market and to allow auditors and investors to perform due diligence tests more easily.

I think this is a great idea because it protects investors in the private equity market without unnecessary regulations. Those who issue equity can track who is currently holding specific shares. Also, it will be easy to when private equity transactions occur. Overall I think this is a great use of blockchain in a commercial market.

http://www.bankingtech.com/742612/ibm-and-northern-trust-debut-blockchain-for-private-equity/

A major upside and positive characteristic of Fintech is it’s ability to create degrees of financial inclusion in countries and regions where financial infrastructure is a major weakness. Like other countries, Indonesia recognizes the value of the Fintech industry and has seen a 78% increase in the number of financial technology companies it hosts. However, the hope of financial inclusion is being hindered by factors of financial fragmentation. A combination of too many new consumer Fintech products and poor rhetorical standings between regulatory bodies has caused issues for the country’s government. In Indonesia, cooperation between the Financial Services Association and the Communications and Information Ministry has been troublesome. Indonesia’s lack of ability to set forth effective regulation for the Fintech industry sprouts from the lack synergy between the regulators. The Financial Information Service System is in development and hopes to solve some of these issues. The regulatory settings need to promote inclusion for non-bank Fintechs which will allow for further financial consumer inclusion across the country as well.

http://www.thejakartapost.com/news/2017/02/07/fintech-talk-fintech-in-indonesia-between-fragmentation-and-financial-inclusion.html