Month: February 2017

In the world of mobile payment ecosystem, there is a new emerging technology: Contactless Cash. Apart from making payment using smartphone’s, users can now use their smartphone even to withdraw cash from their ATM’s.

Working of this technology is similar to Point-of-Sale mobile payment that uses NFC (Near field Communication) technology.

Major advantage is that using your smartphone for ATM withdrawal removes the risk of magnetic card skimming and distraction fraud.

Spain’s Caixa Bank has provided app-enabled ATMs since 2011 and now with improved technology there are is a rapid growth in Contactless Cash industry. Last year, BMO Harris Bank rolled out cardless ATMs in the U.S. using QR codes for authentication. Most recently, Bank of America rolled out NFC-enabled ATMs in the U.S. this year, Barclays bank is rolling out a new NFC enabled ATM system in branches across the U.K. that lets Android users take out money with just a tap of the device.  Chase and Wells Fargo are expected to launch this feature soon.

With all banking giants making shift towards Contactless Cash, could result in a vital new category of mobile payment industry in near future.

(Reference: http://money.cnn.com/2016/11/21/technology/barclays-atm-contactless-cash/

http://www.yourphx.com/news/finance/barclays-new-atms-withdraw-money-with-a-tap-of-your-phone/611183403

http://www.digitaltrends.com/mobile/wells-fargo-wallet-nfc-atm/ )

At the Economist’s Finance Disrupted event in London, COO of UBS’ Wealth Management Arm, Dirk Klee, wants banks to collaborate with fintechs rather than compete with them. According to Klee, “We are embracing fintechs and actually we believe that there is great innovation. We need to find very smart ways to partner up and improve our existing business model.” Klee also references roboadvisors, who are online wealth managers that “rely on a high level of automation to adjust portfolios,” and how UBS is building its own roboadvisor product that leverages human investment experience to bring more value to clients.

We’ve seen traditional banking systems adjust to the modern technology environment in different ways – some banks allow you to deposit checks from your phone, and some, like Chase, even have their own mobile payment products. With the rising popularity of fintech, it makes logical sense for banks to leverage automation to bring greater value to clients.

However, regarding Klee’s aim to use both automation and human experience to improve investment advice, I would caution that human experience only goes so far. When comparing index and managed funds, many investment professionals find that passively managed index funds (where the portfolio mirrors the market index) are simpler and often outperform actively managed mutual funds (where the portfolio is managed by managers who try to beat the market). I believe that experience is not a crystal ball, and that experienced managers can completely predict where the market is going to go next.

Sources:

http://www.businessinsider.com/ubs-dirk-klee-fintech-roboadvice-china-2017-2

http://www.investopedia.com/university/quality-mutual-fund/chp6-fund-mgmt/

I discussed the benefits of fintech in previous blogs, such as reduced costs and increased efficiency in financial transactions. Today, I will share some interesting opinions on risks associated with fintech.

Mark Carney, governor of Bank of England, stated in a conference that fintech would pose risks to the stability of bank funding, credit quality and even the broader economy. However, I found his statement not convincing.  Carney did not give any concrete examples of risks posed by fintech, but his only reasoning is that fintech can increase cyber risk and that history has plenty of examples where financial innovations led to early boom but eventually busted. In my opinion, many fintech, such as Block Chain, could actually decrease the risks of fraud and increase transaction security.

On the other hand, I am with Carney on the point governments should assess existing rules for fintech and adjust policies accordingly to ensure that fintech develop in a direction that maximizes opportunities but reduces risks. Admittedly, some fintech can facilitate money laundering and terrorism financing if not governed properly.  For example, Alipay, a Chinese fintech that allowed unlimited free money transfer, was put on a cap of CNY 20,000 by the government for anti-money-laundering.

Source: http://www.businessinsider.com/mark-carney-on-fintech-and-systematic-risk-2017-1

 

It is nothing new that people go dinner and split the bill on multiple credit cards. However, it takes much more time for the cashier to process the separate payments than it used to do, especially after the retail industry shifting to use chip card reader. In the past, it took a few second for cashier to swipe a card and print out the receipt. To combat fraudulent transactions and get rid of the liability of payment paid by a counterfeit credit card, many retailers have upgrade their equipment with stronger security chip reader, replacing the easy-to-forge magnetic stripe. Thus, the second difference of waiting time can be enormous for booming restaurants and retail stores.

As a quicker alternative, mobile payments have pouring into the market. A test shows that it takes about 9 seconds from inserting a chip card to printing a receipt, while it takes about 4 seconds for mobile wallets. But the actual transaction time behind is the same for chip card as mobile payment, which can be partly explained by, most chip reader terminals have an extra screen procedure telling you the payment is approved and you can remove the card.

 

Source:

https://www.nytimes.com/2016/05/05/technology/personaltech/in-the-race-to-pay-mobile-wallets-win.html?_r=0

With nearly all of the big technology companies in the mobile hardware and software space providing a product, payment processing has become one of the hot technologies going into 2017.

There are a few key components of the payment processing industry to look at, including: Mobile Wallets, Gateway Vendors, mPOS(Mobile Point-of-Sale) and Mobile Peer-to-Peer.

Mobile Wallets

In the Mobile Wallets sphere we see some of the largest companies entering the industry such as Apple, Samsung and Google along with retail giant WalMart and Chase. The three technology companies use their mobile hardware as a platform for the Mobile Wallet services, where other entrants such as WalMart and Chase have entered the business through the mobile application arena.

Gateway Vendors

Gateway Vendors are an extremely fast growing area in the payment realm. These vendors provide front end payment collection services that allow companies to escape the hassle of setting up and maintaining merchant services for businesses (think Venmo for companies).

Mobile Point-Of-Sale

Mobile Point-Of-Sale has created a new payment area supporting small businesses. This technology allows businesses to collect payments through mobile devices rather than using the expensive and static traditional POS systems. In addition these companies provide other valuable information such as inventory and marketing analytics along with customer retention information and payroll data.

Mobile Peer-to-Peer

Mobile Peer-to-Peer technology is one that we are all probably most familiar with, giving rise to such companies and services like Venmo, Google Wallet and Square Cash. The largest players in this space have branched out from other payment processing areas which creates a dynamic marketplace for the competitors.

In 2017 look to see a shakeout in the different payment processing areas with the companies each securing their users and enticing new customers, while the weaker positioned entrants retreat into niche markets or return to familiar business areas.

Source: http://www.businessinsider.com/payments-ecosystem-data-and-business-potential-2016-7

The digital revolution brings great disruption to the traditional banking and world’s retail financial institutions. Fintech competitors, who are real-time and low-cost, bring risks and threats to existing traditional banking. Because when compare to Fintech competitors, it is hard for traditional institutions to respond quickly to the changing in digital environment and customer expectations.

According to the article, some people believe that by 2020, the landscape is expected to be shaped strongly by both technology and non-traditional competitors. Retail banking will be automated, and people are more tend to welcome Fintech firms than traditional institutions. Since traditional institutions are more likely to handle cash transactions, they believe that there would be less cash transactions in the future.

I think although Fintech companies will become increasing popular in the future, traditional institutions are still greatly needed by customers. Technologies do bring changes to life, but they are hard to adopt and need great time for people to learn. I believe there will still be need in peer to peer transactions in the future and the trust and customer experiences the traditional institutions have built will remain. In addition, Fintech will also face regulatory problem.

https://fintechweekly.com/#fintech-latest-news

 

Changes in regulatory landscape is often considered one of the biggest obstacles to fintech industry growth. This is because the fintech industry is rooted in innovation. Innovation that utilizes technologies and processes that are new relative to outdated regulations for older practices.

More so than certain regulations being an issues, the issue lies in ambiguity and confusion of how to regulate. This includes the difficulty of deciding which regulatory bodies should govern, and further, which specific rules and regulations. This is especially an issue because many current rules and regulations are from before mobile phones, E-commerce, and the Internet. In addition, small teams on fintech companies have the challenge of defining complex and broad regulatory models.

A combination of these challenges will push back on fintech growth but with increasing amounts of investment in the industry, the matter while gain more attention and focus. Along with recognizing the financial and efficiency opportunities that fintech provides, many are realizing that the face off between private innovation and regulatory policy will rage on. I believe regulatory bodies will feel the push to improve regulations in order to gain maximum benefits from the innovative industry.

http://blogs.wsj.com/riskandcompliance/2015/11/24/where-fin-tech-is-struggling-with-regulation/

Fintech has been a new player in the world of financial services. Small fintech startups have been challenging large traditional financial service providers in recent years and many of them seek to expand in to developing countries. The challenge of expanding into developing countries is the lack of infrastructure. The lack of infrastructure has created a new branch of fintech called “regtech” and “infrastructure as a service” (Iaas). Trulioo is a company trying to fill the void by creating individual government identity databases around the world accessible through a single streamlined interface. Another company, Flutterwave, seeks to create payments and banking interfaces to power fintech offerings in Nigeria.

While the lack of infrastructure is the first notable thing developing countries lack, many fintech companies looking to expand into this market also need to take note that many of their users don’t have an existing digital footprint. This renders many of the traditional predictive algorithms and user tracking algorithms useless. Many of these new companies need to utilize new methods to create new user data. Developing countries are hold large untapped potential for fintech companies. The first fintech company to successfully capture a large user base in these markets will hold a huge advantage over other countries.

Reference: https://hbr.org/2017/01/fintech-companies-could-give-billions-of-people-more-banking-options

The FinTech startup ecosystem infused about $14.5 Bn globally just in venture funding in 2015 which is almost twice from what it gathered in 2014 and next year, an astounding amount of $36 Bn. i.e which is an increase of 5 x in 2 years and perhaps rightly so because it impacts everyone. This has allowed innovation and flexibility in financial services. With the cross domain application capabilities of big data and machine learning, it has in itself surrounded the main business model of plenty such startups in FinTech especially in the cyber-security domain. In the coming years it is expected to play a major role in the same with its application expanding in Predictive Analysis for Credit Scores, Fraud Detection, Identity Management, Trading Algorithms and Information Extraction etc.

However, advances in machine learning to ensure cyber-security in FinTech also makes it vulnerable to attacks that are based on Machine Learning algorithms. Not only that, it would make it hard for the system’s human designers to understand system behavior and it’s associated security weaknesses.

This scenario resembles an arms race where machine learning has made its entry and increased the complications. This puts the system designers in a spot when building machine-learning based platforms as they now need to pay particular attention to the biases that could be inadvertently built into solutions and thus create cyber-security vulnerabilities by themselves.

 

 

Link – http://www.forbes.com/sites/johnvillasenor/2016/08/25/ensuring-cybersecurity-in-fintech-key-trends-and-solutions/#73fa9cc8e1fa

PayPal 
PayPal has been highly successful with its Digital wallet and is currently a market leader. It is cloud-based and does not require an NFC-enabled smartphone.

Apple pay
Lets users make payments using their apple devices which have Near Field Communication (NFC) enabled. It uses NFC, Secure Card (SC), Host Card Emulation with tokenizations. It uses the best of both worlds to give a very high level of security to customer information.

Android pay
Android Pay is a mobile wallet that stores credit cards, debit cards, and loyalty cards. It works with all NFC-enabled Android devices. Android Pay has collaborated with American express, Discover, Master and Visa cards. Functioning of Android pay is similar to that of Apple pay, the only difference being Android Pay uses HCE.

Samsung Pay
Launched in September 2015 by acquiring a startup called Loop Pay. Loop Pay’s app manages and stores the card details on a mobile device and Loop Pay’s device processes the payment at the checkout. The biggest advantage of Samsung pay is that it allows payments that do not have NFC readers.

Conclusion
Apple’s main intent is to continue innovation and improve user experience with Apple products. For Samsung, it’s more about staying abreast with the competition and not missing out on future trends. For PayPal, it’s all about user transaction, ways to increase revenue and customer base. The biggest advantage for PayPal is that it is payment agnostic making it a clear winner in the war of digital wallets.

References:

http://www.gartner.com/document/2878822?ref=ddrec&refval=3162318

http://www.gartner.com/document/3093921?ref=solrAll&refval=164792540&qid=bd2476f24fb1a0a96ed4df41103a8715

http://www.cheatsheet.com/gear-style/apple-pay-android-pay-and-samsung-pay-what-you-need-to-know.html/?a=viewall