Month: February 2017

Mobile payments in general are a very tricky business, due to the vast range of payment options and channels available to customers (think Google wallet, Apple pay etc.). And out of all the technologies implemented by these payment applications, NFC (near field communication) gets a notable mention. Apart from creating a fast and convenient payment experience, NFC also lets mobile devices provide a range of services from unlocking car doors to sharing photos with others in close proximity.

Demonstrated by the number of high profile data breaches that have plagued the nation within the last year, payment data security needs to be the key priority to boost consumer adoption. NFC unfortunately serves only as a functional technology, and needs the aid of an additional security layer to deem foolproof. To counteract this issue tokenization has emerged as a new defense against mobile payment fraud. Listed below are a few features offered by tokenization:

1. Flexible Security: Tokens are created for a simple fact that they cannot be used beyond its pre-defined purpose, thus are rendered useless to hackers trying to commit fraud by cloning the magstripe cards. Tokenization has also led to the rise of HCE (host card emulation), HCE is now being used alongside tokenization by banks to create their own payment apps without necessitating access to complex mobile storage and chips.
2. Instant Use: Digitizing the payment cards for mobile wallets is a time consuming process and often involves review and approval process by the bank, which could take anywhere from minutes to days. Usually e-commerce checkouts involve additional steps as compared to a simple user signup process in mobile payments. Having to do both in transactions that are paid using mobile wallets takes a toll on the consumers and eventually affects the adoption of this technology. Tokenization has made it easy so that customers can sign up and be ready to pay within seconds – making it convenient for users.
3. Minimal Pushback: Tokenization typically has no impact on physical NFC payment terminals as well as the processing side of payments. Retailers do not need to invest in new hardware or software and likewise issuers that implement tokenization have zero impact on their existing back-end technology.

In conclusion, it is important to keep in mind that although tokenization solves many security challenges, with the evolution of new fraud techniques securing payments is always going to be a moving target.

Reference: https://thenextweb.com/insider/2015/05/15/why-tokenization-is-the-key-to-mobile-payment-security/

Fintech has allowed for consumers to take more control over their financial lives.  At its core, Fintech is powered by data about the consumer. This could be data from someone’s bank account information, to data to verifying someone’s identity. Despite the fundamental importance of data, some financial institutions are looking for ways to limit financial data for consumers using third-party applications. This is primarily due to control, security, and competition. Improvement of the data layer has allowed for quicker communication, providing better services to consumers. This desire to disjoin financial institutions and developers of applications will offset this improvement and stall financial advancements.

I believe that it is important for financial institutions to continue to work with third-party applications to keep up with the upward trend of integration of technology in daily lives. Financial institutions do not have justified means to keep financial data to themselves. Although control and security may be an issue, instead of not sharing financial data, institutions should look into providing more secure data transfer. This can include better encryption and more thorough confirmation of consumer logins. As for competition, I believe that if financial institutions do not strengthen their relationship with fintech firms, they will be either replaces by those that will or by new fintech firms that can offer better services.

Source: The Importance of Data Access for Fintech

https://www.yahoo.com/tech/how-to-send-money-on-snapchat-103138292194.html
http://www.npr.org/sections/alltechconsidered/2017/02/02/512434920/snapchat-all-grown-up-5-things-we-learned-from-snaps-ipo-filing

Snapchat, or Snap, is going public and is estimated to raise at least $3 billion. Snapchat’s popularity is notorious for its functions as a secret social media app. Although Snapchat’s payment partnership with Square, another digital payment service, isn’t new to the app, its data security including its financial services is a huge concern in light of the impending IPO.

Snapchat’s partnership with Square allows Snapchat users to send money using their debit or credit cards. This means that each user shares their financial information with two companies, Snapchat and Square, increasing the risk that personal information could be leaked.

In the Yahoo article, sending money to your friends is as easy as sending a selfie, with a click of a few buttons. Although there is a security feature that allows users to enter their CVV number for each payment, the concern with this transactional system is where personal information will be stored, especially since Snap is moving their storage to Google Cloud.

With the growing popularity of digital payment methods, it’ll be interesting to see how a popular app created with secrecy in mind will either perpetuate or remain stagnant once Snapchat files their IPO.

Google Hands Free is a payment technology that authorizes the transaction or enables your shopping payment method just by saying “I’ll pay with Google” to cashier. The app allowed user to enter their payment and photo information, and then uses the combination of Wi-Fi, Bluetooth and location services to verify if your phone was in the store. When paying cashier would be presented with a photo that the user has set up in an app to confirm the transaction.

Despite Google’s best intention to provide seamless shopping, it never scaled up beyond the South Bay area.   But the cool thing to note here with this kind of payment technology is that, how these technologies are trying to remove some pain points around the shopping by streamlining the purchasing process. But while Google plans for truly seamless shopping experience seem to be on hold for now, others in the tech industry are getting started with Amazon’s cashier-less Amazon Go grocery store- which functions similar to hands-free principles like Google’s app.

Although Hands Free app is shutting down, it could be the genesis of novel payment technologies like Facial recognition-based shopping that’s done completely by computer-controlled systems. With all these interesting payment tech coming to market, we have to stay tuned to witness the revolution in the payment industry.

Source: http://www.theverge.com/2017/2/2/14483758/google-hands-free-payment-app-shut-down-android-pay

This article discusses fintech’s impact on small business loans. Lenders using fintech have faster ways of assessing a business’s credit worthiness by using digitized information such as a small business’ QuickBooks account. Thus, small businesses are more likely to receive a loan and receive it quicker than using a traditional bank. Fintech lenders can also offer smaller loans because they don’t have the same entrenched costs as banks. It is also easier to find customers with the rise of online brokers or lending platforms.

However, these lenders make the loans profitable by charging high interest rates, usually over 50% APR. Experts at Harvard Business School are pushing for current lending regulations to be extended to fintech-based lending institutions and brokers. Enforcing the same regulations would require disclosing fees and interest rates. This may make these loans less attractive. If lenders have to lower their interest rates significantly, they lose the ability to offer small loans. While I can see the desire to keep small loans available, transparency in the process will be more beneficial in the long run. Borrowers will budget more efficiently if they have accurate fees calculated. They are less likely to default if they know what they’re agreeing to in advance. Having regulations extended ensures that small businesses and lenders are on the same page.

http://www.usatoday.com/story/money/columnist/abrams/2016/11/30/fintech-fast-cash-small-business-loans/94628352/

Fintech is revolutionizing the traditional businesses. Lets, look at lending which was traditionally done by banks and financial institutions, the Lending club which has become the change of face in the industry. The way it operates is enabled borrowers to create unsecured personal loans between $1,000 and $40,000.  Investors can search and browse the loan listings on Lending Club website and select loans that they want to invest in based on the information supplied by the borrower, amount of loan, loan grade, and loan purpose. Investors make money from interest. Lending Club makes money by charging borrowers an origination fee and investors a service fee.

My view about this it is a welcome move as people are getting an alternative source of funds for their needs. When we look at the three companies business models Amazon, Uber, and Lending club all three are just acting as intermediaries. They just provide a system where supply meets demand. Having said that it could not replace traditional banking system as it provides a safe ecosystem for a multitude of services like home loan, a business loan which can’t be provided by P to P lending.

 

References: http://www.businessinsider.com/the-us-fintech-regulation-report-2017-2

https://en.wikipedia.org/wiki/Lending_Club

Mark Carney, the governor of the Bank of England, warns that Fintech’s market risks would evolve as the sector continues to develop. Carney believes that while new Fintech could reduce costs, improve capital efficiency, and create new economic functions, these changes could impact credit quality, macrocosmic dynamics, and market functioning. Therefore, it is up to the regulators to make sure that Fintech maximizes opportunities and minimizes risks to society.

Carney also warned about the potential dangers of increased reliance on peer-to-peer lending. Since peer-to-peer lending has yet been tested by a downturn, its stability and the lenders’ tolerance to losses are still unclear. Currently, Fintech is a rather uncharted territory; it might generate systemic risks due to its interconnectedness and complexity, or it might reduce systemic risks by introducing a more diverse and resilient system. Policymakers need to be ready to address vulnerabilities as they appear.

I think the complexity of the current regulatory system can be a hindrance for the development of Fintech policies and Fintech companies themselves. While Fintech companies are attempting to blindly meet compliance, the lack of coherent policies not only makes it difficult to plan, but also wastes resources that can be better utilized elsewhere.

Reference: http://bridgingandcommercial.co.uk/article-desc-11491_

The People’s Bank of China has completed a trial run for its iteration of digital currency. Different banks in China participated in transactions involving the currency. They are a world leader in testing and implementing this technology. After ironing out a few kinks, the People’s bank plans to have a country-wide rollout. It will be a legal tender and backed by the government. Since, the digital currency will be floating in the money market, the bank will closely monitor it to avoid inflation.

I believe this is a good thing for fintech. Physical monies have been becoming irrelevant since the credit card. We deposit our physical money into banks and are able to have a digital representation of it on our devices. This digital currency will implement aspects of blockchain technology. Banks will be able to see the transaction history and detect fraudulent activity. They will also be able to account for all digital currency in the market when determining cash levels.

Look out in the next few years for banks adopting a similar currency. It will move finance into a new era.

At this point, Fintech is past its infancy and inception. More and more money is being invested in it, and it is at the point where the potential in which it can disrupt the financial services industry is apparent. What Fintech is allowing companies on the supply side to do, is act in new ways to serve their needs by meeting value chains with better quality, speeds, and prices. On the consumer side, there is increased transparency, consumer engagement, and ways in which consumers behave which all change the dynamics of how consumers’ needs should be met. Since Fintech is largely geared towards accessibility and ease for consumers, the reasons why consumers adopt Fintech solutions is very interesting.

Unsurprisingly, the ease of setting up an account is the biggest reason why consumers adopt Fintech. Instead of having to stand in a line and fill out paperwork, an account is often just requires and email and identification. From there, Fintech also offers better rates and fees. Not included on the above graphic, are other reasons why Fintech is succeeding.
What else is interesting is how global banks view fintechs, despite always hearing how Fintech is disrupting the financial services industry. In North America, 20% of banks in the study view Fintechs as competition and a threat. 31% of banks view them as possible collaborators.

Linked Article: http://www.cio.com/article/3148756/leadership-management/the-fintech-effect-and-the-disruption-of-financial-services.html