Month: February 2017

There is a fundamental strategic contradiction between technology and finance.

Some investors point out that the financial industry is two industries move at different paces.  Rohit Arora believes that Fintech is going to be around for a long time.  He argues that large banks are investing in technology to allow for digital loan applications, which demonstrates that fintech is becoming more mainstream.

Market realities encourage short-term thinking.

Arora argues against the connotation that the grow at all costs mentality of fintech firms will kill it.   The nature of capitalism is that innovators enter the marketplace and others follow.  The well run companies will survive while others will die.  The fintech industry is similar to other industries the nature of survival.

Incumbents in the market are powerful and resistant to change.

Big banks have no choice but to change the way they do business.  The marketplace demands it through the use of smartphones and going online for everything one needs.  Large banks are and will continue to invest in fintech companies.

 

With everything moving online and mobile, their is a high demand to enable online applications for small business loans.  Fintech is not going anywhere.

https://www.forbes.com/sites/rohitarora/2017/02/22/3-reasons-fintech-is-thriving/2/#6af355d3552d

 

In this article, the author Rohi Arora actually responds to a previous Forbes article which argued that fintech is failing, an article that was also covered on our own blog. As my response to that article began to touch on (https://blogs.scu.edu/finis/2017/02/13/three-reasons-fintech-is-failing/), while some fintech companies may be failing, as a whole, fintech is undoubtably part of the future of finance. The most significant reason fintech is thriving and will like continue to is that it as allowed access to capital to small to midsize business owners, who were previously a highly under-served market for investment. What technologies integration with finance has done is removed entry barriers and hurdles to receive capital that were previously in place and prevented small business owners from receiving capital. Technology has undoubtedly disrupted the status quo in an old industry and while many will try to hold off the fintech influence, as we have seen in countless other industries, the power of technology to shift how an industry operates is very strong.

Link to article: https://www.forbes.com/sites/rohitarora/2017/02/22/3-reasons-fintech-is-thriving/#59723c5c1017

The audit is simply a process by which auditors check the company’s math and application of accounting rules. Most of the investors take audited financial statements as major consideration to invest in a company. But by doing so it leads them to false sense of security when examining the audited frauds. Following are some of the common issues to say why a audited financial statement could not be true.

1. Auditors only examine small samples of transaction
   The heart of an audit is testing transactions. The auditors select a sample and test those transactions to ensure that they were properly recorded in the accounting system. The inherent limitation in sampling is that all transactions are not tested. And of course, it would not be possible for the auditors to examine all transactions a company enters into in a year.

There is always a good chance that a key transaction will not be part of the auditors’ sample, and therefore will not be examined. So many transactions are untested by the auditors, and that means there is a very good chance that a fraudulent item will not be part of the testing.

2. Auditors may be inexperienced
The current business model for audit firms (and the one that has been in place for decades) relies on relatively inexperienced auditors to do the bulk of the field work. While this may make economic sense in terms of controlling the costs of audits, it is a terrible practice from a quality control standpoint.

Most of the inexperienced auditors tend to not ask difficult questions because of their lack of experience. Those who have the knowledge to identify problems and ask difficult questions spend very little time in the field. They are best equipped to zero in on fraud, yet they provide little hands-on supervision of the inexperienced auditors.

3. Audit process are lagging with the dynamic nature of business
Given the dynamic nature of a business through mergers and acquisitions, development of new products and services, and constant strategic planning all mean that business is changing faster than ever. Comparing the financials of a company from year to year becomes nearly impossible because of all the changes. Therefore audit process has to catch up with the dynamic nature of frauds risks.

We can point out many of such similar issues surrounding why a audited financial should not be a major consideration in investing on a company, but what we need to understand is that traditional financial statement audits were never designed to detect fraud. However, sometimes fraud is detected by auditors, and they can increase their chances of finding fraud if they are so inclined and diligent.

Source: http://www.sequenceinc.com/fraudfiles/2013/06/escaping-detection-why-auditors-do-not-find-fraud/

“Payments happen where people are and where they interact. As social media is exactly doing this, bringing people together and make it easy for them to interact, it is therefore clear that payment and social interaction belong together.”

This is echoed by Massimiliano Alvisini, the regional vice president Northern Europe & Iberia at Western Union. Definitely, mobile payment keeps expanding its services scope to meet customer’s demand and the market development trend, while social media can provide a huge consumer base. I think WeChat is a successful example which supports the above statement.

WeChat is a popular messaging app in China. Compared with WhatsApp or Facebook’s messager, WeChat has a mobile wallet feature that can process both online and in-store payments. As a social media, WeChat has built a large user relationship, which enabled it to developed money transfer service with higher security confidence and convenience to transfer money among users (friends). Specifically, users do not need to type in any payment info. Users just need to open the dialog between friends, and click the transfer tab to send money. Besides sharing stream among friends, users can share a group purchase order via stream that friends form a group to place an order with great discount.

 

Source:

http://www.paymenteye.com/2016/04/05/blockchain-social-media-and-mobile-keeping-track-of-payments-at-money2020/

TransferWise is a peer to peer currency transfer service that has joined several other fintech firms in creating its own “Facebook Messenger bot”. Venmo was the first service to realize how social sending money to friends can be and others have begin attempting to capitalize on this finding. TransferWise believes this is a productive move as messaging services seem to be a place where people want and feel comfortable sending money with one another. Others obviously agree as PayPal, Stripe, Visa, MasterCard, and American Express have their own messenger bots. Services like Facebook would encourage these services to do add capabilities like this as it continues to increase the amount of use of the app by users.

Having these types of new services is extremely convenient way to send and receive money from friends and relatives. I  use Venmo multiple times a week and it has definitely simplified my life. However, it is a scary thought about how much private information many of these services now possess. We continue to sign up with more and more applications to make our life easier yet one would think this would lead us more vulnerable to losing our confidential information.

https://www.fastcompany.com/3068387/new-money/why-payment-companies-are-flocking-to-messaging-apps

TransferWise, a London-based startup, developed and launched a new money transfer service for Facebook Messenger that allows users to send money internationally. TransferWise can exchange international currencies which allows users to use the service wherever they are as long as they are connected to the internet. TransferWise has developed an application programming interface (API), enabling their payment service to latch onto existing businesses capabilities, removing the need for banks and additional fees. TransferWise is currently available in the United Kingdom, United States, Australia, and Europe. TransferWise is also expected to expand to 50 other countries as well. TransferWise is valued at more than $1 billion and backed by many high profile investors.

I think TransferWise is changing the landscape of the digital payment industry as the payment industry moves towards digitalization. TransferWise is very promising because millions of people use Facebook Messenger on a daily basis so integrating a free money transfer system can attract many users to use the service. As companies like TransferWise, Venmo, Apple Pay, etc. are making mobile money transfer and payments easier than ever before, I think in the near future, we’ll see less and less bills and coins circulating as more people and companies adopt different forms of digital payment.

 

Source:

http://www.cnbc.com/2017/02/21/how-transferwises-facebook-hook-up-could-benefit-businesses.html

https://www.nytimes.com/reuters/2017/02/21/business/21reuters-transferwise-facebook.html

 

The world of Fintech is constantly changing. The more competition there is the more each company needs to add to their value chain in order to be successful. As the barriers to entry for start ups in the Fintech world become increasingly more difficult to overcome, one start-up has just received 1.2 Million in funding and is one to look for in the future to set the standard.

Hiatus is an app that connects to your bank account and tracks your monthly autopay subscriptions. It notifies you before you pay for the subscription and allows you to unsubscribe through their interface. However, they are not the only start up to do this. Trim and Truebill also provide this service, so what makes Hiatus different? Bill Negotiation.

With the users permission, Hiatus reaches out to reoccurring bill’s companies in order to negotiate a lower deal for the user. There is no change to the service, instead Hiatus repeatedly reaches out until a deal can be made. Each user saves about $137 a year through this system and the only catch is that Hiatus charges the user half of what they save. So, if the user saves, $137 because of Bill Negotiation feature, Hiatus take $68.50, so the user still saves $68.50 per year.

Source: https://techcrunch.com/2017/02/23/hiatus-raises-1-2m-in-seed-funding-to-track-and-negotiate-your-reoccurring-bills/

We have had a lot of discussions about how we would go about detecting fraud within a financial information system, however we have not really touched on the subject of fraud prevention. There are many ways to prevent fraud from happening, but I think there is one preventive step that a lot of people forget to take. Most companies never mention to their employee’s that steps have been taken to prevent and detect fraudulent activities. Some companies might mention it once in a while or just to new hires during their orientation. This is not the way companies should approach fraud prevention. Companies need to make sure that their employee’s know that all transactions are being constantly monitored no matter how big or small they are. For example, a way that companies can bring this message across is to make sure that there are through checks and balances within the transaction process. If each transaction needs the approval or checks of multiple people across various departments then getting a fraudulent transaction through the system will be tougher and can be more easily caught.

Reference: http://www.corporatecomplianceinsights.com/7-steps-preventing-detecting-fraud/

The use of FinTech has dramatically changed the culture within China. Chinese consumers are pushing changing habits from traditional retail stores to online shopping as a result of company initiatives. Unlike other parts of the world, China is incredibly progressive in terms of loans. Companies like AliPay are offering loans within seconds through mobile apps and online services. Traditionally, it can take several days to weeks to approve credit loans. This is changing the ways in which Chinese are able to access credit and will let them spend more money within their economy. These types of technologies could be in the beginning of the future for other countries and could push other countries to allow for similar infrastructures.

Reference: www.scmp.com/business/china-business/article/2073798/how-financial-technology-driving-chinese-consumer-spending

Japanese largest financial services company and one of the three Japanese “megabanks”, Mizuho Financial Group, announced their blockchain application development earlier this week, after completing the first trial of its customized digital currency and cross-border document sharing technology supported by IBM and consulted by Cognizant.

In the announcement, Mizuhuo concluded that the trial was successful, and their “tamper-proof” blockchain solution is proved to be effective for sharing information among several subsidiaries within the Mizuho group, as well as same-day cross-border settlements of securities transactions and digital currency transfers, with significant “cost savings and enhanced usability”. Through the blockchain technology, Mizuho confidently expressed their next goal of “storing and managing large volumes of data over a distributed ledger”.

Mizuhuo’s announcement is one of the first several trial feedbacks of companies adopting blockchain technology. And, the result turns out to be expectedly satisfying. With the development in the blockchain solutions, different institutions could seek the opportunity of collaborating with technology provider for customizing their unique and conforming blockchain solutions, to better serve within their institutions and differentiate among their competitors.

Source: https://www.cryptocoinsnews.com/japan-megabank-mizuho-completes-digital-currency-document-sharing-trial-over-a-blockchain/