Month: February 2017

The presence of FinTech has been growing strongly in China recently. Experts in the industry think this emerging popularity for fin tech is one of the main factors contributing to the increase of consumer spending in China. Mobile Payments technology has made increasingly easier for the Chinese population to make online purchases, and goods can often be bought very inexpensively online in China. Online retail sales increased almost 26 percent in mainland China in the past year alone, pushing a 10 percent increase in overall retail sales. As the number of mobile users also increases in China, so does the ability to which this financial technology can be accessed. This could potentially push even more growth in the near future to come. The ability to get a loan through fin tech has also been eased , and this in turn gives more money to be spend on the online marketplace. The potential for mobile lending is also large, as aforementioned the number of mobile users in mainland China is rapidly increasing. If these trends continue it will be interesting to see how the growth of the rest of the world will be effected.

 

 

 

 

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

Public Bank of China is set to issue its own cryptocurrency which means getting a step closer for becoming one the first major central banks to do so. PBOC announced in January 2016 that it will have its own cryptocurrency soon.

China have embraced digital payment to such a large extent, that according to Financial Times “Chinese mobile payments were nearly 50 times greater than those in the US last year”. This new PBOC-backed cryptocurrency wouldn’t seem much different to existing payment methods such as Alipay or WeChat but for sellers getting digital payments directly from the buyer will assist in lowering transaction costs as the middleman is cut out of the process.

This new technology shift will have huge benefits for PBOC as well. Instead of relying on monthly surveys of businesses, or collations of spending from the statistics authority, using blockchain will allow to trace transactions and collect “real-time, complete and authentic” data to compile precise monetary indicators such as money supply growth. Policies could then be fine-tuned on a day-to-day, even hour-to-hour basis, giving an unprecedented level of precision to monetary management. The central bank will have unprecedented knowledge of how the economy runs.

A PBOC research paper last year outlined how digital money could work:

• The PBOC creates cryptocurrency and transfers it to commercial banks when more liquidity is needed
• Consumers would top up digital currency from modified automated teller machines or from bank tellers and store it in a crypto wallet on their mobile phone or other device
• For purchases, consumers wire from their person wallet to the merchant’s account
• The merchant deposits the cryptocurrency into their commercial bank account
• The cryptocurrency would be part of the overall money supply, replacing part of the outstanding paper tender, a separate paper published in the central bank’s magazine said in September.

Cryptocurrency like bitcoins didn’t get support as their legit adoption could have benefits so significant that centralized exchanges would not be able to compete. I think it’s a great move by PBOC which will surely have positive impacts on consumers and the government, curbing out the disadvantages of involving middle-man in transaction systems, and may also set examples for other nations to follow.

PBOC- Cryptocurrency

References:

https://www.bloomberg.com/news/articles/2017-02-23/pboc-is-going-digital-as-mobile-payments-boom-transforms-economy

https://www.ft.com/content/00585722-ef42-11e6-930f-061b01e23655

Banks are beginning to feel the pressure placed on them by FinTech startups looking to disrupt the traditional method of banking. Companies are targeting the customer experience and building off the growing use of mobile banking and easy access to banking operations. Banks do have a large advantage when it comes to the infrastructure associated with payment transactions and the many risk and compliance standards. The capital and regulatory speculation makes it hard for startups to keep up with banks. Instead, it is recommended that the two (large banks and startups) utilize each other’s resources in a mutually beneficial manner. One example is the banks’ close relationships with sales representatives and local integrators, which can be leveraged by the FinTech industry to better understand a customer’s needs and find a new point of access for their products. In turn, banks can utilize the large amount of data they have access to in order to develop easy to use interfaces for their customers.

So often companies focus on overpowering their competition instead of sharing resources to get ahead together. I enjoyed how this article identified the threat that big banks are facing and turned it into a positive for both parties involved. Ido believe that is important for banks to recognize customers’ desires for mobile banking and other easy forms of money management. It is also important to recognize that these new forms of technology must be slowly integrated given the importance of security when it comes to these sorts of applications.

 

http://themarketmogul.com/banks-take-advantage-fintech/

The COO of UBS’ Wealth Management sector said recently that banks are now focusing on working with FinTech companies instead of regarding them as competition. They need to find very smart ways to partner up and improve the existing business model of banks. Banks need FinTech to stay relevant in the fast-paced technological world we live in and FinTechs need banks to help them become more mainstream.

However, while FinTech companies are enjoying the benefit of working with banks, banks should be more careful when it comes to cyberattack. Some banks believe that greater regulatory oversight is needed within the sector. Last December, the Bank of England is reported to have recruited financial technology companies to help prevent cyberattacks targeting financial institutions after a survey found that cyber risks topped the list of financial service concerns.

From my point of view, as long as banks are proactive to prevent cyberattack, they will continue to enjoy the benefit of working with FinTech and vice versa. Moreover, regulation should be made as more and more collaboration will happen between banks and FinTech. Hot FinTech market, such as Australia, India and China with increasing funding flows to FinTech, should work on regulation to ensure a health market.

 

UBS Wealth Chief: ‘We Are Embracing FinTech’

China is a leader in financial technology, in part because of a high consumer adoption, including widespread and early use of online shopping and smartphones. It accounts for almost half of the global total of online payments and three quarters of global online lending (fintech China). WeChat, Alibaba, and Baidu all have their own digital wallets, and these ones represent more integrated forms than we see in most of the U.S. market. For example, Baidu is a search engine and WeChat is a messaging app. Integrating digital wallets into functions consumers used on smartphones gave a huge advantage and created one of many areas of fintech advancement in China.

My own internship experience in China has shown me firsthand how financial interactions are different. Online shopping is huge, and international interns would ask Chinese interns to order things on Taobao for them because we can’t get them in the U.S. However, shopping in person would be mostly in cash rather than with credit cards. In general, I noticed how integrated online transactions were into daily life. Adapting to the differences in financial transactions gave me a firsthand view of the consumer market. I believe that people around the world will have to pay attention to trends in China if they intend to move forward and be successful. In my opinion, China is and will continue to be the world leader in fintech.

Source: http://www.economist.com/news/finance-and-economics/21717393-advanced-technology-backward-banks-and-soaring-wealth-make-china-leader

Author Rohit Arora offers his alternative view on Chris Myers’ depiction of fintech as a bloom that “is finally coming off the rose”.  The first reason Arora thinks FinTech is going to be around for a long time is because traditional players are adopting the technology, and when big players adopt a new way of doing things, it shows long-term potential.

The second reason is that the realities of the marketplace encourage short-term thinking.  Myers cites fintech companies’ use of funds for quick growth over innovation as the reason for riskier and less desirable loans.  However, Arora states that this applies to all sectors.

Finally, Arora combats Myers’ statement that financial institutions are resistant to change with the fact that the marketplace is demanding it, and these instututions have no choice but to follow.  I agree with Myers, as competition necessitates keeping pace with the advances in technology.  The advent of mobile payment systems is just one example of revolutionary change in the marketplace, causing companies to divert their focus to eCommerce over brick-and-mortar stores.

https://www.forbes.com/sites/rohitarora/2017/02/22/3-reasons-fintech-is-thriving/#16d886e31017

With the fast changing industry of Fintech, new developments are predicted to alter the direction technology will have. According to “What’s Next for Fintech? 3 Predictions for 2017,” Fintech will take on a heavier role in the traditional banking industry.

The first prediction as mentioned in the article talks about the “changes in regulations.” With a new political leader, financial technology regulations have been an anticipated topic. Depending on how the new president alters regulations, financial technology may have more or less opportunity to expand and grow its influence on the market.

The second prediction is from “partnerships between fintech and traditional institutions.” This mainly focuses on how integrated fintech will be with the banking industry. If fintech chooses to partner with traditional bank, more regulations may be enacted and cause possible limitations to development.

The third prediction is “personalized advice from banks.” By developing a way for fintech to analyze each specific consumer, it can create the best fit action on optimizing investment. With this, fintech is able to integrate jobs from multiple sectors into one.

If all these predictions turn out to be true, fintech may be on a path to dominate the financial industry.

http://www.nasdaq.com/article/whats-next-for-fintech-3-predictions-for-2017-cm750508

Chinese banks are looking for blockchain experts to fight fraud. According to the article, the demand from Chinese banks for experiences in blockchain more than doubled last year and will grow further in this year. Since Fintech becomes increasingly significant in financial field, the demand for blockchain will even increase in the future and there is no sign of slowing.
I think it is a really good trend for Chinese banks. As I know, the way the banks store documents are still in paper, which is not transparent and safe enough. Therefore, if Chinese banks start to use blockchain, a ledger system that processes, stores and tracks digital information, from crypto-currencies to loan agreements, then all data and information can be stored into the single system. By doing so, the system can document all changes and would be harder to tamper with, which make transactions more transparent, audible, and secure. In addition, blockchain system can also help banks to avoid fraud cases such as fake trade finance deals. Although blockchain solution is very nice for banks, being able to integrate that back into the existing systems in a sensible way is still a challenge to banks. Blockchain is too complex for Chinese banks to apply to the system successfully.
http://venturebeat.com/2017/01/26/chinese-banks-are-using-blockchain-to-fight-fraud/

Society for Worldwide Interbank Financial Telecommunication (SWIFT) has recently launched its Global Payment Innovation (GPI) platform. This platform allows (~100 and growing) participating banks to engage in more efficient payments cross boarders.

SWIFT’s GPI initiative is divided into three phases. The first phase (which is also the process that is being launched) focuses on business-to-business payments. This allows businesses to have transparent and predictability of fees, end-to-end payment tracking, and faster transfer of funds between banks. The second phase focuses on digital features that further transforms the payment experience. This includes the ability to immediately stop a payment, and transfer rich payment data (such as compliance checks and multiple invoices). Finally, the last phase will focus on exploring the potential of new technologies, such as distributed ledger technology or blockchain.

Even though GPI is not currently  leveraging blockchain, the launch of this initiative is the first step towards the development of fintech. The growing list of banks who are willing to use GPI means that banks are willing to take on new technologies to improve financial transactions. Furthermore, this system is a necessary first step to implement new technologies such as blockchain. As it currently stands, the development of blockchain in financial institutions is still years away. GPI will allow banks to have a faster global payments while maintaining strict regulatory standards.

Sources:

Swift innovates on global payments, without blockchain

https://realworldchange.swift.com/resources/pdf/SWIFT-GPII-Factsheet-2016.pdf
https://www.swift.com/our-solutions/global-financial-messaging/payments-cash-management/swift-gpi

PCI Compliance – Part 2
https://squareup.com/guides/pci-compliance

As a Part 1 of my blog last week, I explored what PCI compliances were and how organizations play a role. Merchants are required to follow PCI-compliance regulations such as “establishing data security policies for your business and employees to removing card data from your processing system and payment terminals” (Square).

There are a couple of places that data can be stolen, as outlined by Square: compromised card readers, insecure payment system databases, recording entry of authentication data, and a secret tap into your store’s wireless or wired network. PCI compliances aim to provide guidelines so that a business’ payment processing life cycle is secure.

Square also follows the PCI standards including having an “integrated payment system [that] provides end-to-end encryption for every transaction at the point of swipe and tokenizes data once it reaches our services” (Square). Instead of directly communicating with a bank, Square provides the hardware, software, and relationship with banks so that small business owners can focus on other activities aside from payment compliance. This is ultimately their competitive advantage and why Square is so popular amongst up and coming businesses around the nation.