Month: February 2017

What the Article Says:

Frost & Sullivan, a growth partnership company, is hosting a Growth Innovation Leadership Council regarding Financial Technology and the Future of Financial Services in Chennai, India. The purpose of the conference is to provide an orientation on current trends in FinTech, how the sector is growing, and the opportunities it has with the Banking, Financial Services, and Insurance (BFSI) industries. Jean-Noël Georges, the Global Program Director, says, “As advanced technologies alter the financial services ecosystem, tech-savvy consumers will seek out players that support accessibility, affordability, and availability.”

My Thoughts:

The most interesting part of the article, for me, was the discussion on how sustainable physical banks are, given the growth of FinTech. Mobile money/payments, disruptive authentication and biometrics, evolving insurance market dynamics, and the impact of emerging technologies such as Blockchain and quantum computing are making people’s lives easier, and giving less of a reason for banks to exist.

Source: http://www.prnewswire.com/news-releases/will-fintech-make-banks-disappear-300411345.html

Although it is widely believed that financial technology is disrupting the traditional banking industry, many fintech startups have found themselves acquired by banks. Venture capitalists have yet to find a financial technology that is a threat to even a part of the banking business. Sheel Mohnot, a venture capitalist who focuses on fintech said, “We realized along the way that you really have no choice but to work with the banks.”

Under Trump’s administration, it will be harder for fintech to disrupt banks. Trump’s plan to ease post-financial crisis regulations will give banks more freedom to take risks in areas where fintech startups are currently finding the opportunity to develop in. Venture capitalist Arjan Schütte has been moving his firm’s investments away from fintech disrupters and toward startups that are working with existing banks.

P2P lenders have realized the difficulty to fund loans without having access to cheap deposits, as the banks do. They also struggled with the high cost of marketing to acquire new customers. I researched P2P lenders for the individual assignment, and found that Lending Club had the highest technology IPO in 2014. However, Lending Club’s shares have been trading far below the day of their IPO.

Reference: https://www.nytimes.com/2017/02/22/business/dealbook/silicon-valley-tried-to-upend-banks-now-it-works-with-them.html?smid=tw-share&_r=0&referer=https://t.co/7Wl3R7wfOn&_lrsc=06912909-a0ca-4685-bf7b-72cc34e89575

Point-of-Sale (POS) systems have been transforming since the invention of Square. Most modern restaurants have adopted this more simplistic, yet sophisticated, form payment. They has gotten more intuitive by asking our signatures by using our fingers on screen. This usability is now going global.

Visa and IBM are partnering to provide Watson IoT customers with Visa Token. This essentially turns all smart devices into payment terminals. For example, if you have a car, you can use your car touchscreen to pay for gas when you’re at the station. In a more complex situation, you’ll be able to pay for the miles you use on your car instead of the base 15,000k/yr lease. Your shoes can track how many miles you have run and alert you to buy new ones.

I believe that this is a great thing. However, I am concerned about security. Each device will have access to your payment information. Each device that utilizes this token service should be well encrypted. Two-factor authorization is an absolute must, including a biometric password. Privacy can also raise caution. These tokens will track your purchase history and personal habits. This technology has the power to automate Amazon Dash, which is scary. It can decide when you run out of a good, and automatically order it for you. But in the end, it is your choice to use the services. I certainly will.

https://www.finextra.com/newsarticle/30150/ibm-and-visa-join-forces-to-turn-billions-of-connected-devices-into-points-of-sale

As we’ve discussed in the beginning of the quarter, Blockchain is a huge innovative technology in the fintech space. It has potential to be one of the most innovative technologies since the development of the internet and it’s potential is rapidly growing. $1.3 billion was invested into the technology in the past three years alone with over 90 companies looking to expand on this innovative ledger space. The intriguing aspect about this space to me is that although it appears in some ways as if this type of technology would aid in the reduction of fraudulent behaviors in banking transactions, it still fosters many opportunities to commit fraud. Through research on the individual and team assignments, it has become clear how evident fraud is in this space. With this, the article points out how regulations have to evolve with the technology. As this sector grows and becomes more widely used, regulations around the use and implementations will also have to grow. Reactive regulations will not be sufficient, governing bodies need to start coming up with regulations soon.

 

http://www.jdsupra.com/legalnews/blockchains-offer-revolutionary-71791/

Blockchain monetary solutions

A cryptocurrency is a digital form of an asset which can be used for exchange and to make transactions secure and control the creation and counterfeiting. Cryptic currency currently occupies a large share in the financial technology market. An example of such type of currency is Bitcoin which was introduced to see the response and try to win the consumer’s approval. Hence it is the first successful use of blockchain technology. I feel with digital currency, fake currency and counterfeiting would be a thing of the past.

Many startup companies have identified Bitcoin as a potential starting point and built their business models around it. For example, BTCJam is a service which is a bitcoin based P2P lending service. BitPay is a global bitcoin payment processor that allows merchants to accept bitcoin payments from customers while pricing their products in their local currency. BitPagos uses bitcoin to enable credit for online payments in the emerging markets where local currencies are subject to serious depreciation. Coinometrics that collect market data from Bitcoin exchanges to provide insight into the state of the Bitcoin economy. Coinbase and Kraken are the leading bitcoin exchanges. However, blockchain solutions go far beyond bitcoin applications.

Here are some companies in the blockchain domain I feel would be interesting:

1. Blockstream
2. BlockCypher
3. Chain
4. Wirex.

Reference: https://n-ix.com/exploring-use-cases-blockchain-technology-fintech/

India’s move towards a cashless economy is causing tension between the country’s established banks and Alibaba’s mobile wallet called Paytm. Banks underestimated the appeal of Paytm because they assumed that people would question the security of mobile wallets or be reluctant to trust an untried technology with their money. Banks did not consider that most people are attracted to the convenience of mobile wallets both as customers and merchants. Paytm does not require merchants to pay high transaction fees like credit card companies do, making mobile wallets more lucrative.

Paytm’s users are predominantly young people (25- 35), so their preferences will affect the future of credit cards and banks. If the incoming working-age individuals radically shift the way they store and spend money, banks need to adapt.

One could argue that people in rural parts of India won’t switch to mobile wallets because of poor infrastructure and poverty. However, people in these areas are not likely to have credit cards either. They are at a disadvantage due to the move towards a cashless economy. India will have to take steps to improve data and internet in these areas regardless. With changes needed, banks would do well to partner with fintech firms in order to stay relevant in India.

https://www.bloomberg.com/gadfly/articles/2017-02-21/indian-banks-misread-the-fintech-threat

In continuation of my previous week’s blog on Traditional Banking Vs FinTechs , here is an another segment of the market where the  FinTechs can disrupt the existing monopoly of the traditional Banks.

Consumer banking: Banks focus on the upper end of the consumer market i.e. the high earners, because banks often can’t make money servicing the majority of consumers. Hence, most consumers feel neglected and, financial institutions need to focus on helping the average consumer and small business rather than the big business.

On the other hand, FinTech startups are developing software that allows them to more efficiently service a much broader range of consumers and still make money. With these new technologies and solutions, FinTech startups will be able to extend banking services to a broad swath of under-serviced consumers who have not been considered desirable customers for lack of adequate credit history. Technology will also enable more consumers to manage their finances online and on mobile devices, regardless of location or time.

The consumer market would appear ripe for a FinTech takeover, but startups will face a number of challenges while building their brands: the high cost of customer acquisition, the balance sheet required for lending, and the intense and intensifying regulatory scrutiny. There is also the growing issue of trust and cyber-security. Consumers are worried about security with some of the new banking services online. Both startups and incumbents need to adopt new technologies to meet the demands of the consumer and to provide adequate security in an increasingly dangerous environment.

Conclusion:The FinTech revolution has thrown the banking sector into turmoil. Banks retain significant advantages and will not easily be supplanted in key segments as long as they move quickly to meet new challenges. On the other hand, they are vulnerable and would do well to recognize this fact sooner rather than later.

References:

https://www.romexsoft.com/blog/fintech-vs-banks/

https://letstalkpayments.com/fintech-and-traditional-banks-a-beginning-of-a-beautiful-friendship/

 

 

IBM is working with Visa to produce a shoe-based mobile payments system. Users can turn shoes into a mobile point of sale system and a secure payment gateway. With this idea, users can go everywhere without a wallet and pay for goods with wearable devices.

In my option, it looks like this shoe-based mobile payment is convenient. However, this method of payment is hard to view and operate. Unlike using a smartphone, you can view the amount to pay and accept the payment thought figure prints. This show-based mobile payment does not have a security protection. Anyone can wear this kind of shoes to make payments. Most people will have problems to accept this method and contact with auto-bill-pay. Overall, I think this approach is overreaching. The mobile-payment market will have a longer time to adopt this method.

http://paymentweek.com/2017-2-21-shoe-based-mobile-payments-visa-ibm-working/

Here are my views on AI in Fintech:

Artificial intelligence is disrupting the way we live and Fintech would also adopt these in their model. They would be affected in two ways AI used as part of their business model, dealing with AI enable the system.The first way where the lending company can use AI and machine learning to predict the weather a person would return the loan.There are both advantages and disadvantages to this model as the system could predict based on the past model but it cannot look at big picture or future .So a careful assessment should be made and AI should not be the sole authority in crucial steps.While the advantages would be it could confirm the digital identity of the person and would prevent frauds.The second way where the company had to deal with AI enabled system is for example in future a refrigerator might initiate the payment process. The payment company must make sure that it has proper authentication and is valid on the date. So Fintech companies must take careful steps and prepare themselves for upcoming challenges.

 

 

References:

https://thenextweb.com/finance/2017/02/21/fintech-is-not-just-fintech-anymore/#.tnw_odAq24Cp

https://themerkle.com/fintech-will-be-a-culmination-of-blockchain-artificial-intelligence-and-machine-learning/

 

Fintech innovations is not only helping the big players in the finance industry but also helping small businesses to become more efficient. Generally, FinTech is related to investments and payments and other tech. However, there are people that are building technologies to improve fundamental financial tasks such as bookkeeping, Keeping track of their payments, receivables and inventories. One such company is BlueVine which was founded 3 years ago. They address the issue of everyday funding to address short term needs. They focus on smaller businesses at that time which was an untapped market. The founder of BlueVine drew inspiration from his father’s small business and his own knowledge and experience about FinTech to use Technology to make the financial handling of data in smaller businesses simpler to make data keeping more efficient and less time consuming. It is fascinating how technology is effecting even the smaller parts of every business in the world through innovations in the financial industry.

 

https://www.entrepreneur.com/article/288486