Author: aarnold

The article predicts Germany surpassing the UK to become the new fintech hub in Europe. The Brexit vote has international investors wary of funding new London-based fintech startups, at least until business relationships in a post-Brexit market are sorted out. The article cites the increased funding of German fintech startups as a sign of Germany’s impeding supremacy.

However, the fintech CEOs mentioned in the article do not share the same thoughts. Niroumand of FinLeap fears that Brexit will make more room for competition with US and Chinese based fintech firms rather than being clearly beneficial to German companies. He sees benefits within the EU because there will likely be favorable agreements for business within the EU without the UK, but states that outside the EU competition will be unchanged.

Financial News also points out that German companies do not focus on beating British fintech. German fintech plans to grow mostly through partnerships with US and Asian markets rather than UK startups leaving. Ultimately, German startups are doing well, but the author is wrong to assume it is all because of post-Brexit uncertainty.

 

https://www.forbes.com/sites/madhvimavadiya/2017/03/14/fintech-germany-brexit/#5356eb1b45a0

This article discusses a white paper put out by the Ontario Securities Commission on Monday. Pat Chaukos, the chief of OSC, stated that financial technologies like blockchain can’t grow and innovate without open-access data. For example, having a client’s “core information” available would allow regulators to streamline information gathering, analyzing, and verifying. The paper argues that this would make compliance with regulations easier because there would be a standard system.

However, financial institutions might not be inclined to make these changes because they will be hesitant to make the core client information available to other entities. Chaukos acknowledged that the open-access data approach would increase competition. While that is good news for investors, financial institutions might not be so thrilled to have their industry dramatically change.

 

 

 

http://finance.yahoo.com/news/canadian-regulator-says-open-data-012807908.html

This article discusses the issues with our current financial systems, mainly the prevalence of intermediaries. The more steps there are in a process, the more vulnerable they are to error or fraud. The article notes that “45% of financial intermediaries, such as payment networks, stock exchanges, and money transfer services, suffer from economic crime every year”. It blames this high fraud rate on an entirely inefficient system that tries to digitize old paper procedures rather than utilize uniquely digital functions.

The authors mainly focus on how blockchain’s decentralized and secure structure can, and is, revolutionizing finance. They point out that incumbent financial intermediaries don’t need to see blockchain as a threat, but rather a next step. I think this is naive of the authors. Because of the lack of regulations and general newness of blockchain, established firms are going to be wary of transitioning until blockchain is proven. Most companies are reluctant to dramatically change their processes because they don’t see their customers asking for change. Financial institutions are going to be especially hesitant because people are extremely sensitive about their money’s security. If blockchain catches on, it will be disruptive to current financial intermediaries even if that doesn’t necessarily need to be the case.

 

https://hbr.org/2017/03/how-blockchain-is-changing-finance

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

A London-based Fintech company called Soldo is adding a new service for UK firms that lets them use a company-wide online expense accounts. This technology allows companies to put spending limits on accounts as well as block non-approved payments. Companies can have one expense account with multiple users, but still track which user incurs which expenses. It also has a feature that allows paper receipts to be photographed and uploaded to the system. All of the expense data is stored in the same system so it easily integrates with business’ accounting programs.

I think that this service is useful for large companies that have a hard time tracking expense reports. The uniform reporting and user-friendly options make integration more likely to succeed. I don’t see why this technology has to be restricted to UK companies. If the technology works for an online expense account, it should be able to integrate with international companies as well. If a UK business is already working abroad then the technology will be in other countries anyway. It makes more sense to do a full rollout of services because it will increase market usage.

 

https://techcrunch.com/2017/02/14/soldo-business/

The article is about Chain, a blockchain company that partners with banks and financial firms to integrate blockchain technology into financial services. In 2016, Chain released a version of its software on open source for all developers to access. Chain hopes that giving people access to its software will allow faster innovation of financial uses for blockchain.

On the one hand, this is a good move because it brings Chain back to the roots of blockchain’s origin. BitCoin started as an open source project that found great success. Opening up software allows for more collaboration and progress. On the other hand, not everyone understands the needs of the financial services industry. If Chain wants to use blockchain for banks and financial firms, it needs to be designed with that in mind. Random developers will bring new tweaks to the software, but not all of these changes will be useful for Chain’s goals. Time will tell if Chain gains enough innovation from realesing the software for it to be worthwhile.

 

 

 

http://fortune.com/2016/10/24/visas-blockchain-chain-open-source/

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/

Germany’s Central Bank president Jens Weidmann has expressed concerns about the current growth of fintech. He specifically sees it as a threat to current banking and financial industries because the technologies are new. He fears that firms will be overly vulnerable in implementing technology that hasn’t been tested in an economic downturn. He stated that “assessing the risk was impossible without reliable data” (Koranyi, 2017).

While his concerns about using untested technology is valid, he seems to be missing the point. Financial technology improvements allow for better user access, reduced clearing and settling times, and less reliance on intermediaries. The only way to see how this holds up in the real world is to try it. If Weidmann wants reliable data to assess risk, he needs to let people get data first.

Additionally, Weidmann is talking about fintech as if it were all one concept. It’s not. There’s blockchain technology; there’s cloud based advances; there’s biometric financial solutions, the list goes on. Each different financial technology should be assessed on its own merits and risks. Not all innovations are good, but we shouldn’t deprive ourselves of opportunity just because of this fact.

http://www.reuters.com/article/us-fintech-bundesbank-idUSKBN1591LV

This article gave information on when to implement different information systems because of various benefits from planning, report generating, and analysis capabilities. It discussed most systems are built without enough consideration for the individual company’s business process. The article’s suggestion was for end users to be directly involved in the design process with frequent meetings and tests. It eliminates the issue of systems architects getting distracted by the technical elegance of a system at the cost of user-friendliness or functionality. However, this approach slows down normal business by disrupting employees.
I agree with the article that managers need to ensure systems are built with the business benefits as the main goal, but I don’t think that end users need to be actively involved with each step. When a new IS is being designed, managers can call meetings between their employees and their architects to discuss how the IS will need to operate daily. Then the managers can discuss underlying policies and processes that need to be built into different views and transactions. That way the architects have enough information to start working and regular employees are not taken away from their usual jobs any more than is necessary.

https://hbr.org/1976/11/how-effective-managers-use-information-systems

India’s government is in the process of universalizing its Public Financial Management System. The goal of a universal system is an efficient digital system to replace its manual one. This large-scale information system will be run by India’s Department of Expenditure instead of individual states.

The individual states and union territories are hesitant to accept this transition because they view the change as a loss of control and independence. They do not feel that the Department of Expenditure has the right to interfere with the workings of state governments.

Overall, I can understand the states and union territories’ trepidation with the roll-out of a universal financial information system. Joining a larger system increases oversight and scrutiny which may imply that the government doesn’t trust its states. However, I think that the states should embrace this system because it will increase efficiency and transparency.

With India’s twenty-nine states, seven union territories, and over 1.2 billion people, there are vast amounts of financial information to track and manage. State treasury departments must communicate with both Parliament and local ministries. A single, uniform system will allow transaction details to be more accessible and understandable. The increased accessibility can help fraud detection as well.

http://economictimes.indiatimes.com/news/economy/policy/government-to-universalise-the-use-of-public-financial-management-system/articleshow/53231185.cms

http://economictimes.indiatimes.com/news/economy/policy/march-deadline-set-to-integrate-states/uts-to-public-financial-management-system/articleshow/53835598.cms