Author: bsyoung

For those who have played the popular mobile game Pokémon Go, you would remember that the initial launch wasn’t so stable. Particularly, the servers would overload due to the amount of players and the game itself would crash. So what does this have to do with Fintech?

The underlying success of Pokémon Go was it’s ability to geolocate players around the globe and allow the players to interact with a virtual world through augmented reality. The technology behind this relies on a lot of real-time calculations  Similar to Pokémon Go, Fintech also relies on real-time functionality. Financial transactions, investments, loans, and many other finance related offerings can be achieved through technology that is capable of calculating computer functions in real time.

With this in mind, there are already several companies who are looking to do just that. Companies such as DeepstreamHub and FireBase (who was acquired by Google) are providing technologies that is capable of doing real-time calculations. Other companies then can rely on their technology and build it into their products. In cases such as this, games, banks, and other industries can potentially  use this technology to build products that need to communicate in real time. Ultimately, the technology behind Fintech can lead to benefits in other industries, while Fintech can also borrow technologies from other industries as us consumers can benefit from the best of both worlds.

Sources:
https://thenextweb.com/eu/2017/03/16/why-fintech-could-have-saved-pokemon-go-servers/#.tnw_MhI0U8BH

On March 8th, Singapore’s central bank – The Monetary Authority of Singapore (MAS), and Abu Dhabi’s Financial regulator – Abu Dhabi Global Market (ADGM) signed a cooperation agreement between countries to develop and nature Fintech innovations and entrepreneurs. Specifically, MAS and ADGM will discuss and establish a strategic framework to aid Fintech startups and innovators through the application and authorization process, as well as explore collaborative projects in technologies such as blockchain, distributed ledger technology, mobile payments, big data, and much more.

In my opinion, despite seeing many news stories about how financial regulations are slowing the development of fintech in the US, it is refreshing to see what other countries are doing to push forward new technologies in the financial market. Having such an agreement is the first step to encourage new entrepreneurs and innovators to invest in fintech, especially when this agreement is backed by Singapore’s central bank and Abu Dhabi’s financial regulator. Similar to international trade agreements, these fintech agreements will be one of the largest obstacles in using blockchain and distributed ledger technology across boarders. If more countries were to sign on to the same agreement, then fintech will flourish when the technology matures.

Source:
https://www.cryptocoinsnews.com/dubai-regulator-signs-fintech-pact-with-singapores-central-bank/

 

The Depository Trust & Clearing Corporation (DTCC) is a financial institution specializing in clearing and settlement services in the financial market, about $1.5 quadrillion transactions per year.

Last year they held the first ever Blockchain Symposium surveying the audience made of industry leaders on the future of blockchain. Among the concerns of the industry are data privacy and security (12%), scalability (21%), business case and cost of integration (32%), and legal concerns (12%), and other concerns (4%).

This year however, while business case and cost of integration still remains a concern for the industry (33.8%), a new category: Interoperability (20.3%) is a concern for many in the industry. In essence, interoperability for blockchain is the ability of different institutions, organizations, and companies to create a consortium. Due to the nature of blockchain, there needs to be a set of standards with the use of the technology. The biggest problem is how do we decide who gets the most influence in setting these standards for blockchain. This is mainly due to the fact that there are a lot of players in this new technology, and that there are many companies who wish to have the most influence in setting these new standards.

In my opinion, whether or not a consortium is able to take place, there is no doubt that apart from legal regulations, that there needs to be a standard for blockchain. Having a standard minimizes duplicate efforts, and promotes innovation and competition on an even playing field. This allows us to push beyond the boundaries of what we can actually achieve with blockchain.

Sources:
http://www.coindesk.com/blockchain-adoption-optimism-fades-at-dtcc-fintech-event/
http://www.coindesk.com/double-standards-the-push-for-blockchain-interoperability-could-get-messy/

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

Recently, Alex Rampell, a general partner in the VC firm, Andreessen Horowitz spoke at Goldman Sachs’s Technology and Internet Conference. He said that in the long term, Amazon could be an industry leader in the payment and services sector. This is because Amazon already has preexisting loyalty and customer data from their Amazon Prime services. With the introduction of music and e-books into its Amazon Prime lineup, Amazon could potentially do the same with banking and payment services. Amazon could achieve this by offering low-debt payments or a no-frills bank (no minimum balance necessary) account to their customers.

Personally, while Amazon could potentially follow the footsteps of Apple (Apple Pay) and Google (Google Wallet) in which a major corporation shakes up the financial industry, I do not believe it would be wise for Amazon to offer low-debt payments or a no-frills account to their customers. What makes Amazon unique is not only  because of its online shopping services, as well as its other Prime offerings, what makes Amazon unique is their R&D in future technologies. With the introduction of Amazon Alexa, the use of voice recognition and Artificial Intelligence to act as a customer’s daily assistant is an idea that can be expanded into Fintech. Recently at CES, Amazon has partnered with many companies to use Alexa as a voice assistant in home security systems, cars, fridges, and much more. As a growing industry leader in digital assistants, coupled with their data on customer’s spending habits, they could potentially create a Fintech solution that helps customers with their spending, and provide even lower offerings to them.

Sources:
http://www.readitquik.com/news/fintech/amazon-to-be-a-fintech-leader/
http://fortune.com/2017/02/14/andreessen-horowitz-fintech-alex-rampell-amazon/

Chris Myers the co-founder and CEO of fintech startup BodeTree – a financial management solution for small business organization, argues that the fintech industry is failing. While he firmly believes in the future and growth of fintech, the industry itself needs to approach things differently and come up with creative solutions to the opposing forces of fintech.

Firstly, Myers believes that there is a contradiction between the fundamental values of finance and tech itself. While technology is fast and eager to change, finance, on the other hand, is a slow moving industry. When investors fund fintech companies, they expect growth similar to the speed of tech. However, the truth is that fintech companies need to grow similarly at the speed of the financial industry.

Secondly, fintech at the core is similar to many social media companies, it is in the business of handling and processing data with the difference in financial transactions. Because of this, investors are pressing fintech companies for rapid growth, rather than gradual growth, in which fintech organizations begin to make risker and risker decisions.

Lastly, financial institutions hate change. Due to the nature of financial institutions, the industry itself is highly regulated and more conservative in values. Innovation within the industry poses many questions to even the simplest of solutions.

In my opinion, fintech is still a relatively new industry that is rapidly growing. Although finance and tech are two completely different industries with different core values, fintech is a new industry that is needed to improve financial transaction for consumers. While it might be true that financial institutions hate change, and that investors are pushing unrealistic expectations for these fintech startups, the smart investors, those who are pursuing growth in the long term, the ones who are willing to stick to the core values of fintech will be the ones who lead the fintech industry when it matures.

Source: http://www.forbes.com/sites/chrismyers/2017/02/07/3-reasons-why-fintech-is-failing/#511f77cf7b6b

Traditionally, access to financial data has been limited to several parties: consumers, the government, and banks. However, with the rise of financial technology in recent years, fintech companies are pushing for a reform in the way financial data can be shared. Leaders in the fintech industry created a new group called Consumer Financial Data Rights (CFDR), to promote the sharing of financial data. This includes using open application program interfaces (APIs) to share data, and pushing cybersecurity to better manage the risk for the users of the data, especially for consumers. However, there are still many problems that still need to be addressed.

The Federal and Banking Perspective:
Both the government and the banking industry both believe that financial data should be limited. This is due to the following reasons:

• There should be a need for more control, rather than open access of financial data. This is because if financial data were to fall into the wrong hands, the parties involved, especially the consumer can be tragically affected. Which leads to:
• Questions about security. Is cybersecurity in a state where access to financial data can protect all parties involved? Who will be responsible if financial data were to fall into the wrong hands?
• And finally, competition. If the financial data were to open to more parties, companies can use this financial data to target consumers. Therefore, the customer’s privacy will not be protected.

The Fintech Perspective:
Leaders in the fintech industry are pushing for third party access to financial data. Reasons include:

• Better access to data allows consumers to benefit and better understand their financial situation and their options. This includes faster payments, and even letting vendors approve more loans to consumers.
• The sharing of data between financial institutions and third parties allows a more unified financial system.

Regardless of which side the argument lies, the questions of data privacy lies on the consumer. Financial institutions want stricter data access so that consumers can be protected from unwanted threats. And the Fintech industry want looser data access so that consumers can benefit from the technology that is available. The answer ultimately still lies in data privacy. If fintech companies and CFDR can prove that a cybersecurity system with the involvement of third parties is secure, then maybe both sides of the argument can come into agreement.

Sources:
– http://www.forbes.com/sites/forbestechcouncil/2017/02/03/the-importance-of-data-access-for-fintech/2/#57e3d0e56f28
– https://www.americanbanker.com/news/fintech-companies-form-lobbying-group-focused-on-data-sharing
– http://www.businessinsider.com/us-fintechs-are-lobbying-for-access-to-customer-data-2017-1

According to a “Digital Disruption” report by Citigroup, China has overtook U.S. as the number one investor in Fintech. In terms of global investment, China more than doubled it’s share from last year and is currently investing in 46% of the world’s fintech, while the U.S. is currently investing in 41% (down from 56% in 2015).

This phenomenon can be attributed to several factors. Firstly, private markets in the U.S. has been hindered by financial regulations. Firms such as Lending Club and OnDeck are faced with either the burden of these regulations, or they have failed to meet their expectations. On the other hand, the lack of regulations in China, as well as the growing middle class allows businessmen to invest in fintech for those who are eager to capture the growing fintech market. Currently, China has the highest volume of financial transactions of any country. The opportunities of fintech in China is unlimited.

Additionally, firms in China receive higher valuations and funding from venture capitalists. The biggest of all is Ant Financial (Alibaba’s online payment platform with over 450 million active users) with a valuation of $60 billion. In contrast, the top valuation in the U.S. is Stripe (another online payment platform) with a valuation of $9 billion.

 

Sources:
http://fortune.com/2017/01/23/china-fintech-invest-citi-report/
https://ir.citi.com/5X%2BQYT5l2T%2BYUV4%2FL%2FhUjyK%2B0cD27TLg380o6tX3OwKdy7TrZXEKM9ByXlGUuCvXEjpUnEPhKoU%3D
http://www.itwire.com/business-it-news/business-intelligence/76564-china-overtakes-us-in-fintech-investment-report.html

In Fintech, firms such as LendingClub and Prosper Marketplace offer peer-to-peer lending services to borrowers and investors. Rather than traditionally loaning money from banks, borrowers are allowed to borrow money from investors. Recently however, local court rulings have made these new business practices difficult. Furthermore, The Office of the Comptroller of the Currency (OCC) released a white paper “proposing that these online lenders become national bank charters”. This allows federal regulations to be put in place to govern these online lenders. Their reasoning is that these Fintech solutions are nothing new, and that technology has always existed in the financial industries.

Interestingly however, is that banks and the government has recognized the potential for these new financial technologies. Goldman Sach’s has recently released their own peer-to-peer lending platform called Marcus, and the U.S. Treasury acknowledges that online lending services could reach $90 billion by 2020. Although using technology in the financial industry is nothing, the future of Fintech in lending is undeniably huge, and the underlying technology will never stop growing.

Source:
https://www.bloomberg.com/gadfly/articles/2017-01-19/newfangled-fintech-meets-oldfangled-financial-regulators

A new startup in Singapore called Touché is developing a device that allows customers to pay via fingerprint. Upon using the system the first time, customers will pay normally via credit card. The credit card will then generate a unique signature to each individual customer. The customer will then scan their fore and middle finger on the device to register their fingerprints. For each subsequent visit to the (currently 150) shops and restaurants that are participating, the user will only need to scan their fingerprints to pay. Both customers and participating shops and restaurants can see the purchase history, expenditures, and offers. Currently, the company has already received $2 million in funding.

Security Concerns
Physical Security:
Similar to Apple Pay and Android Pay, the device uses a method of authentication called tokenization. This allows the device to generate a one-time, unique token that authenticates the purchase each time the user pays with their finger. Furthermore, two fingers are needed to authenticate the payment providing another layer of security if users are concerned.

Data Security:
However, as secure biometrics can be, there is still an issue of data security. Although information is encrypted, if people other than the stores/restaurants and the user were able to retrieve the data, the data privacy of the users will be breached. This means that purchase history and expenditures of users in the system will be compromised.

 

Sources:

https://www.techinasia.com/touche-profile-funding
http://www.channelnewsasia.com/news/singapore/touch-and-go-singapore-company-launches-biometric-payment/3433924.html