Author: praneetha

This time of the year, we all have this question in our minds: which service to use to file our tax returns. Let’s look at one of the upcoming unicorns in the valley which made filing tax return a hassle free and super quick process. Its as simple as ordering food from your mobile phone.

Credit Karma is a free credit and financial management platform for US consumers available on the web and major mobile platforms. Founded in 2007, it provides free weekly updated credit scores and credit reports from national credit bureaus like TransUnion and Equifax, alongside daily credit monitoring from TransUnion.^

It also has a credit score simulator which helps us to understand the effect of our future transactions on our credit score.They also send credit alerts incase of any suspicious activity. We can also track credit card, loan balances, debt repayment, amortisation etc through its Yodlee service which is personal financial tracker which can be customised. They run analytics on your credit profile and make recommendations to help you save money.

So the question is how they are being able to provide all the services for free of charge. According to their business model, they generate revenue through targeted advertisements for financial product offerings. They are also paid by the lenders for making a successful recommendation.

Having personally used CreditKarma to file my tax returns this year, I would definitely recommend this software to anyone who wishes to avoid cumbersome process. Their portal is nicely designed and the tax return interface is very user friendly. The whole process can be completed in few steps.

Source:
https://www.creditkarma.com/faq/howitworks/
^https://en.wikipedia.org/wiki/Credit_Karma

According to KPMG, the global investment in fin-tech is about $13.8 billion, it is the new disruption and the future. Technologies like peer-to-peer lending, faster payments, robo-advisors would face severe consequences if security is not built in from the start. Along with new technology, new threats would arise. Companies like Bitcoin are under severe threat already. They are losing thousands of dollars to cybercrime. Tracking these attackers becomes difficult due to anonymity and lack of regulation. Also keeping customer information safe is also a major concern.

In the current world, cyber attacks have moved on from network attacks to application layer attacks. Fin-tech companies need to start working closely with real hackers and perform thorough application security assessment. It needs to be inculcated in the core design itself. They should consider this the same way they consider speed and trust with both users and regulators. Hence it is important to develop it as a part of the organisation culture. When it comes to cyber security, there is no one solution that solves all. Different companies would be targeted by different types of hackers for different needs. Investing in the hardware and software from the start, avoiding public cloud for confidential data, conducting regular audits and implement strict security protocols would be the most important tasks for a fin-tech to improve safety.

References:

https://centricdigital.com/blog/fintech/is-your-data-safe-fintech-security-challenges-and-solutions/

Robo advisors these days are receiving a lot of institutional and retail interest than any other technology in fin-tech. The personal investment and financial portfolio planning is a need for a large segment of consumers. It also helps in managing large amounts of capital with reduced cost by replacing humans with software. The innovation in this field of investment technology of course is crowded with many startups coming up with new solutions and corporates trying to serve the shifting landscape. Inspite of the competition, there is immense potential down the road, as robo advising is going to become mainstream especially in this data driven world. This is the right time to enter the market. In this blog post lets discuss the challenges faced by robo advisors.

A major challenge faced by robo advising industry is scaling up to keep up with rapid growth. As we move ahead, trying to improve the technology to keep up with the increasing needs of the customers would become highly challenging.The assessment of the client behaviour will become challenging. Also funding along this period is very crucial. The second major challenge would be trying to compete with companies like Wells fargo, Charles Schwab which are venturing into digital advising. Companies like Charles Schwab which offer personal advising for no charge.They gain revenues from underlying assets in Schwab intelligent portfolios which in-turn gain revenues from Schwab ETF’s. They have the advantage of established customer base and power to control the market. They can offer the same services at a much lower price. At this stage it would be a good idea to tweak the business model to B2B. We can sell the existing algorithm to the corporates and make them our customers. This would be a good exit strategy for many startups in this field.

References:

https://www.bloomberg.com/news/articles/2015-06-18/robo-advisers-to-run-2-trillion-by-2020-ifthis-model-is-right

https://www.forbes.com/sites/falgunidesai/2016/07/31/the-great-fintech-robo-adviser-race/#472c6c8f4a6f

Financial information is always prone to targeted attacks which use legitimate software to avoid detection. The attack is carried out internally with no visible files in the hardware but they are hidden in the memory. Hence it is almost impossible to detect the malware and discover the fraud. The attackers sneak into the system to steal all the information they require and later erase their tracks. The forensic investigators find no evidence to work with.

According to statistics, these attacks hit around 140 enterprises to access financial process within the system. The victims are mostly from USA, France, Ecuador, Kenya, the UK and Russia.

A significant malware attack in the recent times was during January 2016, the Trojan.Odinaff effect which was specifically launched to target financial organisations which provide services in banking, trade, payroll etc. The amount of money stolen could go upto millions of dollars. This new wave of attack also carried some specifically designed infrastructure from the previous Carbanak attacks. The companies dealing with security often don’t realise it until its too late and millions are lost to hackers.

“The determination of attackers to hide their activity and make detection and incident response increasingly difficult explains the latest trend of anti-forensic techniques and memory-based malware,” says Sergey Golovanov, principal security researcher at Kaspersky Lab.

References:
https://www.symantec.com/connect/blogs/odinaff-new-trojan-used-high-level-financial-attacks

Invisible malware targets financial information

For hospitals that focus on the quality of care they would like to offer their patients, often finance related activities may take a back seat. Hence a financial information system to track, manage and automate the accounts would increase efficiency and transparency. It streamlines the workflow among different departments in the hospital. Implementing a seamless system would allow the users to retrieve and access dynamic date. Also the information from the system would act as a platform to data analytics which is very crucial nowadays.

Major transactions include payroll and patient related accounting. Among the payroll accounts, they include all the recurring payments which are automatically generated within the system at the start of each payment period. We can trigger approval conditions for non recurring payments, rates, endowments, deductions etc. From the patients side, all the transactions beginning from the visit to the hospital to discharge like doctor fees, medications, cost of operations etc could be managed by implementing a common system with different stakeholders. Also the patient and payroll histories could be maintained which can be used later for qualitative analysis. A general ledger could be maintained for colleting, processing and reporting of the financial data and views can be used for presenting this data. We could also inculcate contract and claim management features.

 

Source:

http://www.hcsinteractant.com/solutions/healthcare-financial-systems/

Many companies are trying to shift from on-site ERP systems towards cloud. The important question to consider is the timing of the shift, given the shift is inevitable. A few systems that do not have a commercial alternative would remain on premise. A good example would be a payment system for a credit card company.

According to predictions by experts, there would be a major chunk of businesses moving to cloud by 2025. Applications that can co exist like the suite providers might win over the market. Development testing is one of the most expensive IT segment. Hence the finance teams can cut the costs and save by moving into cloud. We can cut costs in the form of servers, operating systems and knowledge tools by moving from on premise testing to cloud.The major part in the shift would be played by CFO’s and financial teams.

In the areas of the storage, most of them are already preferring cloud than traditional data servers. The cloud storage providers also claim that their data is more secure in the provider’s servers rather than a company’s personal server. With the cloud being attractive to the financial heads by cutting down costs, we could see a shift in business model. The company’s contributing to this transition will benefit the most. The upcoming startups in this area would be Xero, Outright, Freshbooks, QuickBooks Online Simple Start and Kashoo. They offer their services mainly to small enterprises. Big corporations like Oracle and SAP would be targeting large enterprises.

Reference:

https://blogs.oracle.com/modernfinance/5-finance-technology-predictions-for-2025

The market in US for digital wallets has been growing considerably. Many payment options like Apple pay, Citi Wallet, Android  are in use and upcoming product announcements from Samsung, Chase, Visa and MasterCard sounds promising. But if we consider the consumer side, only 2% of the payments are through mobile wallet. Even services like Paypal, Venmo are struggling to gain progress. So will consumers adapt digital wallets at a faster rate? A Mckinsey Research suggests that mobile payments will reach upto 9% spending by 2020. Among these, the early leaders would be online transactions combined with mobile payments. This could be followed by POS.

Online transactions are mostly done by card data stored in file, browser etc. Hence digital wallets should offer some sort of value to particularly capture this market segment. Also a considerable amount of effort is required from merchant side in terms of acceptance. Merchants should incentivise consumers to enable some motivation to help them make the switch. Starbucks is a good example as it helped consumers make the switch with reward programs.

Among consumers, if we look at a need based segmentation, Mobile enthusiasts would be early adopters. They could be followed by people who like to shop for deals, manage finances on their own. People who are cautious about security and budget would be late adopters. Hence trying to maximise market adoption would require specific strategies to attract different segments. Apple pay and android pay would be more attractive to mobile enthusiasts. To appeal to other segments, the product should have additional propositions other than just payments like helping to manage finances, reward programs by merchant companies, integrating bank card with digital wallet etc.

Source: http://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Digital%20wallets%20in%20the%20US%20Minding%20the%20consumer%20adoption%20curve/Digital%20wallets%20in%20the%20US.ashx

With Robo advising achieving the main stream status, there are many newcomers coming up with innovation and old ones striving to catch up. Here lets discuss about few rob advisors in the market which offer high net return for low investments.

Betterment and Wealth front are considered to the best ones in the market with low management fees and good minimums. They are quite easy to use with their interactive interfaces.Most of the consumers prefer them for their low account minimum features,making it accessible to many. They offer diversified portfolios with tax loss harvesting and automatic rebalancing.These services differ in their fee structure. Wealth front offers flat fee with whereas betterment offers a tiered payment structure where it reduces fee for higher account balances.

There are efficient rob advisors which manage the portfolio free of charge like WiseBanyan and charlesSCHWAB. These are not completely free, they carry few expenses in funds and trades.
Vanguard and Personal Capital offer hybrid services which offer both human advisor and computer based advices. But these have high account minimum fees,but they offer personalised services.For taxable accounts, wealth front and personal capital offer high optimisation and tax efficiency for taxable accounts. Betterment and fidelity go offer the better services for retirement plans.

Major players like Wellsfargo are also venturing into the Robo-advising field to capitalize on the growing oppurtunity.

Source:
https://www.nerdwallet.com/blog/investing/best-robo-advisors/

On a regular evening of November 8th, 2016, when people were done with work and getting home around 8:00 pm IST, an announcement from the Prime Minister Narendra Modi forever changed the Indian economy. The Government of India had demonetised all the INR 500 and INR 1000 notes which constituted to almost 86% of the total cash. India which was the most reliant on cash and faced the biggest crash crunch ever. In one of the world’s biggest economy, almost 95% of transactions were cash, 90% of vendors dint have means to accept electronic payments, and half the population dint have bank accounts. So a common man couldn’t buy and an average business dint have means to receive payments.

The aftermath of demonetization resulted in pushing the country towards the use of electronic wallets. Many new bank accounts are being opened, mobile wallet payments and other e – payment services saw a surge in users.During the dawn of this cashless society the sole beneficiaries are electronic payment firms which have seen in sudden rise of new customers. India’s major mobile payment company PayTm backed by chinese e-commerce giant Alibaba reported a 700% increase in traffic with about 500 million transactions in a single day. MobiKwick, Freecharge, Oxigen Wallet are other leading electronic payment companies who also saw a sudden increase in users.

Street vendors also have opened up paytm accounts with machines outside their shops claiming to accept e-wallet. The whole move of demonetisation is a boon for electronic payment companies. Ofcourse the wide use of smartphones and internet has been the core support element for these digital transactions. There are many innovative solutions coming up from various sectors trying to implement their own systems. India has broadened its digital economy, striving for technological advancements in the digital payments and hence would be a good base for any fintech startup.

Reference:
http://www.forbes.com/sites/wadeshepard/2016/12/14/inside-indias-cashless-revolution/#132ebda618c7

Information technology has revolutionised various domains such as engineering, communication, management and finance, increasing the productivity and accuracy. Financial services in the past decade have benefited largely with the support of information technology. The use of computer programs and technology to aid financial services is termed as Fintech. Similar to Information technology , a new technology has emerged during the past years, which eases human effort far more. With this technology, humans can teach machines to make decisions like humans, thus enabling them to work and make decisions like humans. This is Artificial Intelligence.

What is a Robo Adviser?

A robo-advisor (robo-adviser) is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial partners. Certain algorithms are run by the software that provide advice to automatically optimize decisions and hence replaces a human advisor. Robo advice started around 2008 in the US and gained momentum from 2011 with over 100 solutions in the market. Hence this opens up a huge potential in the coming years. The financial advice provided by robo-advisors come at an incredibly lower cost compared to traditional human advice. Hence this is eliminated many wealth management services by large. Robo advice is majorly used in investment banking,insurance and mortgage advice.

The algorithms run by the robo advisors usually take into account an individual’s investment and risk preferences along with their desired target return. An individual has the aoption of being able to chose between passive or active asset management. But the true innovation lies in the digital advice space as asset management has already been around for quite a long time now.

The main target market for these services have been young and new investors who have been accustomed to doing things online. An investor could skip going to a human financial advisor and could go through a robo advisor and gain access to many advisory services. This would save a lot of money and time.

Can we trust a Robo Advisor?

With Robo advisors turning into a rage by attracting young investors with their high accessibility and low fees, ultimately the question comes down to “Can I trust a robo advisor to make my investment?

As it is a considerable new technology, we have limited historical data to validate the effectiveness. It faces many challenges in the form of security breaches and SEC regulations. Also if we want to invest all our cash, we want to make sure that we get our ROI and the decision is working for us. Another huge obstacle to robo advisors would be how receptive it would be towards market downtrends. At the end of the day we ask ourselves if we could place our whole savings on an automated financial machine run by algorithms. Hence although it is replacing human advisors, they still have a long way to go.

Reference:

http://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp