Author: swatifisblog

FinTech is a segment sitting right at the intersection of the financial services and technology sectors, and its goal is to innovate products and services that are traditionally offered by the financial services industry. FinTech is gaining significant momentum and causing massive disruption to the traditional value chain. Listed below are the emerging trends that will be most significant in the years to come in each area of the Financial Services industry. These key trends not only promise to enhance the customer experience and sophisticated data analytics, but also enhance cybersecurity.

1) Banks are adopting technologies that will improve the digital customer experience: Traditional banks are now shifting focus towards virtual channels by implementing technology solutions and are developing new methods to reach, engage and retain customers. With a goal to pursue a renewed digital customer experience, banks are engaging in FinTech to provide customer experiences on a par with large tech companies.

2) Money Transfer and Payment segments are prioritizing security and increased ease of payment platforms: The key driver of the evolving money transfer and payment platform is the adoption of smartphones. Consumers who prefer using cellphones to carry out transactions, expect immediacy, convenience and security to be integral to payments. Fintechs are working in conjunction with technology firms and traditional money transfer platforms to develop solutions that enable transfer of funds globally in real-time with enhanced security.

3) Use of Robo-advisors for asset and wealth management: There is a clear shift from technology-enabled human advice to human-supported technology-driven advice in the area of wealth and asset management. Financial institutions are focusing on increased sophistication of data analytics to better identify and quantify risk. The proliferation of data along with new ways to capture it and the declining cost of performing these operations, is reshaping the investment landscape.

4) Blockchain: This technology is rewriting the Financial Services rulebook. Blockchain is a new technology that combines a number of mathematical and cryptographic principles in order to maintain a database between multiple participants without the need for any third party validator or reconciliation. In simple terms, it is a secure and distributed ledger. Blockchain represents the next evolutionary jump in business process optimization, along with offering significant potential for multiple other use cases, for instance healthcare, smart contracts, IoT.

In conclusion, whether or not financial institutions adopt digital strategies, integrating FinTech is going to be essential and given the speed at which technology develops, incumbents cannot afford to ignore FinTech.

References: http://www.pwc.com/gx/en/advisory-services/FinTech/pwc-fintech-global-report.pdf

Since its inception, Fintech was assumed to be an application of emerging technologies in the financial domain. But today, it is one of the major disruptors in the financial services market and has completely transformed the way people manage money. The domains that have seen the most disruption are asset management, lending, money transfers and mobile payments. Fintech has seen a steady growth ever since the dot com boom, but it was not until 2008, that the industry experienced massive global investments.  It highlights that the financial sector is hit by a digital hurricane, disrupting and redefining the fundamentals of banking and finance.  

1.  Not only has the digital innovation in Fintech set up new business avenues such as crowdfunding, online money transfer and lending services, but it has also reduced the reliance on banks as the primary source of funds.
2. Crowdfunding is another interesting application of Fintech. Businesses can potentially raise money from people spread across the world. The underlying idea is that, an individual will share his cause and details of the objective over the web and anybody who relates to the cause can start donating.
3. In the past, starting a business meant borrowing funds from the bank, manually filling in the documentation, or opening an account if necessary, and waiting for disbursement. Likewise today, the same objective entails applying online, getting verified online, and getting paid online.
4. Instant money transfer is also one of the key application of the Fintech service sector. Individuals can make payments ranging from small amounts to huge sums in a fraction of minutes through channels such as Paypal. These channels function differently than the traditional banks, here the individuals who are willing to transfer the amount do not have to qualify with a minimum transaction value. Fintech has facilitated international money transfer as well, overriding the border constraints and international regulations.

Customers’ today are technology savvy and manage most of these service offerings through mobile applications, and it’s not far when a cashless economy with digital wallets will dominate. Although this just seems like the start of the Fintech revolution, it will be interesting to see what new technologies and opportunities will emerge in the future.
Reference: http://www.readitquik.com/articles/fintech/getting-fintech-righta-beginners-guide/

The financial services industry is entering a new phase in this era of digital evolution. This is evident in the sharper focus and organizational energy around the mobile channels we observe in all financial service sectors today. But in order to be successful in this era of digital revolution, the major areas that the financial services industry needs to focus on are as listed below:

1. Increase mobile adoption.
2. Leverage the current capabilities of mobile devices.
3. Proactively prepare for the future of mobile technologies.

Increase mobile adoption: The adoption of mobile technology is not uniform across the financial services sector. Banks simply interact more frequently with consumers, making mobile options more convenient and valuable, on the other hand majority of the consumers are not aware whether their insurance provider has a mobile app. In addition, they also place a much higher value on the ability to interact using mobile devices with their banks than with other financial providers. One of the reasons for the low adoption rate is that usually insurance providers deal with their customers only when they purchase/renew an insurance or file a claim. Alternatively, banks interact with their customers weekly or at least on a monthly basis, when customers pay bills, make deposits, or withdraw funds.

The current capabilities of mobile devices needs to be leveraged so that companies can fully capitalize on what the technology has to offer in terms of convenience and cost savings. The new generation smartphones are remarkable. They offer features such as high-quality cameras, finger scanners and fitness trackers. These innovative options present financial services companies with tremendous new opportunities.

Companies need to prepare for the future so that they can keep up with, and perhaps even get ahead of the curve on mobile services, taking advantage of the transformation in communications, sensing, and community building being facilitated by this ubiquitous technology. Given the pace of technology advancement in the mobile space, financial services leaders should be rethinking how mobile device technologies may develop and be ready to quickly adjust to the emergence of technological enhancements that are not currently envisioned.

References:

https://dupress.deloitte.com/dup-us-en/industry/banking-securities/mobile-financial-services.html?id=us:2el:3dc:dup693:eng:fsi

 

Although the insurance sector lags behind the banking industry, it has been positioned in a unique way to directly benefit from the blockchain technology. Blockchain can address the key issues faced by most incumbents, for instance poor customer engagement. Listed below are the most promising insurance-related use cases that have benefited from the blockchain technology.

1) Customer engagement: One of the most important hurdle in improving customer engagement through the blockchain technology lies in the area of personal data. The fear of losing one’s personal data as soon as it is handed over to a company is grave. Apparently the blockchain technology can play a huge role in improving customer engagement by offering transparency in claim handling.

2) Emerging Markets: P2P blockchains with smart contracts could be applied to micro-insurances in the emerging markets to offer them at low handling costs, if underwriting and claims handling can be automated.

3) Internet of Things (IoT): In this scenario of IoT, cars, electronic devices or home appliances can have their own insurance policies registered and administered by smart contracts in a blockchain network, automatically detecting damage first and then triggering the repair process, as well as claims and payments.

4) Reduced administrative cost: Blockchain will also help reduce the operations cost through automated verification of the policy holder’s identity, audit-able registration of claims and data from third parties and payouts for claims via a blockchain based payments infrastructure or smart contracts.

In conclusion, although Blockchain is a digitization technology that can be of strategic interest to insurers, the biggest challenge to its implementation is facilitating collaboration between market participants and technology leaders in shaping a regulatory environment.

Reference: http://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Blockchain%20in%20insurance%20opportunity%20or%20threat/Blockchain-in-insurance-opportunity-or-threat.ashx

 

Mobile payments in general are a very tricky business, due to the vast range of payment options and channels available to customers (think Google wallet, Apple pay etc.). And out of all the technologies implemented by these payment applications, NFC (near field communication) gets a notable mention. Apart from creating a fast and convenient payment experience, NFC also lets mobile devices provide a range of services from unlocking car doors to sharing photos with others in close proximity.

Demonstrated by the number of high profile data breaches that have plagued the nation within the last year, payment data security needs to be the key priority to boost consumer adoption. NFC unfortunately serves only as a functional technology, and needs the aid of an additional security layer to deem foolproof. To counteract this issue tokenization has emerged as a new defense against mobile payment fraud. Listed below are a few features offered by tokenization:

1. Flexible Security: Tokens are created for a simple fact that they cannot be used beyond its pre-defined purpose, thus are rendered useless to hackers trying to commit fraud by cloning the magstripe cards. Tokenization has also led to the rise of HCE (host card emulation), HCE is now being used alongside tokenization by banks to create their own payment apps without necessitating access to complex mobile storage and chips.
2. Instant Use: Digitizing the payment cards for mobile wallets is a time consuming process and often involves review and approval process by the bank, which could take anywhere from minutes to days. Usually e-commerce checkouts involve additional steps as compared to a simple user signup process in mobile payments. Having to do both in transactions that are paid using mobile wallets takes a toll on the consumers and eventually affects the adoption of this technology. Tokenization has made it easy so that customers can sign up and be ready to pay within seconds – making it convenient for users.
3. Minimal Pushback: Tokenization typically has no impact on physical NFC payment terminals as well as the processing side of payments. Retailers do not need to invest in new hardware or software and likewise issuers that implement tokenization have zero impact on their existing back-end technology.

In conclusion, it is important to keep in mind that although tokenization solves many security challenges, with the evolution of new fraud techniques securing payments is always going to be a moving target.

Reference: https://thenextweb.com/insider/2015/05/15/why-tokenization-is-the-key-to-mobile-payment-security/

This week in class we familiarized ourselves with the procurement process and the role of Financial Information Systems in automating the procure-to-pay process. Global universal banks have traditionally dominated Supply Chain Finance’s competitive landscape, but over the past few years, a multitude of fintechs have entered the market providing platforms and software-based services to support the Supply Chain Finance operations. These fintechs have revamped their value proposition by offering innovative business models, improved digital interfaces and rapid innovation in response to buyer and supplier feedback. So what exactly do fintechs bring to the table as opposed to traditional banks?

1. Focus on improving the operational capability through online tools to help suppliers onboard. Provide digital modules for training on how to use systems.
2. Ability to analyze spend-working capital status.
3. Ability to access the most credit capacity.
4. Attractive price offerings to suppliers.

The image below, shows the emergence of technologies that connect counter parties that have enabled the growth of the Supply Chain Finance landscape.

Fintechs are also looking beyond the pure Supply Chain Finance products and seeking to provide solutions for needs across the procure-to-pay cycle. The image below displays the various platforms provided by Fintechs in an ideal procurement process.

Having said that, it’s not all doom for the banks yet. They need to act fast to cope up with the challenges posed by Fintechs.

1. Banks need to identify gaps in their technology offerings and either develop innovative solutions or partner with fintechs to do so.
2. They also need to review their current portfolio and identify opportunities to improve performance by perfecting operational capabilities within their existing programs.

In conclusion, the Supply Chain Finance landscape is approaching towards an inflection point, and the winners will be the banks and fintechs that partner with each other to leverage funding and technological strength and continue to innovate with a deep understanding of the needs of both buyers and suppliers.

Reference: http://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Supply%20chain%20finance%20The%20emergence%20of%20a%20new%20competitive%20landscape/MoP22_Supply_chain_finance_Emergence_of_a_new_competitive_landscape_2015.ashx

Technology has swiftly evolved and disrupted the financial services industry (payments, banking, capital markets, insurance and wealth management). It has led to the rise of startups offering digital payment services that are disrupting the way old school banks offer services to customers. The increased adoption of AI, IoT and big data technologies has led to the development of enhanced techniques that help identify risks, create algorithm-based investment plans and platforms for users to optimize their banking portfolios. The rapidly evolving Fintech industry does present its fair share of threats and uncertainties. In my opinion the key security challenges to this industry are as listed below:

1. Data Security and Ownership: With the increase in the penetration of online banking services, enterprises are now able to accumulate huge volumes of customer related data. This data is available in digital formats, which makes it easier to analyze and generate insights but also makes the data more susceptible to security breaches. Also, the challenge of establishing the ownership of this data remains grave. Personal recommendation: Companies can overcome the potential threat of litigation by enforcing methods that securely dispose customer data once they have unsubscribed from the use of the said financial services.
2. Privacy: As organizations aim to provide an integrated omni channel experience to customers by extending a host of banking and payment services in a unified fashion, managing the digital identities of customers becomes challenging. Personal recommendation: While digital identities have become safer at one level, given the ubiquitous nature of their use in the evolving Fintech world, cloning of these identities can lead to greater risks. The use of mobiles as authentication devices and one time passwords can reduce the reliance on conventional authentication mechanisms such as passwords and PINs.

As increasing computing power becomes available to customers through smart devices, there is a greater need to revisit the conventional security models. The security architectures being deployed by organizations need to be modified and redesigned while taking into account these trends, as they have greater implications on the financial services sector. While security remains an integral part of Fintech solutions from the customers point of view, the liability for which lies with the service provider.

In conclusion, moving forward, security and data privacy are going to play a key role in winning consumer confidence and driving the adoption of Fintech.

Reference: https://www.pwc.in/assets/pdfs/consulting/cyber-security/banking/security-challenges-in-the-evolving-fintech-landscape.pdf

In November last year, India demonetized around 86% of the total value of the currency in circulation overnight by abolishing the largest denomination bank notes of Rs. 500 and Rs. 1000 bringing the country’s economy to a grinding halt. In a country that is heavily reliant on cash, this demonetization drive inflicted by the government has received varying levels of support from the society. While the common man remains the worst hit, having to deal with numerous hardships, the “FinTech” firms on the contrary have gained an unprecedented advantage. Indians who are otherwise averse to use any other means of transaction apart from cash are now forced to adopt a cashless economy by using digital payment options like e-wallets, online banking, debit and credit cards, etc.

In a country where there are fewer than 25 million credit cards for a population of over a billion, will the FinTech industry find a strong foothold? While I still have my doubts and believe it’s a far fetched dream to attract Indian consumers to adopt a cashless economy, numbers published in a recent article by Bloomberg (1) left me baffled. Amidst the demonetization shakeup with people being compelled to switch to a non-cash mode, Indian FinTech companies like Paytm have seen manifold growth in transactions and their customer base:

A 700% increase in their overall traffic, 1,000% growth in the amount of money added to the Paytm wallet, User base of around 150 million and over 5 million new users added since demonetization and around 7 million transactions worth Rs. 120 crores a day.

In India the “FinTech” software market is now forecasted to touch $2.4 billion by 2020 according to NASSCOM. While these numbers seem promising and India could end up being a rare bright spot for financial technology investors, I believe they still have a long bumpy road ahead of them. Listed below are a few roadblocks that I believe will continue to haunt the growth of FinTech in India:

1. One of the major hurdles in my opinion is the current digital infrastructure in India.The lack of smartphones and internet connectivity are the prime reasons preventing India from going cashless.
2. India is home to around 21% of the total unbanked population in the world where around millions still do not have access to formal banking services.
3. Shops in rural towns that account for the vast majority of the country do not have a point-of-sale terminal that accepts digital payments.

Thus, until the “Cash is king” mentality still remains prevalent in India, it will take years if not decades to part ways with paper bills posing a serious threat to the growth of FinTech in India.

Reference (1): https://www.bloomberg.com/news/articles/2016-11-23/cash-ban-the-best-thing-to-happen-to-indian-digital-payments