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The COO of UBS’ Wealth Management sector said recently that banks are now focusing on working with FinTech companies instead of regarding them as competition. They need to find very smart ways to partner up and improve the existing business model of banks. Banks need FinTech to stay relevant in the fast-paced technological world we live in and FinTechs need banks to help them become more mainstream.

However, while FinTech companies are enjoying the benefit of working with banks, banks should be more careful when it comes to cyberattack. Some banks believe that greater regulatory oversight is needed within the sector. Last December, the Bank of England is reported to have recruited financial technology companies to help prevent cyberattacks targeting financial institutions after a survey found that cyber risks topped the list of financial service concerns.

From my point of view, as long as banks are proactive to prevent cyberattack, they will continue to enjoy the benefit of working with FinTech and vice versa. Moreover, regulation should be made as more and more collaboration will happen between banks and FinTech. Hot FinTech market, such as Australia, India and China with increasing funding flows to FinTech, should work on regulation to ensure a health market.

 

UBS Wealth Chief: ‘We Are Embracing FinTech’

China is a leader in financial technology, in part because of a high consumer adoption, including widespread and early use of online shopping and smartphones. It accounts for almost half of the global total of online payments and three quarters of global online lending (fintech China). WeChat, Alibaba, and Baidu all have their own digital wallets, and these ones represent more integrated forms than we see in most of the U.S. market. For example, Baidu is a search engine and WeChat is a messaging app. Integrating digital wallets into functions consumers used on smartphones gave a huge advantage and created one of many areas of fintech advancement in China.

My own internship experience in China has shown me firsthand how financial interactions are different. Online shopping is huge, and international interns would ask Chinese interns to order things on Taobao for them because we can’t get them in the U.S. However, shopping in person would be mostly in cash rather than with credit cards. In general, I noticed how integrated online transactions were into daily life. Adapting to the differences in financial transactions gave me a firsthand view of the consumer market. I believe that people around the world will have to pay attention to trends in China if they intend to move forward and be successful. In my opinion, China is and will continue to be the world leader in fintech.

Source: http://www.economist.com/news/finance-and-economics/21717393-advanced-technology-backward-banks-and-soaring-wealth-make-china-leader

Author Rohit Arora offers his alternative view on Chris Myers’ depiction of fintech as a bloom that “is finally coming off the rose”.  The first reason Arora thinks FinTech is going to be around for a long time is because traditional players are adopting the technology, and when big players adopt a new way of doing things, it shows long-term potential.

The second reason is that the realities of the marketplace encourage short-term thinking.  Myers cites fintech companies’ use of funds for quick growth over innovation as the reason for riskier and less desirable loans.  However, Arora states that this applies to all sectors.

Finally, Arora combats Myers’ statement that financial institutions are resistant to change with the fact that the marketplace is demanding it, and these instututions have no choice but to follow.  I agree with Myers, as competition necessitates keeping pace with the advances in technology.  The advent of mobile payment systems is just one example of revolutionary change in the marketplace, causing companies to divert their focus to eCommerce over brick-and-mortar stores.

https://www.forbes.com/sites/rohitarora/2017/02/22/3-reasons-fintech-is-thriving/#16d886e31017

With the fast changing industry of Fintech, new developments are predicted to alter the direction technology will have. According to “What’s Next for Fintech? 3 Predictions for 2017,” Fintech will take on a heavier role in the traditional banking industry.

The first prediction as mentioned in the article talks about the “changes in regulations.” With a new political leader, financial technology regulations have been an anticipated topic. Depending on how the new president alters regulations, financial technology may have more or less opportunity to expand and grow its influence on the market.

The second prediction is from “partnerships between fintech and traditional institutions.” This mainly focuses on how integrated fintech will be with the banking industry. If fintech chooses to partner with traditional bank, more regulations may be enacted and cause possible limitations to development.

The third prediction is “personalized advice from banks.” By developing a way for fintech to analyze each specific consumer, it can create the best fit action on optimizing investment. With this, fintech is able to integrate jobs from multiple sectors into one.

If all these predictions turn out to be true, fintech may be on a path to dominate the financial industry.

http://www.nasdaq.com/article/whats-next-for-fintech-3-predictions-for-2017-cm750508

Chinese banks are looking for blockchain experts to fight fraud. According to the article, the demand from Chinese banks for experiences in blockchain more than doubled last year and will grow further in this year. Since Fintech becomes increasingly significant in financial field, the demand for blockchain will even increase in the future and there is no sign of slowing.
I think it is a really good trend for Chinese banks. As I know, the way the banks store documents are still in paper, which is not transparent and safe enough. Therefore, if Chinese banks start to use blockchain, a ledger system that processes, stores and tracks digital information, from crypto-currencies to loan agreements, then all data and information can be stored into the single system. By doing so, the system can document all changes and would be harder to tamper with, which make transactions more transparent, audible, and secure. In addition, blockchain system can also help banks to avoid fraud cases such as fake trade finance deals. Although blockchain solution is very nice for banks, being able to integrate that back into the existing systems in a sensible way is still a challenge to banks. Blockchain is too complex for Chinese banks to apply to the system successfully.
http://venturebeat.com/2017/01/26/chinese-banks-are-using-blockchain-to-fight-fraud/

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

PCI Compliance – Part 2
https://squareup.com/guides/pci-compliance

As a Part 1 of my blog last week, I explored what PCI compliances were and how organizations play a role. Merchants are required to follow PCI-compliance regulations such as “establishing data security policies for your business and employees to removing card data from your processing system and payment terminals” (Square).

There are a couple of places that data can be stolen, as outlined by Square: compromised card readers, insecure payment system databases, recording entry of authentication data, and a secret tap into your store’s wireless or wired network. PCI compliances aim to provide guidelines so that a business’ payment processing life cycle is secure.

Square also follows the PCI standards including having an “integrated payment system [that] provides end-to-end encryption for every transaction at the point of swipe and tokenizes data once it reaches our services” (Square). Instead of directly communicating with a bank, Square provides the hardware, software, and relationship with banks so that small business owners can focus on other activities aside from payment compliance. This is ultimately their competitive advantage and why Square is so popular amongst up and coming businesses around the nation.

I have been wondering about the relevance of so many Financial Information Systems, if the world had a more ideal and unified system for money. Would we need such complex software if our coins and cash were simple in the first place? For example, in our daily FIS assignments, we wouldn’t be having the ‘Company code’ related problems during currency conversion if the world shared a common currency!

If ERP systems find it difficult to enable you to have a vendor in Croatia and a plant in Germany and customers in United States, wouldn’t it be far more complex in real life for actual industrial expansion to occur in the countries hosting their native currencies? So I feel that instead of designing solutions on top of complex systems, why not eradicate the root cause and design a permanent solution for an ideal world? Who knows, 10 years down the line the world might just adopt it (advent of the bitcoin is a hint!)

Although printed currency works well in goods exchange in an economy, there is no automatic linkage to guarantee there will be a corresponding increase in real goods to match the increase of the printed cash.Throughout history, majority of economic crises had a monetary cause and were not due to a breakdown of production of real goods. The actual collapse of societies on the other hand is related to the breakdown of the fundamental good creation system. So ideal concept of money should be reflecting the health of industrial systems, but currently it only obscures the real problems.

Ideal money should have stable value over a long time.Hence, gold or silver is not a good substitute. “A possible nonpolitical basis for a value standard that could be used for money would be a good industrial consumption price index(ICPI) statistic. This statistic could be calculated from the international price of commodities such as copper, silver, tungsten, and so forth that are used in industrial activities.” John Nash said in his lecture. I hope we can integrate ICPI to a bitcoin like crypto-currency standard, thus eliminating hard cash. Listing reasons why this would be the advent of the ideal world:

1. The money in an economy will reflect the actual health or it’s capacity to produce goods and services for it’s people.It will ensure a fair flow of prosperity across the world.
2. ‘It is a solution to the Triffin dilemma which is generally about the conflict of economic interests between the short-term domestic and long-term international objectives when a currency used in a country is also a world reserve currency in the meantime.’If we have a unified currency for the world that is decentralised like bitcoin and not governed/policed by few banks, it overcomes this dilemma.
3. No taxes, 3rd party transaction fees, crypto currency cannot be stolen or counterfeited. Clean transactions with no time-related distortions could start an era of free trade and industrial growth.

References:

https://en.wikipedia.org/wiki/Ideal_money

http://www.lietaer.com/2010/09/what-is-the-problem-with-our-current-money-system/

As there has been increasing interest and talk about the realm of fintech, this article broke down what fintech actually econpmasess as of late. The author mentions that fintech is no longer one bucket, but multiple buckets which include things like RegTech, WealthTech, and InsurTech among others. Additionally, fintech has a growing list of subcategories some of which include lending, analytics, cybersecurity, neobanking, payments and roboadvice. To add to this, there are also certain technologies like IoT and AI that are heavily involved within fintech. The author then goes on to create three major market streams which include creating a new financial structure, removing friction from financial markets, and reducing the costs and overcoming bank inefficiencies. In the evolution of fintech, it’s important to note that none of these streams are aimed at replacing banks; those are here to stay.

I found this article quite interesting as fintech is still an emerging field and with this, its definition has changed over time and will continue to do so as more players enter the field with their own new ideas. It will be interesting to see where fintech is in the next five to ten years and what it will exactly encompass compared to today.
https://thenextweb.com/finance/2017/02/21/fintech-is-not-just-fintech-anymore/#.tnw_ZDOUz4QE

Coming days after very scathing allegations about the corporate culture at Uber and the claims of numerous incidents of sexual harassment from a female ex-Uber engineer Square’s CFO speaks out about the “systemic problem” that exists in the tech industry. Square’s CFO Sarah Friar notes that there is a large problem with sexism in not just the tech industry, but also in other industries as well. She noted that at Square to counteract this issue there is a culture of inclusiveness that the company’s employees and its merchants who use their products are a part of. The lack of women in tech and the sexual harassment that happens has been a known issue for quite some time. Sexual harassment is not limited to the tech industry and I agree it is a systemic issue. My mother started her own construction company in the 1980s and faced sexual harassment even as a business owner from other companies’ workers when she first started. It is a problem that will change as more women enter certain fields, but will also require work from everybody to make sure that it does not occur.

Article link: http://www.cnbc.com/2017/02/22/square-cfo-sarah-friar-interview-sexism-in-tech-a-huge-problem.html