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One theme that I have been seeing in weekly blog posts is discussion about the present and future of fintech and banking’s relationship and whether or not banks will produce their own fintech to compete, or if they would rather seek to work with fintech companies, seeing the importance of FIS integration. The article I chose this week discusses this exact issue, as UBS’s COO speaks about how he believes banking is beyond trying to compete with fintech and should instead incorporate fintech and work with financial information systems as much as possible, realizing that fintech is the future.
I think this joining makes a lot of sense, because in the post 2008 market crash era, many fintech companies came up and innovated the finance industry; however, these companies still do not have the capital to scale effectively, so integration and working directly with big banks could help fintech become more immersed throughout society. Still, on the side of the rise of roboadvisors that do wealth management digitally for people, UBS’s COO feels that humans still have an upper hand in the level of understanding that we have and its benefits in investment management. As a Finance major myself, I agree that a human touch from financial advising cannot be replaced by AI; however, I do concede that fintech can improve and streamline many other areas of FIS.

Link to article: http://www.businessinsider.com/ubs-dirk-klee-fintech-roboadvice-china-2017-2

R3 is an innovative distributed database technology company based in New York. It was founded in 2014 by David Rutter, and now provides financial system service to more than 75 of the world biggest financial institutions, including Bank of America, Wells Fargo, Citi Bank, HSBC, Morgan Stanley and etc. Its main duty is to design and deliver advanced distributed ledger technologies to the global financial markets.

Key features of R3’s strategy provided are so called “3 pillars”:

“Pillar 1: Financial Grade Ledger—the base layer reference architecture to underpin a global financial-grade ledger

Pillar 2: Lab and Research Center (“LRC”)—Deploy secure, multi-institution collaborative lab to test and benchmark blockchain technologies

Pillar 3: Product Development—Run use cases to identify and design ‘up the stack’ commercial applications”

The reason R3 is taking the lead in this renovation of financial system technology is that it aligns similar interests from different users, and pushes distributed ledger and blockchain technologies to solve real-world problems with payments, settlements, regulatory burdens, etc. But one thing R3 should really keep up with in this fierce rival of financial system technology upgrade: put their platform into production ASAP to build entry barriers for other competitors.

Source: http://www.r3cev.com/

Technologies and applications are constantly coming out that simplify and better consumers financial lives (the article names Venmo, Betterment, and Digit as a few examples). These new technologies allow people to make their money management more convenient, allowing for better and more informed investment, saving, and loans for consumers. With the increase of online banking, technology that enables easy data access, such as account balances or identity verification, to help make these decisions is vital.

However, some financial institutions are looking to cut off consumer access to this data when using third-party applications. Motivations range from security, competition, and control, but have countless effects on developing Fintech. While allowing data access undoubtedly has business repercussions, it also generates economic benefits that would otherwise never happen. I believe consumers need to be allowed access to their own data through trustworthy third party apps, as it allows much more personal control over their finances. Once people are more informed, they can make better financial decisions. Our economy and many people’s well beings would clearly benefit from being more financially informed consumers.

Source: http://www.forbes.com/sites/forbestechcouncil/2017/02/03/the-importance-of-data-access-for-fintech/#47b6d1771a69

NYCA Partners, a New York based venture capitalist firm, announced its closing of the latest venture capitalist fund (125 million dollars) aimed at backing financial technology startups. The company continues to seek out the latest Silicon-Valley startups to make a quick penny in such an aspiring industry. Following its initial $30 million backing in 2014, the firm has continued its growth while providing financial support for a number of companies, including a few public ones. The first wave of financial technology was focused on building brand name products and services, but now the hype is around partnering with local startups to find the newest technology.

I find this topic very interesting and relevant given how common startups are around the Silicon Valley. The upward trend in large investments is very fitting given how much such technologies and ideas can sell for. While, the article did not go into specific details about the companies they have backed in the past, I am interested to research the sort of returns that its investors have received. While, 125 million dollars may sound like a lot, I expect this number to keep rising at exponential rate in the next few years.

 

http://www.reuters.com/article/nyca-fundraising-idUSL1N1FH01U

Anthony Murgio operated an unlawful internet-based Bitcoin exchange which violated federal anti-money laundering laws and regulations. He and his co-conspirators engaged in substantial efforts to evade detection by operating through a phony front company called “Collectables Club.” Coin.mx, the internet-based bitcoin exchange, was able to open bank accounts through “Collectables Club” and trick financial institutions into believing that the exchanges were a “members-only” association that bought and sold various items. This scheme is just another example of how the changing technologies are opening society and companies up to increasing security issues. Money laundering and other banking regulations loopholes are becoming harder to track and can go on undetected for a very long time until someone gets too greedy or makes an error or even potentially throughout a person’s lifetime.

https://www.justice.gov/usao-sdny/pr/operator-unlawful-bitcoin-exchange-pleads-guilty-multimillion-dollar-money-laundering

Digital wallets are considered in most tech circles as the future of real-world payment technologies. With major players like Google,Apple,PayPal and others jumping on the bandwagon and developing their own mobile-first payment technologies, a shift in consumer payment technologies is on the horizon.

The problem is, adoption has been rather slow, and until retailers start embracing the technology to process the payments, no one will be able to leverage the benefits of e-wallets to the full extent. Future is beginning to look like one that will feature the digital wallets in some capacity.

Here’s what we know:

NFC isn’t the sole option

The first phone with NFC technology was released in 2006 (Nokia) and it was billed as a game changer for mobile devices. Since that time, we’ve seen rather slow adoption of the technology and some analysts think that it’s being overtaken by other technologies.

The problem with NFC, aside from only a handful of popular phones coming equipped with it, is the fact that retailers have to change their existing POS systems in order to accommodate the newer payment technology and retailers are worst with adoption.

Luckily, NFC isn’t the only technology in town. The “big three” (Google, Apple, PayPal) in the digital wallet space, as well as a host of newer companies are all exploring digital wallets that utilize technologies outside of NFC. Wi-Fi, Bluetooth, or even QR codes are all being explored as possible options to replace NFC.

The most exciting of these technologies, is the latest iteration of Bluetooth 4.0 which compared to NFC offers more efficient use of phone battery, longer range, and a higher bit-rate for data delivery.

Security

The process of processing a digital transaction through modern encryption technology is safer and far more efficient than using an ATM machine or swiping card at the local retailer. The biggest risk isn’t that of data interception by a third-party, but instead physical loss of the device containing mobile wallet. While “turning off” the device after reporting the cards stolen should remain relatively simple, we’re not at all aware of how security protocols exist in order to protect the consumer should a thief attempt to use the card. All of this is easily preventable with a strong password or using bio-metric security devices available on some current smartphones.

Another risk involved in digital wallet adoption is one that has yet to be answered; who accepts the burden of personal liability in the unlikely event of fraud? Most credit card companies currently shoulder this risk, but this fraud insurance doesn’t exist when the card is tied to a mobile wallet.

to be contd…

Reference: https://sites.google.com/a/utexas.edu/digitalwallets/secur

The rise of financial technology companies, has pushed the growth of other industries, which now see strong potential for change and innovation. For example, we can look at the real estate industry. Companies like Redfin and Realtyshares, allow to make the transactions more efficient, and less time consuming, often saving the users thousands of dollars. We can also look to the payments, industry and the rise of alternative digital wallets than Paypal. This includes Square, Dwolla, Skrill and others. These all offer different benefits, and have been used on a more worldwide scale than Paypal. The lending industry is also changing, as the often tedious task of getting a loan has been simplified and streamlined. They match borrowers with investors through a smooth easy process. They have figured out ways to pull from a pool of “investor cash” and by doing that they can lower margins and rates and make the data easily integrated and accessible through their platform. Essentially they are cutting big banks out of the equation, and can reduce costs greatly.  We can see that these changes often come as a benefit to the consumer and a detriment to the existing members of the industry. Fintech has the potential to do so much more to these industries, and will be affecting many more industries as time goes on.

http://www.nasdaq.com/article/industries-where-fintech-is-changing-the-game-cm740805

More and more airline passengers are using smartphone and other mobile devices to book airline tickets and other travel arrangement. Airline industry is getting more competitive . There are three factors(passengers, payment, profitability) that are very important to airline companies.

 

1. Passengers:

There is a significant large demand of passengers booking through mobile phones. Based on the source[1], 84 percent of travelers requires to access their travel information as they travel, even 60% needs internet even on vacation. About 20 percent of passengers book flights over mobile phones, and there is a potential of increase of the percentage. Over 70 percent of people plan a trip with mobile phones. Airline companies must provide payment methods over mobile devices to earn the revenue.

2. Payment:

The mobile payment industry is growing really fast and airlines should catch the revenues from mobile payment ecosystem and transfer from credit/debit card payment. Airlines shall work with mobile payment providers who are already in the market to be more cost effective.

3. Profitability:

Traditionally, airlines’ book depends on travel agencies, but airlines have to share its profit with those travel agencies. Now, airlines keep it profit through direct-channel sales and loyalty programs. However, in order to keep mobile users into their direct sale network, airlines shall also include mobile payment as their strategy planning.

 

https://www.mobilepaymentstoday.com/blogs/3-success-factors-behind-airlines-and-their-mobile-payments-strategies/

Small businesses are increasingly looking to remove the option of cash in favor debit and credit cards to secure transactions. Many small businesses face difficulties of theft and loss directly correlated to cash. The use of cash has been traditional due to its ease, but 2016 was the first year where credit cards surpassed cash transactions.

Services such as Square and Venmo are making it easier for small businesses to accept card payments and for friends to settle debts. These technologies are removing the need for cash as seen by total sum of card transactions. Other countries are also embracing cashless societies as ways to reduce black market activity and increase tax revenue. Consumers also face losses through ATM fees that reached out $8B last year.

It appears that a cashless system will continue to rise. Consumers realize the convenience factor of credit cards and there will be many tech companies who help with this transition who will make millions in fees.

Source: https://www.wsj.com/articles/why-your-business-should-ditch-cash-1485698400

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