Category: Uncategorized

 

In continuation to my last week’s blog Fraud Management via Analytics, here are few more fraud identification strategies that are based on analytics:

Duplicate transactions: The identification of possible duplicate transactions would be a possible symptom of fraud that should always be examined. Ordinarily, one would expect that invoice number vendor number combinations, would be unique. Therefore, the existence of transactions with the same invoice number vendor number combinations would be an unexpected pattern in the data.

Text and Graph analysis: Sometimes ‘flat’ data does not tell the whole story. Adding spatial operations enhances analytics with an additional dimension based on patterns, relationships, and inferences. Any visualization tool can bring to surface some glaring unusual behavior in business. There may be correlations that are only visible in graphs/visuals, which could be easily identified using statistical techniques like cluster analysis and spatial recognition.

Similarly, text examination could be another built-in secret security framework, if done at random intervals and coverage, which could analyze unstructured data for sentiments and relationships. Statistical packages like Python or XL-Miner, can be used to effortlessly start a self-analysis journey. It can positively impact detection, recommendations and resolutions.

Even/Rounded amounts: Another digital analysis technique is to identify even value amounts, numbers that have been rounded up. The existence/re-occurrence of even amounts in some accounts may be a symptom of possible fraud and should ideally be probed further. Frequent rounding of travel expenses can be detected via this technique.

However, fraud symptoms are only symptoms and care should be taken to properly investigate each aspect before jumping to any concrete conclusion. The actual analysis relies on the critical thinking skills of the fraud examiners’ ability to integrate the output into a cohesive actionable analysis product.

The use of physical security tokens during two-factor authentication has been a fairly common practice in corporate America. It creates a more secure system. An annoyance of this process has been the need to carry the physical token. There are many form-factors, but resemble key fobs. If you forgot or lost the token, you would need to contact the IT administrator to login to your computer.  Imagine if you are about to present at a meeting, but unable to login. Awkward…

Citi Bank is now rolling out a soft-token system for their clients. Instead of a key fob, users can download a Citi Bank app to generate login credentials. This has many advantages. One is less likely to lose an essential item like a mobile device than a keychain. Most people have their phones with them constantly, so users have the power to login to their financial systems whenever they want. They will not have to wait to receive a physical token, which can take days if you work in a geographically dispersed company. Finally, less paperwork! The process of getting physical tokens at a company takes signatures. Soft tokens have great advantages that Citi Bank’s clients will benefit from.

Link: https://www.finextra.com/newsarticle/30048/citi-ditches-physical-tokens-for-app-based-login-to-corporate-platforms

The upcoming Practice Exercise for procurement was quite difficult for me. Besides not knowing how to use SAP at all, the instructions listed in the assignment were not that clear and took a bit of time to figure out what it was asking me to do exactly and how to do it. One of the websites that helped me get through one of the parts in the assignment was tutorialspoint. Below is a link to their Purchase and Requisition section.

https://www.tutorialspoint.com/sap_mm/sap_mm_purchase_requisition.htm

It has a great section on how to create purchase requisitions and purchase orders from purchase requisitions. One of the best parts is that the instructions include clear screenshots of the of each step. One of the issues that I had was that I could not figure out what my purchase order and document number were. From these screenshots I was able to get an idea of where this information was located. The only thing that I wish tutorialspoint did better was to have more comprehensive tutorials. It was quite difficult to figure out the next few parts in the assignment and I could not find the tutorials for them on tutorialspoint.

Source: https://www.tutorialspoint.com/sap_mm/sap_mm_purchase_requisition.htm

Many articles posted recently have noted the promising technological advances that aim to improve fraud detection in banking. However, some of these technologies may have launched too quickly, some should have still been in beta testing. Lansing, Michigan discovered that the automated system used to detect fraudulent unemployment claims has been wrongly accusing citizens. The system accused roughly 40,000 citizens between the years of 2013-2015 of which the state now must sort through individually. Though the system was originally thought to be an efficient solution to fraudulent claims, these faults will come at a great cost to the state. While this isn’t a very common occurrence across FIS systems, I think it is important to consider the rapid growth of the industry and look at some of the systems with a flicker of speculation. Testing of these systems must be robust in order for them to be confidently implemented and successfully executed. Though the testing can be expensive and timely, it could save major disasters such as this one from occurring and it’s far less expensive and timely than the consequences that come from a mistake in the system as large as this one.

http://www.beloitdailynews.com/article/20170128/AP/301289924

Hyperledger Project:

The Hyperledger project is an open source collaborative effort created to advance cross-industry blockchain technologies. It is a global collaboration including leaders in finance, banking, Internet of Things, supply chains, manufacturing and Technology. The Linux Foundation hosts Hyperledger as a Collaborative Project under the foundation.

 

Projects under Hyperledger Project

Blockchain Explorer

Blockchain-explorer is a project in Incubation that was proposed by Christopher Ferris (IBM), Dan Middleton (Intel) and Pardha Vishnumolakala (DTCC) to create a user friendly web application for Hyperledger to view/query blocks, transactions and associated data, network information (name, status, list of nodes), chain codes/transaction families (view/invoke/deploy/query) and any other relevant information stored in the ledger.

Fabric

Hyperledger fabric is a project in Incubation that was proposed by Tamas Blummer (DAH) and Christopher Ferris (IBM) as a result of the first hackathon during which a merge between IBM’s proposal and DAH’s proposal was started (see Proposal).

fabric is an implementation of blockchain technology that is intended as a foundation for developing blockchain applications or solutions. It offers a modular architecture allowing components, such as consensus and membership services, to be plug-and-play. It leverages container technology to host smart contracts called “chain code” that comprise the application logic of the system.

 

Ref: 1) https://www.hyperledger.org/

2) http://www.r3cev.com/about/

 

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

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

Ever since FinTech has extended to the consumer market through alternative loans, personal finance apps, and other technologies, consumers struggle with what they are willing to integrate into their lives and what might be left at the expert level. Marketers of these technologies are also confused how to target consumers because users’ attitudes often contradict their behaviors.

Salesforce says retail financial institutions should develop customer-centric business models and simplify the user experience so it is appealing to consumers of all ages and familiarity with technology. The rest of the article on The Financial Brand goes on to cite business reasons and statistics regarding the FinTech usage differences between generations. Only at the end of the article is the issue of security of personal data addressed. Among Millennials, I argue that this is the primary reason why people who are skilled at using recent technology still do not have personal banking or finance apps like Venmo on their smartphones. Since security of digital tech is still insecure at times, it may only be when FinTech has shown to be sufficiently secure in the long run may more Millennials (and members of other generations) adopt more personal FinTech options.

Sources: https://thefinancialbrand.com/63386/banking-channels-switching-fintech-strategies/

https://consumercomplianceoutlook.org/2016/third-issue/fintech-for-the-consumer-market-an-overview/

There are a number of advances in certain technologies that can be implemented within fintech to change the financial services industry. Artificial intelligence, being one of them, can be applied to financial institutions to help automate certain tasks. Once this technology is fully optimized for the business, it will be very beneficial in terms of the efficiency of the business operations. However, there is the downside with the jobs that it has the potential to offset. AI can also be used in financial advising for areas like investing and wealth management. Machine learning will be able to use algorithms and find patterns that can assist financial advisers to make decisions. There is a lot of data in the markets, and AI will be able to sort through it and analyze it more efficiently than humans. I feel that AI should only go as far as providing information to humans, who are ultimately the ones who make the decision.
Another piece of technology that will obviously continue develop and grow is mobile payments. One of the more recent advances is host card emulation, where payment information is stored and transmitted through the cloud. With these new types of payments, biometrics will eventually be used to identify who is making the transaction. Biometrics that can be used are fingerprints, facial recognition, and iris scanning.

Article: http://www.biztechmagazine.com/article/2017/01/what-s-ahead-fintech-2017

Jude Scott, chief executive of Cayman Finance, believes fintech could revolutionize compliance in financial services and has the potential to streamline processes for firms and regulators. Scott promotes the use of a common ledger—blockchain—as the standard place for verifying customers’ credentials.

Recent money laundering scandals, however, have brought up potential regulatory issues with fintech: Blockchain has become associated with criminal activity due to its use of virtual currencies, and P2P lending can be done anonymously, without following global standards or certification, which would be difficult to trace for regulators.

Scott’s idea includes financial institutions following a global standard set in the common ledger, and customers who are transacting would be “certified and approved” following the standard. Regulators would have access to the ledger and transactions’ metadata, which makes compliance more efficient. Compliance officers would be relieved the burden of screening transactions for risky customers.

While I like Scott’s vision, it would be difficult to implement on a global standard. Current regulations need to be modernized to match the speed of today’s fintech, and regulations need to embrace, rather than fear fintech. Regulations take a long time to pass, and when they do, they might no longer be applicable.

Reference: http://blogs.wsj.com/riskandcompliance/2017/01/26/how-fintech-could-cause-a-revolution-in-compliance/