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

While online sales channels have grown dramatically over the last few years, the retail market keeps developing more and more shopping options to bring benefits for both customers and merchants. For example, “Buy online – pickup in store” is an online-offline integration that reflects the change of customer shopping behaviors and the development of mobile payment. The new frontier, mobile payment, offers customer a convenient way to pay at retail terminal and online via smartphones and its market expected to approach $800 Billion in 2017.

Nowadays, several mobile payment technologies have been introduced to the customer and widely adopted on the market, such as Android Pay, Apple Pay, and Samsung Pay. With a mobile wallet, customer do not need to carry a couple of cards and cash, and can go shopping without making a long stopover in the checkout line. However, it also creates new security vulnerabilities and risk that mobile payment developer need to solve. The solution depends on not only software end but also hardware end, as an integration of encrypted chip design, encryption algorithms, and multi-factor authentication methods. Adding different biometric technologies can increase efficiency and security in user verification, payment process, and data transfer.

Source:

http://247wallst.com/technology-3/2016/12/27/global-mobile-payment-market-expected-to-approach-800-billion-in-2017/

Smartphones are more ubiquitous than ever, and the number of mobile payment options available to consumers is increasing. Bloomberg Technology noted, “by 2019, eMarketer estimates that the total value of transactions made by tapping a phone on an in-store terminal will reach $210 billion, up from $8.7 billion in 2015.”

 

There are four types of businesses making major moves in mobile P2P payments: social messaging companies, banks, card networks, and other payment companies. Each of these types of companies has its own objectives and strengths in offering mobile P2P payment services.

Major banking institutions, such as JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and U.S. Bancorp, have a created a joint venture called clearXchange that allows customers to transfer funds instantly to another bank account through their phones.

Social media and messaging apps have also joined. Customers can pay using social media apps Facebook Messenger and use WhatsApp has a commerce channel.

With companies like Venmo processing more than $1 billion in one month in mobile P2P payments, and the thousands of other companies like Square processing billions more on mobile devices, the fintech industry and mobile payments industry is ripe to becoming one of the next valuable sectors in tech.

References:

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

http://www.businessinsider.com/facebook-messenger-promotes-p2p-payments-2016-9

The evolution of the mobile payment

With loads of sensitive information at stake, financial institutions are a large target for those looking to commit financial and identity fraud crimes. However, there is a rising tool that these institutions may soon be able to employ to help catch fraudsters in the act: Artificial Intelligence. AI has long been considered useful for a wide array of unique application, however, the concept of using artificial intelligence to detect criminal patterns is new in thought.

One of the new tools being rolled out by the payment company, MasterCard, is called Decision Intelligence. This tool allows payment companies to analyze transactions on a real-time basis, allowing companies to combat fraud on the front lines. A core aspect of artificial intelligence in the concept of pattern recognition, something that the payment companies and financial institutions are looking to take advantage of in order to autonomously flag transactions that seem suspicious. This tool will also reduce the number of “false events” which are triggered when an authentic transaction is flagged as suspicious and the customer’s card is declined.

As more and more banks and financial institutions begin to invest in autonomous and artificial intelligence driven fraud detection systems there will be in immense change in how society finds and catches criminals and may even raise the debate for preemptive actions.

Technology continues to affect and change many industries including the financial sector. New fintech firms are putting pressure on many of the current titans of the financial service industry to evolve. Wall Street is being pressed to change as individuals have greater access through technology to alternate products that are usually seen as cheaper, more intuitive to use, and at times can give better returns. Mobile applications, portfolios that automatically re-balance, increased transparency, and new ways to track success are all new developments that are making banks and financial institutions lives a little more difficult. Fintech companies are at times able to create services and products that are better for customers with far less capital or employees.

Overall, I think the rise of money management fintech can allow people greater access to information, resources, and services that would not have been available decades ago. These fintech firms can even the playing field and hopefully allow people to save and invest money with greater ease. I also think that many investment firms, mutual funds, and other professionally managed firms will see a decrease in business in the coming years as there will be other cheaper ways to diverse one’s holdings.

https://www.bloomberg.com/view/articles/2016-06-08/fintech-is-ending-money-management-as-we-know-it

Analysts from Citigroup released a report titled “Digital Disruption” which highlights the growing pressures on employment in the financial and banking industry caused by growing Fintech startups. The report offered data that suggests employment at American banks would drop to 1.8 million by 2025 compared with 2015’s American banking employment total of 2.6 million people. The percentage of people working for European banks who are predicted to lose their jobs is even higher. In addition to new regulations and market volatility, Fintech startups are blamed for this because of their aim to innovate many different parts of the financial industry.

The concern over a large reduction in the number of people employed by banks is valid but I believe the severity is not as high as what is being presented. The general purpose of Fintech’s is to create more efficiency, inclusion, and easy to use financial services and tools for consumers and businesses. Increases of employment in Fintech roles and an overall increase in economic efficiency and output caused by Fintech innovation will help offset jobs that may be lost in the banking industry.

 

https://www.nytimes.com/2016/03/31/business/dealbook/fintech-start-up-boom-said-to-threaten-bank-jobs.html?_r=

Investopedia forecasts that Fintect will disrupt the mortgage market, given that Fintech has already entered payments, banking and financial advisory markets. The article shows that non-bank mortgage lenders have taken a much larger market share in mortgage market since the subprime crisis in 2008, which provides the potential for fintech to grow in this market. It also identifies that “62% of respondents under 35 who bought a home this year stated that they’d use a mobile app to complete a mortgage application, if available from their lender. And 20% of buyers of all ages weren’t happy with their lender, providing further support that there is demand for a new type of mortgage service.”  In my opinion, the article has a point, but the disruption from Fintech on the mortgage market would be limited in the near future due to regulatory issues.

I agree with the article that because of the benefits of Fintech in mortgage market, such as lowered fees and reduced processing time,  the demand for more automated mortgage process is growing. Therefore, loan application and approval process would become paperless and more automated. However, one of the biggest challenges facing fintech in mortgage market is regulation. The single fact that online lenders are not considered banks and therefore need to “comply with the standards of 50 individual state overseers rather those of a single centralized (federal) regulator” inevitably makes development of fintech technology more challenging for companies who would like to deliver mortgage service across the country.

Source: 1.http://www.investopedia.com/articles/personal-finance/011917/how-fintech-can-disrupt-14t-mortgage-market.asp

2. https://www.bloomberg.com/gadfly/articles/2017-01-19/newfangled-fintech-meets-oldfangled-financial-regulators

 

The sudden blossom of “blockchain” technology is becoming the new talk in the business world due to its revolutionary technology that make all aspects of a business more efficient. With its abilities, blockchain will make tasks such as payment verification and the implementation of “smart contracts” that automatically enforce policies and procedure, more simple and enforces all legal activity amongst an organization. Many companies have adopted this technology, such as Microsoft, who has launched their “blockchain as a service” amenity to actively and accurately record any amounts of company transactions digitally in blocks of data. While blockchain is revolutionary, a lot of debate has begun about the enforcement level of its technology. For example, Toyota Financial Services has toyed with the notion of a smart contract for their customers and their cars. If payment for a car isn’t received, the smart contract would notice and legally transfer ownership back to the company and shutting off the car for the driver. Many people view this as a transfer of power from human to machines and eliminate the need for human hierarchy with its easy accessibility across all users. It unites different ideologies of how soon blockchain will be commonly used amongst most businesses. With the force that blockchain technology has and the impact it’s ready to make on our society, we must find way to control the technology before it controls us. A more automated approach also eliminates the need for some jobs such as accountants, lawyers and bankers if their roles can be done on a computer. We must utilize its skills meticulously and not heavily rely on its purpose to operate a business in order to reap its true value for our business cases and situations.

Link: https://www.bloomberg.com/news/articles/2016-08-25/this-is-your-company-on-blockchain

When we refer to ‘Open Source’, we usually stereotype it as something related to software (say Android or Python based application) especially when the context relates to a Financial Information Systems. However, Mozilla (the company behind the Firefox web browser) has managed to break this stereotype by making a low end smartphone that could prove to be a promising instrument in the world of finance based systems. Similarly, Allevo (a Romanian company) has put in a core banking transaction processing software in the market while UK’s OpenGamma is providing a risk analytics platform (a hot topic in a banking/ finance institution). But what does it take to make such a technology work ? There are a few must-haves for a financial system that aims to leverage open source technology –

• Accessibility
• Outreach for the Customer (using a Know Your Customer [KYC] system)
• Flexibility
• Open (should be based on Open APIs for new service providers)
• Complementary (Ability to combine services as needed)

But building an ecosystem adhering to the above stated requirements and expanding it across borders will take some effort even more so because the core requirement for this technology is a system that is – Open, Safe and Reliable.

Full Article – http://bankinnovation.net/2014/04/four-technologies-that-will-revolutionize-financial-services/