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Fintech, once a slow-growing sector, is now considered one of the fastest-growing sector in Silicon Valley and today’s tech industry. Financial technology is being labelled and defined as a company or start-up that uses technology and solves financial problems, which embodies many different aspects of finance and money.

Historically, there had been low correlation between finance and technology but in recent years, there has been more intertwining between finance and technology, especially with the growth of mobile application and online platforms. A larger and more mature segment of fintech is digital payments which is a $450 billion industry. Other fintech segments includes but not limited to personal finance and investment management, lending, data analysis, money transfer and currency, and crowdfunding. In 2015 alone, more than $22.3 billion were invested in fintech which was more than the prior 5 years combined. Analysts are predicting the fintech sector to be lucrative and rising.

 

Source:

http://www.nytimes.com/interactive/2016/04/07/business/dealbook/The-Fintech-Power-Grab.html?_r=0

http://www.nasdaq.com/article/4-reasons-the-fintech-potential-remains-untapped-for-2017-cm729084

 

The implementation of California’s new Financial Information System, FI$CAL, is experiencing major delays that have pushed back the projected final stage of launch over a year and has already gone $237 million dollars over budget. While originally budgeted at $616 million, the Oracle ERP system is projected to save the state up to $415 million per year. Although state auditor Elaine Howle has been critical in the management of the project, there is no denying that the implementation must be done properly for effective use. The system will be the integral financial tool used throughout the state and therefore state employees working in the system will also need to be well trained in the use of the system. Though I am not denying the right of Howle to question Accenture’s timeline and timeliness, the annual savings of the new system must be kept in mind through the process. Moving forward, it is clear that transparency and the cohesion of contractors and state employees must be improved upon.

Calif. Accounting Software Overhaul Blasted

http://www.sacbee.com/news/politics-government/the-state-worker/article124839264.html

An organization trying to incorporate better financial information systems into their daily operations, need to understand the importance of Transaction Control and its roots lie in the very basic way of making a business transaction. Much of the failure despite huge investment in a financial information system is due to bad tracking of the cash flow in and out of the company. Sure, prior to online internet based transactions, exchange of cash against resources was the only legitimate way a transaction and was considered complete but with companies scaling their operations to reach across borders (both locally and internationally) and also in size, it is important to understand that tracking of cash flow is anything but easy.

By switching to cashless transactions, the cash flow can be monitored in a structured manner and the workflow can be set to adhere to various compliance requirements and approvals before a transaction can actually be considered complete. 

Switching to a cashless environment involves great efforts but is sure to complement the objective of having a Systematic, Secure, Integrated, Digital, Automated and Standardized Financial Information System.
Link – https://jfin-swufe.springeropen.com/articles/10.1186/s40854-016-0023-z

Automated Financial Service through Artificial Intelligence.

As pointed out by Horton, head of innovation at Synechron, “many banks have identified onboarding and know-your-customer process as the priority area.” Data analysis through machine learning algorithms will help financial institutes predict their customers’ needs and expectations and therefore deliver financial advice that meets customers’ requirements. As a consequence,  AI advising robots may replace a number of human financial advisors. However, Biz Tech predicts that more mature and astute investors may still prefer human advisors for their strategies.

More Block Chain Adoption and Integration

“Blockchain is a digitized and automated technology that is considered tamper-proof.” Because of the security, Blockchain is expected to be adopted by more and more financial institutes in 2017. McKinsey & Co  predicts that more than 100 blockchain solutions will be explored in 2017.

Blockchain integration will be another trend in 2017. Carlo R.W. De Meijer, an independent economist, claims that “Existing systems within financial institutions need to adapt to the blockchain element. It must fit in with other banking systems.” He further suggests that blockchain integration should not only be confined within a financial organization, but also be integrated into other organizations’ systems through the financial systems that include blockchain technology.

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

Fintech becomes an increasingly significant trend in business that even banks are reaching out for technology solutions from Fintech vendors.
According to the article, with the life simplified by technology, customers have expectations for seamless, intuitive and easy processes when handling bills, managing accounts, or engaging in financial activities. Take Canadian bank for instance, it combines its traditional business systems with technology solutions from Fintech vendors for better customer experiences, while protecting bank’s data assets, managing system and mitigating risk stably and securely at the same time.
I believe working with a mature Fintech vendor is a wise decision for banks, when compare to developing Fintech system by themselves. By doing that, banks can provide customers with service in shorter time and save the budget and labor for other important uses. However, banks bear risk, too. Before cooperation, banks need to spend heavy research on choosing the right partner vendor in order to have consistent and secure system. Banks should be concerned about the amount of information provided to the vendor to avoid unnecessary leak of information. In addition, frequent communications are highly recommended between banks and vendors.

link to the article: http://www.digitalistmag.com/customer-experience/2017/01/10/improving-customer-experience-look-to-fintech-04826561

The evolution and revamping of the banking industry has been growing rapidly with fintech, as venture capital in this sector was up to $12 billion from $4 billion the year before for the years 2014 and 2013, respectively. The reason for this high growth seems to be due to fintech’s ability offer similar services as traditional banks while relying on a peer-to-peer platform grounded on specialized software. Lower costs and easier access, allow users to get loans, send cash overseas, and manage their wealth. In addition, a changing landscape with the relevance of new technologies such as smartphones and cheap data processing are allowing fintech companies to have a median to access such a large market and subsequently, disrupt it. The millennial generation will also force traditional banks to change their business model, as they are accustomed to web-based technology and are trusting of the new financial innovations. The three equal parts to which banks make money through interest (both borrowing and saving), charging for making payments, and a collection of fees (overdrafts, brokering investments, etc.) are all challenged by fintech companies. Even though fintech’s top companies handle billions in trade where traditional banks handle trillions, fintech has a lot of room to grow. There was a point where banks used to view fintech companies as unable to penetrate they market, but now there is cause for concern with their business model being threatened.

Link to article:
http://www.economist.com/news/special-report/21650290-financial-technology-will-make-banks-more-vulnerable-and-less-profitable-it

Finance is said to be, “ultimately the business of collecting, storing, processing, and trading in information, unbounded by geography.” Periods of exponential growth in finance are commonly due to advances in the use of technology within the sector. With increasing reliance on financial technology in today’s world, the International Monetary Fund published an article highlighting the broad impact, financial inclusion, and technological risk associated with advances in financial technology.

Financial technology is moving forward in ways that effect both consumers and firms. One of the most notable outcomes from the intersection of technology and finance is the increased quantity of people around the world who have access to financial services. The increased ability for companies to process transactions and the increased ability for consumers to use financial services is helping increase economic efficiency. While this is a positive effect, the increased use of technology that manages valuable private information comes with increased security risks. Increased dependence on financial information needs to come with increased emphasis placed on information security. Breaches in security will be disastrous for users and economic prosperity. Financial technology advancements will be most impactful if the need to mitigate information security risk remains a top priority.

http://www.imf.org/external/pubs/ft/fandd/2016/09/narain.htm

This article is about how WorldCom’s failure happened. According to the article, “more than $9 billion in false or unsupported accounting entries were made in WorldCom’s financial systems in order to achieve desired reported financial results”. As an example of corporate malfeasance, the fraud was deliberately executed by CEO and Board of Directors due to their unrealistic business goals and personal interests. As the article mentioned, one of the measures could have saved WorldCom from bankruptcy was “formalized and well-documented policies and procedures, including a clear and effective channel through which employees can raise concerns or report acts of misconduct.” I totally agree because if every accounting entry had been required by law to made in the company’s financial systems with adequate, transparent and sufficient supporting documents, the fraud couldn’t have had horribly accelerated and could have been stopped. This case also made me wonder how the company’s auditors who were both internal and external did their jobs. Were they not skillful enough to suspect unreasonable accounting entries; or were the financial systems not designed in a systematic and secure way for them to fully inspect; or did they uncover the issue but for some reasons they could not raise the truth? Here comes the significant importance of well-designed & managed financial information systems and business ethics.

Source: http://www.ecommercetimes.com/story/45542.html

With the inauguration of Donald Trump imminent, law changes specifically in financial technology will surely be seen. Big players in this industry are “lenders such as Lenders Club, bitcoin and blockchain technology, also known as distributed ledger technology (DLT), money management applications such as Mint, money transmitters such as Venmo, and digital wallets,” as stated in a recent article.

Luckily for these companies, Trump’s campaign is pro for reducing regulation in the industry and similarly Congress, who is now a majority Republican is regularly against raising regulation in financial services. Furthermore, the Consumer Financial Protection Bureau (CFPB) is taking steps to be proactive with financial technology companies in that they will “review their products and services, as well as their compliance program,” while these companies are first forming so that they can set and understand compliance standards early on. I think is proactive approach to regulation is smart and government agencies should actively work with financial technology companies.

Finally, Congress is currently working on creating a Financial Services Innovation Office (FSIO) through a new act that would deal with all regulatory standards needed in the industry as it is a rapidly growing one and is likely here to stay.

Source:

Financial technology rules are set to change in the Trump era

The IRS believes that some US citizens who utilize Bitcoin may be evading taxes. Bitcoin transactions are recorded publicly, but there is no identifying information connected to these transactions making it difficult for the IRS to bring a case against anonymous Bitcoin users. The Treasury Department put the IRS under pressure for its lack of involvement which lead to the IRS investigating Bitcoin records for 2013-2015. The IRS found three potential tax evasion cases leading to a court petition for Bitcoin to provide information on its users.

Bitcoin is facing similar issues that previously established banks have faced in regards to tax evasion. Since services like Bitcoin are out of the scope of traditional regulations set for banks, the government is seeking for regulatory insight into the companies and the people who use such services. This is due to the importance of the government and financial institutions needing to know who exactly is moving money and where.

Such regulations can change the scope and evolution of such fintech companies as well as affect customers’ behaviors when utilizing these services. We may see that with the increased regulations, such institutions become more traditional in structure in order to meet government demands.   

https://www.nytimes.com/2016/12/05/business/dealbook/as-fintech-comes-of-age-government-seeks-an-oversight-role.html