Financial Information Systems

The New York Department of Financial Institutions set into practice new cybersecurity regulations centered around protecting consumers and the financial services industry on a larger scale. The purpose of the regulation is to proactively mitigate risk associated with the growth of the Fintech industry partially by pushing covered entities to keep up with technological changes and advancements. The regulation changes call for higher quality assurance and governance, risk based minimum standards for technology, systems testing, adverse event response planning, and higher levels of accountability and transparency with regulators. The regulation took effect on March 1st, 2017 and generally requires all covered entities to comply within 180 days. Some provisions will be allowed different compliance periods depending on the degree of change required. Chief Information Officers will be required to more frequently and transparently share risk assessments of their information systems based on the Department of Financial Institutions’ standards.

The nature of changes and practices suggested by the new law is a positive sign towards much needed regulation in the financial services and financial technology industry. These changes are structurally very important for the future well being of major industries and consumer information security.

http://www.mondaq.com/unitedstates/x/573552/Financial+Services/New+York+Department+Of+Financial+Services+Promulgates+FirstInTheNation+State+Cybersecurity+Regulation

With the recent slowdown in Fintech and venture allocations to Fintech startups the question that is beginning to be asked is “why?”. Aside from systemic factors such as the rapidly changing regulatory environment, the general business model of Fintech firms is starting to come into question.

In a recent article titled, “The trouble with fintech and why now is the time for dlt“, the author probes some of the issues with the Fintech business model and why it isn’t growing at a similar pace to pure technology companies. The answer lies in the nature of the products that the industry offers in the first place. Fintech companies often offer financial products that by nature take a long time to reap a profitable return. In a startup environment, this is a cause for concern as the companies typically have a limited amount of funds to sustain operations before being forced to seek additional capital. Additionally, financial products harvest large returns at scale rather than in smaller niche markets. Venture capitalists have begun to realize this, which has caused the funding pipeline to substantially shrink.

Still Hope Yet?

Although there has been a noticeable slowdown in capital, an area that is still growing within the Fintech community is the concept behind one of its biggest successes, Bitcoin. This technology is called Distributed Ledger Technology or DLT and essentially works by distributing a constantly changing ledger to all parties within a network. This dramatically reduces fraud risk by ensuring there are multiple correct ledgers that are automatically updated with each transaction. One can think of this concept as similar to the distributed computing trend of the cloud.

Looking to the future, we will likely see a disruption to the traditional providers of such services such as Swift and ACH as more and more companies switch over the the automated DLT technology. However, the fear of data integrity and sharing is still on the minds of many companies which may create a slower pace of change than originally anticipated.

 

Source: http://www.coindesk.com/the-trouble-with-fintech-and-why-now-is-the-time-for-dlt/

Robo advisors these days are receiving a lot of institutional and retail interest than any other technology in fin-tech. The personal investment and financial portfolio planning is a need for a large segment of consumers. It also helps in managing large amounts of capital with reduced cost by replacing humans with software. The innovation in this field of investment technology of course is crowded with many startups coming up with new solutions and corporates trying to serve the shifting landscape. Inspite of the competition, there is immense potential down the road, as robo advising is going to become mainstream especially in this data driven world. This is the right time to enter the market. In this blog post lets discuss the challenges faced by robo advisors.

A major challenge faced by robo advising industry is scaling up to keep up with rapid growth. As we move ahead, trying to improve the technology to keep up with the increasing needs of the customers would become highly challenging.The assessment of the client behaviour will become challenging. Also funding along this period is very crucial. The second major challenge would be trying to compete with companies like Wells fargo, Charles Schwab which are venturing into digital advising. Companies like Charles Schwab which offer personal advising for no charge.They gain revenues from underlying assets in Schwab intelligent portfolios which in-turn gain revenues from Schwab ETF’s. They have the advantage of established customer base and power to control the market. They can offer the same services at a much lower price. At this stage it would be a good idea to tweak the business model to B2B. We can sell the existing algorithm to the corporates and make them our customers. This would be a good exit strategy for many startups in this field.

References:

https://www.bloomberg.com/news/articles/2015-06-18/robo-advisers-to-run-2-trillion-by-2020-ifthis-model-is-right

https://www.forbes.com/sites/falgunidesai/2016/07/31/the-great-fintech-robo-adviser-race/#472c6c8f4a6f

Smartphones are becoming more and more innovative and now, there are apps like Apple Pay and Android Pay to store credit cards and use them without the physical plastic card. According to a survey, one of the main reason that consumers are hesitant to adopt to mobile payments is the fear over security, data breaches, and hacking. But according to this article, mobile payments are safer than traditional. For every transaction made by mobile wallets, “mobile wallets create a random, one-time number — a transaction token — and even if someone was able to know that number, it’s not valid later.” This process is called tokenization and used by Samsung Pay, Android Pay, and Apple Pay. Another security measure that mobile wallets have while traditional credit cards don’t are authorizing payments with fingerprints. Mobile wallets also save recent transaction history for reference, allowing users to see credit card activity in one place.

I think mobile wallets still have security concerns despite the added safety measures it has compared to traditional credit cards. The fear of hacking and data breaches are definitely a concern because hackers are becoming more widespread and skillful. Also, there is a significant amount of personal information on our phones, which can be risky and concerning because many apps ask to access a lot of personal data before allowing the user to use their app. So users of mobile wallets need to be mindful of risks despite the many “safety” features.

Source:

https://www.nytimes.com/aponline/2017/03/02/us/ap-us-nerdwallet-dont-fear-your-mobile-wallet.html?_r=0

The global transaction landscape has significantly evolved over the past decade. E-wallets, E-commerce, P2P transactions are all products of consumers’ increasing trust and comfort with digital transactions. Digital transactions have proven to be less time consuming, friction-less and easy to adopt. The next market that digital transactions have targeted are the emerging markets. With the popularity of digital transaction increasing, barriers of entry to these emerging markets are slowly crumbling. Internet coverage in emerging markets is rapidly increasing and most major tech companies will seek to establish a foothold in the financial technology sectors there. The only remaining challenge of entering the emerging markets is the fragmentation of these markets. Each country has its own individual legal system, paperwork and banking infrastructure. The similarities from each emerging market is extremely different when compared to that of first world markets. The first company to figure out a method to unite each emerging market will hold significant advantage moving forward into the developing countries.

 

Reference: https://www.entrepreneur.com/article/289961

There are news saying that some financial institutions begin to have robot advisers in their financial advice services. And some people also argue that robot advisors can provide better services to clients than human advisors can. According to their words, software is far better at most jobs than people can. And it is especially true in the world of financial advice.
I personally think that these statements are half right and half wrong. I believe that software can do better work than human in some aspect, but not all of them. It is true that most financial advisors heavily rely on models and software to give advice to their clients, but they also need to use their human brain to evaluate something that software cannot do. In addition, I believe that those financial advisors who have better performance, they give advice based on their own knowledge and experiences, which robots do not have. Last but not least, most people would feel more comfortable and prefer people who have more in common rather than robots to provide services.
I think if robots can cooperate with human to provide financial services, financial institutions can offer clients with better advice.
http://www.fintechbusiness.com/industry/662-robo-advisers-better-than-humans-wealthfront

The financial services industry is entering a new phase in this era of digital evolution. This is evident in the sharper focus and organizational energy around the mobile channels we observe in all financial service sectors today. But in order to be successful in this era of digital revolution, the major areas that the financial services industry needs to focus on are as listed below:

1. Increase mobile adoption.
2. Leverage the current capabilities of mobile devices.
3. Proactively prepare for the future of mobile technologies.

Increase mobile adoption: The adoption of mobile technology is not uniform across the financial services sector. Banks simply interact more frequently with consumers, making mobile options more convenient and valuable, on the other hand majority of the consumers are not aware whether their insurance provider has a mobile app. In addition, they also place a much higher value on the ability to interact using mobile devices with their banks than with other financial providers. One of the reasons for the low adoption rate is that usually insurance providers deal with their customers only when they purchase/renew an insurance or file a claim. Alternatively, banks interact with their customers weekly or at least on a monthly basis, when customers pay bills, make deposits, or withdraw funds.

The current capabilities of mobile devices needs to be leveraged so that companies can fully capitalize on what the technology has to offer in terms of convenience and cost savings. The new generation smartphones are remarkable. They offer features such as high-quality cameras, finger scanners and fitness trackers. These innovative options present financial services companies with tremendous new opportunities.

Companies need to prepare for the future so that they can keep up with, and perhaps even get ahead of the curve on mobile services, taking advantage of the transformation in communications, sensing, and community building being facilitated by this ubiquitous technology. Given the pace of technology advancement in the mobile space, financial services leaders should be rethinking how mobile device technologies may develop and be ready to quickly adjust to the emergence of technological enhancements that are not currently envisioned.

References:

https://dupress.deloitte.com/dup-us-en/industry/banking-securities/mobile-financial-services.html?id=us:2el:3dc:dup693:eng:fsi

 

Enterprise Ethereum Alliance is a non-profit foundation created to develop the first blockchain open-ledger technology for banks. The foundation includes J.P. Morgan Chase & Co., Microsoft, Bank of New York Mellon Corp., Intel, and Banco Santander SA. The group is seeking to expand on J.P Morgan’s open-source software, Quorum, in order to eliminate the cost of third party transaction verification. The foundation is seeking to release a working version of the technology later this year.

At its core, the technology is being applied to the banking industry to reduce the cost of having third parties and middlemen oversee transactions. The consulting firm Accenture estimates that if this technology is successfully adopted, it could save some of the largest banks an average of $10 billion annually in costs by 2025. This alliance demonstrates that the interest in blockchain technology for banks is continuing to grow. While a working version of blockchain has yet to be established, the first bank to produce it will acquire a significant competitive advantage. In order to be successful, banks will need to create a blockchain platform that maintains protection over proprietary information in the distributed ledger.

Resource:

http://news.morningstar.com/all/dow-jones/technology/2017022811009/the-newest-bank-blockchain-will-this-be-the-breakthrough-update.aspx

If a poll was to be taken among people who are into making stock investments on a regular basis; I feel a portion of them would admit to consulting brokers and other investment agencies that assist them in making an investment decision. In return, these middlemen get commission from the returns the investor makes. What if, we were to have an application that would obliterate the need of these middlemen and provide a transparent, easy to use application that would do the same (or even a better) job helping people make an investment decision?

Today, technology has advanced to a level that cars can drive themselves to their owners. All these are real world applications of self learning algorithms and predictive data analysis to facilitate decision making. But in order to support such algorithms at scale, it is important to have an equally good hardware underneath. Today, in memory databases are fast changing the way the industry operates and an ability to process data real time is literally an icing on the cake.

Thus, the idea is to imagine an application that is deployed on an in-memory database and supported by self learning algorithms that expand its data processing capability from historical data to online news articles to real time twitter feed and provide the user with recommendations as to whether the chosen company is a good investment decision or not. What do you guys think? Is there a possibility to have such an application at our disposal in the future?

– Thought and compiled by Vaibhav Deorukhkar

The lifespan of fintech as an industry has become significant enough that many have split it up into “waves,” with the first wave being disruption, then collaboration, and a new third wave, which is the cause of argument, but generally about maturity. After the global financial crisis is when fintech startups began disrupting the industry, creating the first wave, introducing products to the market that had never been seen, and while success in this wave is difficult, it represents the first time the public is introduced to fintech as a concept and incumbents definitely had to take note. Currently, I feel we are in the second wave, as many blog posts we cover involve fintech companies and big banks working together recently and integrating/collaborating for both their benefits. We are now at a time nearing the end of this second wave where there is much debate on whether fintech will be absorbed by the incumbents or fintech companies themselves will start looking more like traditional institutions. I think in reality we will see a little of both sides, some strong companies like Zopa and Number 26 have already applied for their own full banking licenses, while other smaller companies that still have novel ideas may be acquired by existing banks.

Link to article: https://www.crowdfundinsider.com/2017/03/96935-surfing-fintech-reached-third-wave/