False Positive:

Compliance is one area where financial institutions cannot easily cut back on costs. All those operating in financial services are obliged to screen both their clients and individual transactions, to ensure they do not breach regulations. So financial institutions conduct a daily screening of customers and transactions against a long and steadily lengthening list, which is a complex process. The result – perhaps inevitably – is that these daily screenings produce a large number of ‘false positives’, or alarms that flag an issue that must be investigated but prove to be nothing.

A Growing Problem:

The problem of false positives is deepening as the number of obligations grows. For example in case of governmental sanctions, each investigation must address the complexities of who owns what, where they own it and whether it is subject to sanctions, with all banking products subject to a lengthy screening process.

Changing the Relations:

In this way bank customers will find that obtaining products becomes a more time-consuming process: they will have to present their passports more frequently and respond to more questions, to meet the requirements for “Know-Your-Customer” (KYC) identity verification. So the onboarding process is lengthier, costs increase and customers must respond to questions that some will regard as intrusive. The additional requirements also change the nature of bank and customer relationships; previously regarded as opportunities they have come to be seen more as risks.

Conclusion:

As a result of current situation financial institution compliance departments have escaped the general trend for cutbacks and seen staffing levels increase, while their employees have enjoyed improved pay and higher visibility. These departments have also seen greater investment in technology.There still remains much work to be done in compliance and a major percentage of screening work continues to be manual. Risk intelligence will help meet the challenge and bringing previously siloed customer databases together will allow banks to achieve a single overview of risk.

References:

https://www.cognizant.com/whitepapers/OFAC-Name-Matching-and-False-Positive-Reduction-Techniques-codex1016.pdf

http://www.thetaray.com/the-only-thing-worse-than-false-positives-is-no-positives/

https://www.finextra.com/blogposting/11005/anti-money-laundering-from-false-positives-to-real-positive-with-predictive-modelling-and-big-data

 

We always talk about how traditional financial institutions are being disrupted by fin tech, but some smaller scale independent financial advisors are being left behind by the fin tech revolution. Larger firms have the capital and streamlined services to invest in large expensive fin tech products. But independent advisers with less than 200 clients don’t have the ability to purchase such systems, and can’t utilize fin tech to their advantage.

InvestmentLink CTO Wayne Robinson, says that to break into this forgotten market fin tech firms need to develop more customizable software that will give more control to the user. Independent firms have more diverse clients with different needs and therefore need a software that allows them to provide the best practices for their clients. By creating a more often software, the product can become cheaper for these firms and put more advanced fin tech in their reach.

http://www.fintechbusiness.com/industry/643-ifas-being-left-behind-by-fintech-companies

Fintech is a growing industry and investments to grow it even bigger are increasing at a rapid pace. This article talks about how investments in Fintech are growing across the world which could result in a revolutionary 2017. As we know Fintech is a growing and has influenced the investment industry, money transfer, payments, insurance and almost every other banking service. There are Fintech startups across the world that are making banking services simpler for the everyday user. Millennials across the world have become accustomed to services like Venmo, Robinhood and Ant Financial. As Fintech is growing the existing popular Fintech service providers are trying to gain more and more market share of this industry. In the past year Fintech has grown a massive 11% or 17.4 billion dollars of which united states is responsible for 6.7 billion across 650 companies and china is responsible for 7.2 billion across 28 companies. Fintech is helping developing countries across south east Asia to introduce simpler net banking solutions to even the rural areas which were not accessible previously. Investments in these Fintech startups is growing. This shows how Fintech is growing as a industry and companies that are doing well with their security and simplicity of their services are in line to become leaders of this industry.

 

https://www.forbes.com/sites/lawrencewintermeyer/2017/02/17/global-fintech-vc-investment-soars-in-2016/#5bdffa332630

Traditional financial institutions have reached the point in which they are highly regulated. This has come to be not only after scandals that have occurred in the past, but also just due to the fact of how massive the financial entities have become. Fintech has becoming more and more prevalent, and in many areas do the same tasks that traditional financial institutions do to source some of their revenue. However, at this point there are minimal restrictions and regulations on fintech institutions. I think that it is preferable to create policies first to help prevent any unfavorable outcomes that may occur later in the future. An executive arm of Europe launched a task force recently to study how financial technology could transform financial services to eventually regulate virtual currencies, among other things. Although there are benefits to financial technology, there are challenges that it brings and the new task force will present policy suggestions and recommendations in the first half of this year. The task force is made up of a number of individuals from varying backgrounds such as financial and digital services, digital innovation and security, and other backgrounds. Because fintech firms are having access to confidential data, the task force is making sure that their policy will support the opportunities of fintech firms, while making sure to pay attention to any potential risks.

Link to article: https://www.law360.com/articles/862019/new-eu-fintech-task-force-will-outline-policies-by-2017

The fintech sector is using artificial intelligence to better analyze data and enhance user experience. Many firms are integrating AI into its operations. Sentient Technologies uses artificial intelligence to continuously analyze data and improve its investment strategies. Wealthfront, a robo-advisor, uses artificial intelligence capabilities to give customers more customized advice. This includes tracking account activity and understanding and analyzing user spending, investing, and financial decision making. AI is also being used by banking customer service, such as the technology Luvo, which assists service agents find answers to customer inquiries. AI is more than automation, not only does it search through databases, but it also provides human personality and can continuously learn and improve.

I think artificial technology can enhance financial technology in many ways. Often times customers of traditional banking believe technology lacks the personable human interaction they get from a bank, however AI can offer similar services. AI’s ability to learn and adapt to the user will give customers a tailored experience at a fraction of the price they previously paid. However, the largest downside to AI is that it will replace jobs in the workforce. Like many other disruptions, this will cause many job losses so companies can lower overhead and increase profit.

Source: The Age of Artificial Intelligence in Fintech

Although the insurance sector lags behind the banking industry, it has been positioned in a unique way to directly benefit from the blockchain technology. Blockchain can address the key issues faced by most incumbents, for instance poor customer engagement. Listed below are the most promising insurance-related use cases that have benefited from the blockchain technology.

1) Customer engagement: One of the most important hurdle in improving customer engagement through the blockchain technology lies in the area of personal data. The fear of losing one’s personal data as soon as it is handed over to a company is grave. Apparently the blockchain technology can play a huge role in improving customer engagement by offering transparency in claim handling.

2) Emerging Markets: P2P blockchains with smart contracts could be applied to micro-insurances in the emerging markets to offer them at low handling costs, if underwriting and claims handling can be automated.

3) Internet of Things (IoT): In this scenario of IoT, cars, electronic devices or home appliances can have their own insurance policies registered and administered by smart contracts in a blockchain network, automatically detecting damage first and then triggering the repair process, as well as claims and payments.

4) Reduced administrative cost: Blockchain will also help reduce the operations cost through automated verification of the policy holder’s identity, audit-able registration of claims and data from third parties and payouts for claims via a blockchain based payments infrastructure or smart contracts.

In conclusion, although Blockchain is a digitization technology that can be of strategic interest to insurers, the biggest challenge to its implementation is facilitating collaboration between market participants and technology leaders in shaping a regulatory environment.

Reference: http://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Blockchain%20in%20insurance%20opportunity%20or%20threat/Blockchain-in-insurance-opportunity-or-threat.ashx

 

What the Article Says:

Frost & Sullivan, a growth partnership company, is hosting a Growth Innovation Leadership Council regarding Financial Technology and the Future of Financial Services in Chennai, India. The purpose of the conference is to provide an orientation on current trends in FinTech, how the sector is growing, and the opportunities it has with the Banking, Financial Services, and Insurance (BFSI) industries. Jean-Noël Georges, the Global Program Director, says, “As advanced technologies alter the financial services ecosystem, tech-savvy consumers will seek out players that support accessibility, affordability, and availability.”

My Thoughts:

The most interesting part of the article, for me, was the discussion on how sustainable physical banks are, given the growth of FinTech. Mobile money/payments, disruptive authentication and biometrics, evolving insurance market dynamics, and the impact of emerging technologies such as Blockchain and quantum computing are making people’s lives easier, and giving less of a reason for banks to exist.

Source: http://www.prnewswire.com/news-releases/will-fintech-make-banks-disappear-300411345.html

Although it is widely believed that financial technology is disrupting the traditional banking industry, many fintech startups have found themselves acquired by banks. Venture capitalists have yet to find a financial technology that is a threat to even a part of the banking business. Sheel Mohnot, a venture capitalist who focuses on fintech said, “We realized along the way that you really have no choice but to work with the banks.”

Under Trump’s administration, it will be harder for fintech to disrupt banks. Trump’s plan to ease post-financial crisis regulations will give banks more freedom to take risks in areas where fintech startups are currently finding the opportunity to develop in. Venture capitalist Arjan Schütte has been moving his firm’s investments away from fintech disrupters and toward startups that are working with existing banks.

P2P lenders have realized the difficulty to fund loans without having access to cheap deposits, as the banks do. They also struggled with the high cost of marketing to acquire new customers. I researched P2P lenders for the individual assignment, and found that Lending Club had the highest technology IPO in 2014. However, Lending Club’s shares have been trading far below the day of their IPO.

Reference: https://www.nytimes.com/2017/02/22/business/dealbook/silicon-valley-tried-to-upend-banks-now-it-works-with-them.html?smid=tw-share&_r=0&referer=https://t.co/7Wl3R7wfOn&_lrsc=06912909-a0ca-4685-bf7b-72cc34e89575

Point-of-Sale (POS) systems have been transforming since the invention of Square. Most modern restaurants have adopted this more simplistic, yet sophisticated, form payment. They has gotten more intuitive by asking our signatures by using our fingers on screen. This usability is now going global.

Visa and IBM are partnering to provide Watson IoT customers with Visa Token. This essentially turns all smart devices into payment terminals. For example, if you have a car, you can use your car touchscreen to pay for gas when you’re at the station. In a more complex situation, you’ll be able to pay for the miles you use on your car instead of the base 15,000k/yr lease. Your shoes can track how many miles you have run and alert you to buy new ones.

I believe that this is a great thing. However, I am concerned about security. Each device will have access to your payment information. Each device that utilizes this token service should be well encrypted. Two-factor authorization is an absolute must, including a biometric password. Privacy can also raise caution. These tokens will track your purchase history and personal habits. This technology has the power to automate Amazon Dash, which is scary. It can decide when you run out of a good, and automatically order it for you. But in the end, it is your choice to use the services. I certainly will.

https://www.finextra.com/newsarticle/30150/ibm-and-visa-join-forces-to-turn-billions-of-connected-devices-into-points-of-sale