Financial Information Systems

As we’ve discussed in the beginning of the quarter, Blockchain is a huge innovative technology in the fintech space. It has potential to be one of the most innovative technologies since the development of the internet and it’s potential is rapidly growing. $1.3 billion was invested into the technology in the past three years alone with over 90 companies looking to expand on this innovative ledger space. The intriguing aspect about this space to me is that although it appears in some ways as if this type of technology would aid in the reduction of fraudulent behaviors in banking transactions, it still fosters many opportunities to commit fraud. Through research on the individual and team assignments, it has become clear how evident fraud is in this space. With this, the article points out how regulations have to evolve with the technology. As this sector grows and becomes more widely used, regulations around the use and implementations will also have to grow. Reactive regulations will not be sufficient, governing bodies need to start coming up with regulations soon.

 

http://www.jdsupra.com/legalnews/blockchains-offer-revolutionary-71791/

Blockchain monetary solutions

A cryptocurrency is a digital form of an asset which can be used for exchange and to make transactions secure and control the creation and counterfeiting. Cryptic currency currently occupies a large share in the financial technology market. An example of such type of currency is Bitcoin which was introduced to see the response and try to win the consumer’s approval. Hence it is the first successful use of blockchain technology. I feel with digital currency, fake currency and counterfeiting would be a thing of the past.

Many startup companies have identified Bitcoin as a potential starting point and built their business models around it. For example, BTCJam is a service which is a bitcoin based P2P lending service. BitPay is a global bitcoin payment processor that allows merchants to accept bitcoin payments from customers while pricing their products in their local currency. BitPagos uses bitcoin to enable credit for online payments in the emerging markets where local currencies are subject to serious depreciation. Coinometrics that collect market data from Bitcoin exchanges to provide insight into the state of the Bitcoin economy. Coinbase and Kraken are the leading bitcoin exchanges. However, blockchain solutions go far beyond bitcoin applications.

Here are some companies in the blockchain domain I feel would be interesting:

1. Blockstream
2. BlockCypher
3. Chain
4. Wirex.

Reference: https://n-ix.com/exploring-use-cases-blockchain-technology-fintech/

India’s move towards a cashless economy is causing tension between the country’s established banks and Alibaba’s mobile wallet called Paytm. Banks underestimated the appeal of Paytm because they assumed that people would question the security of mobile wallets or be reluctant to trust an untried technology with their money. Banks did not consider that most people are attracted to the convenience of mobile wallets both as customers and merchants. Paytm does not require merchants to pay high transaction fees like credit card companies do, making mobile wallets more lucrative.

Paytm’s users are predominantly young people (25- 35), so their preferences will affect the future of credit cards and banks. If the incoming working-age individuals radically shift the way they store and spend money, banks need to adapt.

One could argue that people in rural parts of India won’t switch to mobile wallets because of poor infrastructure and poverty. However, people in these areas are not likely to have credit cards either. They are at a disadvantage due to the move towards a cashless economy. India will have to take steps to improve data and internet in these areas regardless. With changes needed, banks would do well to partner with fintech firms in order to stay relevant in India.

https://www.bloomberg.com/gadfly/articles/2017-02-21/indian-banks-misread-the-fintech-threat

In continuation of my previous week’s blog on Traditional Banking Vs FinTechs , here is an another segment of the market where the  FinTechs can disrupt the existing monopoly of the traditional Banks.

Consumer banking: Banks focus on the upper end of the consumer market i.e. the high earners, because banks often can’t make money servicing the majority of consumers. Hence, most consumers feel neglected and, financial institutions need to focus on helping the average consumer and small business rather than the big business.

On the other hand, FinTech startups are developing software that allows them to more efficiently service a much broader range of consumers and still make money. With these new technologies and solutions, FinTech startups will be able to extend banking services to a broad swath of under-serviced consumers who have not been considered desirable customers for lack of adequate credit history. Technology will also enable more consumers to manage their finances online and on mobile devices, regardless of location or time.

The consumer market would appear ripe for a FinTech takeover, but startups will face a number of challenges while building their brands: the high cost of customer acquisition, the balance sheet required for lending, and the intense and intensifying regulatory scrutiny. There is also the growing issue of trust and cyber-security. Consumers are worried about security with some of the new banking services online. Both startups and incumbents need to adopt new technologies to meet the demands of the consumer and to provide adequate security in an increasingly dangerous environment.

Conclusion:The FinTech revolution has thrown the banking sector into turmoil. Banks retain significant advantages and will not easily be supplanted in key segments as long as they move quickly to meet new challenges. On the other hand, they are vulnerable and would do well to recognize this fact sooner rather than later.

References:

https://www.romexsoft.com/blog/fintech-vs-banks/

https://letstalkpayments.com/fintech-and-traditional-banks-a-beginning-of-a-beautiful-friendship/

 

 

IBM is working with Visa to produce a shoe-based mobile payments system. Users can turn shoes into a mobile point of sale system and a secure payment gateway. With this idea, users can go everywhere without a wallet and pay for goods with wearable devices.

In my option, it looks like this shoe-based mobile payment is convenient. However, this method of payment is hard to view and operate. Unlike using a smartphone, you can view the amount to pay and accept the payment thought figure prints. This show-based mobile payment does not have a security protection. Anyone can wear this kind of shoes to make payments. Most people will have problems to accept this method and contact with auto-bill-pay. Overall, I think this approach is overreaching. The mobile-payment market will have a longer time to adopt this method.

http://paymentweek.com/2017-2-21-shoe-based-mobile-payments-visa-ibm-working/

Here are my views on AI in Fintech:

Artificial intelligence is disrupting the way we live and Fintech would also adopt these in their model. They would be affected in two ways AI used as part of their business model, dealing with AI enable the system.The first way where the lending company can use AI and machine learning to predict the weather a person would return the loan.There are both advantages and disadvantages to this model as the system could predict based on the past model but it cannot look at big picture or future .So a careful assessment should be made and AI should not be the sole authority in crucial steps.While the advantages would be it could confirm the digital identity of the person and would prevent frauds.The second way where the company had to deal with AI enabled system is for example in future a refrigerator might initiate the payment process. The payment company must make sure that it has proper authentication and is valid on the date. So Fintech companies must take careful steps and prepare themselves for upcoming challenges.

 

 

References:

https://thenextweb.com/finance/2017/02/21/fintech-is-not-just-fintech-anymore/#.tnw_odAq24Cp

https://themerkle.com/fintech-will-be-a-culmination-of-blockchain-artificial-intelligence-and-machine-learning/

 

Fintech innovations is not only helping the big players in the finance industry but also helping small businesses to become more efficient. Generally, FinTech is related to investments and payments and other tech. However, there are people that are building technologies to improve fundamental financial tasks such as bookkeeping, Keeping track of their payments, receivables and inventories. One such company is BlueVine which was founded 3 years ago. They address the issue of everyday funding to address short term needs. They focus on smaller businesses at that time which was an untapped market. The founder of BlueVine drew inspiration from his father’s small business and his own knowledge and experience about FinTech to use Technology to make the financial handling of data in smaller businesses simpler to make data keeping more efficient and less time consuming. It is fascinating how technology is effecting even the smaller parts of every business in the world through innovations in the financial industry.

 

https://www.entrepreneur.com/article/288486

 

There is no denying that financial technology is continuing to grow at a fast pace. This innovative sector of technology has rapidly moved across the world, creating new startups and applications that has disrupted how society runs. With great inventions comes large investments. With the U.S. being a pioneer of FinTech projects, there have been some speculation of whether the government has created a barrier to its growth.

According to Rebecca Campbell, sourced by Reuters, “investments declined by around 30 percent in the U.S. even if the nation did still manage to bring in over $4 billion.” With political uneasiness of a new president, the regulations of this new sector within technology have been ambiguous. While many investors seek to invest within this growing platform, without clear regulations, it can create confusion towards the future of companies.

Understandably, with a switch in government during the last election, the political system and regulations of technology and business have been unpredictable. The effect of new laws can create large shift in investment and growth for these companies. Without solid foundation of regulations, companies may find other countries to be more appealing and much easier to run business.

https://www.cryptocoinsnews.com/us-regulatory-environment-hinders-fintech-growth/

In 2015, the volume of fintech deals done peaked at $14.6 billion with 848 different deals, but has now reached a declining state in the amount of deals and investments made from VC firms. In 2016, those numbers have declined to $12.7 billion and 836 different deals, which is a YOY% of -13% for the value of all deals. This drop was due to smaller deal sizes done by investors whose hesitance is caused by political instability and the future of the economy with a new regime. This has caused more startups to struggle since most upcoming fintech businesses rely heavily on VC funding to operate with a profit. It is predicted that this trend will continue for most of 2017 and suggested that fintech startups evaluate and adapt their business models to the current economic condition. Those fintech firms who do not rely on VC backed funding are rapidly growing to above $19 billion. While there is room for caution to invest in the future economy, one must evaluate how fintech currently compares to its competition in traditional banks. Fintech companies offer the same services as normal banks but with lower rates and fee with greater efficiency. They also introduce Peer-to-Peer transactions that many institutions are trying to adapt for their clients. If you consider that the startups not funded by VCs are lucrative, then any VC or investor shouldn’t worry about any outside factors and focus on the high returns they will have.

URL: http://www.businessinsider.com/fintech-deal-sizes-are-shrinking-2017-2

With over $1.4 billion invested in blockchain applications, the technology is seeking to ready its self for wide spread application. While the technology is seeking to significantly disrupt the financial services industry, it is experiencing an issue in its application due to one of the fundamental principles of blockchain. The principle that all transactions are permanent establishes trust for users, but does not provide a method for the correction of human error or hacker theft.

In the financial services industry today, human error is a reality that is taken into consideration and has safeguards to correct the issues. In order for blockchain to truly be ready for widespread adoption, the technology needs to provide solutions to the challenges that are inherent to human interaction with the system. To accomplish this task blockchain companies will need to work with regulators to establish safeguards that provide users the ability to alter blockchain transactions that does not diminish trust in the system. Overcoming this challenge is blockchain’s biggest hurdle because it is the permanence of the system that provides users with the trust that traditionally has been provided through third parties.

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