Financial Information Systems

In the last blog, I briefly introduced the DAO. Today, I am going to introduce the DAO attack and discuss what the DAO attack taught us about the future of IOT.

The DAO was launched on May 28th 2016 after raising over $150 million. On June 5th, an antipattern was found in the reward system of Ethereum, but it was quickly fixed and claimed not to post risks to the DAO. However, at the same time, a similar antipattern exited in the splitDAO function but was not discovered by anyone but the attacker. On the 17th, the attacker exploited this bug and moved $50 million to a child DAO. Despite that the Ethereum community quickly made it impossible for the attacker to cash out the Ether, the market value dropped from over $20 per Ether to $13. The attacker could have already benefited by shorting Ether beforehand.

While the idea of Internet of Things based on blockchain seems promising, the attack definitely taught us some lessons. Since both the Ethereum and the DAO are immature technologies, and it may be of benefit to take a conservative approach and launch new products more gradually. Reducing complexity of codes can also reduce bugs in the codes.

However, one thing I want to argue is to increase governance and probably create some centralized plans to address emergencies such as hacks, despite the main idea of the DAO and IOT is to eliminate central governance. Without central governance, it makes reaction to emergency very slow, since every decision takes time to vote and may not be passed by 50% of the users.

Source: https://blog.slock.it/the-history-of-the-dao-and-lessons-learned-d06740f8cfa5#.61xux96k5

According to the firm PitchBook, the total investment in Fintech technologies have increased by 11% (to 17B). This was also the first year that China outpaced the US in investment by over $1b. The UK took 3rd place, most likely due to skepticism of Brexit.

A common theme amongst all investments can be found in artificial intelligence. Specifically, using AI instead of humans to perform stock trades and manage portfolios. Many investors believe that the lack of emotion and implicit bias provide an edge in investment. This technology can also be used to help with regulation to ensure trades are meeting requirements. I believe that AI will help reduce the current overhead brought by human traders.

Fintech continues to be a growing field. It will be interesting to see the movement of AI in FinTech for 2017.

Reference: http://www.forbes.com/sites/lawrencewintermeyer/2017/02/17/global-fintech-vc-investment-soars-in-2016

The current regulations regarding various licenses and charters are out-dated and ill-suited for financial technology. The Office of Comptroller of the Currency (OCC) could either hinder or promote the growth of fintech firms. Currently, the OCC supports the traditional financial sector, which promotes stability, security, and safety. For the OCC to boost fintech, it needs to go against the values of traditional finance and tolerate failure. If the OCC grants charters to fintech firms, it needs to get rid of its zero failure goal. Instead, the OCC should focus on requiring companies to have a clear exit strategy in the event of a failure.

I believe that financial technology has shown its potential and that the OCC should update its rules to adapt to fintech firms. With the help of OCC fitech firms can better compete with the traditional financial sector. This is a win-win situation by allowing for more innovation and keeping the market competitive. Failure is prone to happen, but the benefits of a company that can dominate globally outweighs the risks of the few companies that don’t make it. With more risks comes more rewards, so the OCC should expand its policies to charter rising fintech firms.

Source: How Fintech Can Take Off Without Getting Hampered by Regulations

Mobile payment began with smartphones followed by smartwatch and similar wearable bands. Recently there has been a new add-on to the family of mobile payment wearables: Sunglasses. Now apart from using cell phones and smartwatches, user can use their glasses to make payment.

This initiative known as WaveShades is a new contactless payment system built into sunglasses, born from a partnership between Australian startup Inamo, sunglasses-maker Local Supply and Visa. The prototype is rolled out ahead of St. Jerome’s Laneway Music Festival and handed out to goers to make their contactless payment.

I feel the idea here is to present a use case where user (specially millennials who frequently attend such festivals) only need to worry about keeping track of one thing, which is almost always right in front of their eyes.

The payment procedure is similar to other wearables, where there is a NFC chip in one arm of the glasses. The user just need to wave his glasses in front of terminal to make the payment.

The ever growing mobile payment family continues to see new innovations like these more frequently than ever. This definitely opens up the possibility of contactless payment being a dominant industry of its own in payment segment making traditional payment methods obsolete in near future.

references:  http://www.geek.com/tech/get-smart-with-waveshades-tap-to-pay-sunglasses-1687654/

https://www.cnet.com/news/waveshades-contactless-payment-sunglasses-laneway/

Facebook with more than 1.55 billion active users each month, has entered into the payment sector recently. Hence proving it can be more than just a social media, and a platform for commerce as well. With such a large growing community, Facebook is taking this slow as a one-time chance to get it right.

Best payment experience than a rushed job: There are several strong competitors in the payments sector like Apple Pay, Android Pay, Samsung Pay, Paypal, Venmo etc… Now the point comes which of theses gives the best payment experience. Of course right now these apps may have the best experience, but Facebook gets its users slowly by releasing updates gradually to make sure it will give a best payment experience. Then the very fact that Facebook is getting the large population of eyeballs will set a huge service differentiator from the rest of them. Therefore, Facebook is taking its time to give its users a best payment experience rather then just getting the job done.

Potential for growth in markets of third world nations: Considering growing mobile market in third world nations like India, and Facebook’s efforts to connect the rural parts of the nation with its ambitious plans of giving free internet, its potential keeps growing with added user base. As people get more aware of taking advantages of these freely accessible technologies in the palm of their hands, Facebook will reach immense scales in the payment industry too. So basically Facebook may some day be a social currency with more than billions of customers.

Considering the advantages, it has over its rivals like billions of users in social media platform, and how it has acquired the giants in communication sectors like WhatsApp and Instagram, rolling out the payments in its Messenger app seamlessly will have a huge potential for the company’s strategy heading forward in the growing FinTech industry.

Source: https://blog.faisalkhan.com/how-facebook-s-messenger-payments-will-win-big-2c0259764097#.lel2pv29h

June 2016 certainly marked Britain off the EU but with that came unprecedented possibility of a negative effect on Britain’s sector. Whether that happens or not is a topic for later discussion but Sweden is certainly making efforts to become a hotspot in the European Fin-tech sector.

Factors in Sweden’s favor:

• An established track record for attracting investments: Highest number of fin-tech investments per capita in the last 5 years within Europe.
• A relative ease of access to the government authorities that aids businesses create a well balanced and favorable ecosystem.
• Sweden is on its way to become the first country to become a cashless society by 2030.
• Formation of the Swedish Financial Technology Association (SweFinTech) that would ease the overall regulatory environment for FinTechs (including upcoming startups as well).

But according to me, if the speculation is true, it is the timing that will matter for Sweden to actually beat UK to top spot. Brexit has ironically opened the floodgates in the form of a wild card entry for many such entities to pierce the European market.

Reference – http://www.newsbtc.com/2017/02/19/sweden-post-brexit-fintech-destination/; https://www.cryptocoinsnews.com/sweden-see-opening-brexit-boost-fintech/

 

Falling under the philosophy of ‘If it’s not broken, don’t fix it’, the way payroll functions today is based on outdated conventions and processes. Payroll is currently managed by firms on an individual and monthly basis. This encompasses the traditional payroll system seen throughout most of corporate America. Teams at SAP have thought about this issue and have blueprinted potential future functions and practices regarding payroll. Of these blueprints, a particular innovation revolves around a new notion of self-service payroll. Instead of a company’s payroll department facilitating a single monthly pay run, the system can be reinvented to allow individual employees to decide when and how much of their pay they demand.

I think such a change has the potential to cause major disruptions in the industry and economy as a whole. I say this because a self-service pay roll system could change consumer behavior based on their more flexible purchasing power and demand for money. This could increase economic activity but is accompanied by the risk of more irrational money management decisions. If such an idea can overcome the hurdles of existing regulations and policy, it may become an integral part of worker compensation management in the future.

http://diginomica.com/2017/02/02/digital-payroll-futures-thoughts-sap-others/

With numerous P2P transaction apps, making payments to friends and customers has never been easier. The surprising thing is that for most small businesses in the US, the paper check is still the leading way to remit and accept payments from other businesses. Paper checks has always been messy, time-consuming and slow.

The concept of Symple is when a business gets an invoice, they take a picture of it and sent it to Symple. Symple will then parse the amount, due date, etc.– and notify whoever controls the budget that there is a payment pending. Then to fulfill the payment, with one click, Symple will then remit the payment directly to the vendor’s bank account. The app then has basic analytics to help users dissect their budget even further.

I think Venmo has capitalized on the P2P market extremely well, but the B2B transaction has largely remained untouched. The first application to successfully capture the B2B transaction market is going to have a significant advantage over any other apps that try and come after.

Reference: https://techcrunch.com/2017/02/07/symple-wants-to-be-venmo-for-business-payments/

Recently, there has been much talk on the entrance of large companies into the financial technology space, with companies such as Apple and Google entering into the payments arena and potentially looking to expand their businesses. However, according to a recent analysis by a VC partner at Andreessen Horowitz, Amazon may be the next large player to enter the marketplace.

One of the major explanations that the analysis gives is that Amazon specializes in low-margin, high quantity businesses. The company is able to add tremendous value and revenue by cross selling products across its different businesses to customers. This explanation offers a unique perspective that certainly rings true with Amazon’s current business model.

A key aspect that the partner mentioned in his analysis was the ability of the company to differentiate itself from its competitors. In the context of Amazon, this would likely come across in the form of platform portability, unmatched pricing and incredible scale.

Another driving point that the analysis went into is the fact that Amazon as a company is already designed on a primarily low-margin business. Payment processing is an incredibly low-margin business that reaches profitability when large quantities of transactions are conducted using the service, or if the provider has an alternate revenue model.

Overall, the thought of Amazon entering the payment processing market would push the company to expand beyond its core business areas, but would align with the operational balance that it currently supports.

Source: http://fortune.com/2017/02/14/andreessen-horowitz-fintech-alex-rampell-amazon/

This is a blog post about what the writer sees as a problem for some FinTech companies (especially ZestFinance) when it comes to a lack of caution when it comes to lending money. The writer argues that the main issues with these companies has been an over willingness to lend to anyone, and overconfidence in the power of technology and algorithms to make lending decisions.

 

It feels like the implied argument that the writer is making is that it is up to FinTech lending companies to slow down and adapt more of the norms and standards of the banking industry. While I understand the logic of this idea, it does seem to go against the very point of FinTech. FinTech, by it’s very nature, is suppose to be able to move faster and be able to take more risks than the status quo.

However, I do agree that since these lending FinTech companies are dealing with other people’s money, it would be smart of them to be smarter about who they give loans to. As the article points out, an over willingness to give loans to just anybody contributed to the 2008 economic meltdown. It is true that just because you can give someone a loan, doesn’t mean that you should. It may seem altruistic to give someone who was denied by a bank a loan, but this could do more harm to the recipient of the loan. One point that I more or less agree with is that FinTech companies do need to be careful about depending too much on algorithms when determining who to give a loan to. Ideally, there should be a way to use technology and still provide a human perspective with expertise to make a smarter decision.

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https://www.fool.com/investing/2017/02/08/lessons-for-fintech-from-the-history-of-banking.aspx