Financial Information Systems

https://squareup.com/guides/pci-compliance

I discovered this topic while I was researching my last week’s blog post about Square. I wasn’t surprised that there are rules and regulations in place for online transactional services but I certainly did not know how extensive these rules are.

PCI Compliance is a standard put on by five big credit card companies that aim to reduce bank data breaches. These rules are set so that organizations and sellers can “safely and securely accept, store, process, and transmit cardholder data during credit card transaction to prevent fraud and data breaches” (Square). There are different compliance levels depending on the total transaction volume, annually, that also affect the fees that organizations need to pay. The burden of “maintaining compliance for all parts of the payment processing life cycle is on the sellers and organizations” (Square).

In my opinion, it seems unfair for an oligopoly of banks to issue a set of compliance standards that would disallow businesses to operate a credit card option for their customers. However, in a FIS class, having such regulations are a necessity given the sensitive nature of customers’ personal information. There is so much more history to the necessity of these compliances.

Robot Advisors functionality:

Trusting your retirement savings with a computer might be a frightening task. But the investment strategies/ideas devised and managed by them are something which can’t be only developed by computers themselves. To suggest your investment strategy and then manage your money, robot-advisers use a human algorithm—a complex mathematical formula that considers three main elements: 1) the historical data of assets 2) Information you’ve provided about your investing goals, timeline, and 3) What is your principal; and a menu of low-cost investments, primarily index funds and ETFs.

With the help of this information, the algorithm decides the best way to achieve your financial goals. It will suggest an allocation in terms of different types of assets likr stocks, bonds, and cash, then over time buy and sell specific investments to make sure your asset allocation goals are met.

Because the various robot-­adviser platforms draw on the same historical data and offer comparable ETFs and index funds, the portfolios they suggest for investors with similar profiles may differ little from one another. For example, no matter which robot-­adviser a young investor who doesn’t expect to retire for several decades, he will probably be recommended a portfolio that’s almost entirely invested in equities (or stocks). That’s because over the long-term, stocks have outperformed other investments such as bonds and commodities, offering someone with more than a few years to go until retirement time to absorb the higher risk and maximize gains.

 

Reference: http://www.consumerreports.org/personal-investing/rise-of-the-robo-adviser/

A London-based Fintech company called Soldo is adding a new service for UK firms that lets them use a company-wide online expense accounts. This technology allows companies to put spending limits on accounts as well as block non-approved payments. Companies can have one expense account with multiple users, but still track which user incurs which expenses. It also has a feature that allows paper receipts to be photographed and uploaded to the system. All of the expense data is stored in the same system so it easily integrates with business’ accounting programs.

I think that this service is useful for large companies that have a hard time tracking expense reports. The uniform reporting and user-friendly options make integration more likely to succeed. I don’t see why this technology has to be restricted to UK companies. If the technology works for an online expense account, it should be able to integrate with international companies as well. If a UK business is already working abroad then the technology will be in other countries anyway. It makes more sense to do a full rollout of services because it will increase market usage.

 

https://techcrunch.com/2017/02/14/soldo-business/

Many companies are trying to shift from on-site ERP systems towards cloud. The important question to consider is the timing of the shift, given the shift is inevitable. A few systems that do not have a commercial alternative would remain on premise. A good example would be a payment system for a credit card company.

According to predictions by experts, there would be a major chunk of businesses moving to cloud by 2025. Applications that can co exist like the suite providers might win over the market. Development testing is one of the most expensive IT segment. Hence the finance teams can cut the costs and save by moving into cloud. We can cut costs in the form of servers, operating systems and knowledge tools by moving from on premise testing to cloud.The major part in the shift would be played by CFO’s and financial teams.

In the areas of the storage, most of them are already preferring cloud than traditional data servers. The cloud storage providers also claim that their data is more secure in the provider’s servers rather than a company’s personal server. With the cloud being attractive to the financial heads by cutting down costs, we could see a shift in business model. The company’s contributing to this transition will benefit the most. The upcoming startups in this area would be Xero, Outright, Freshbooks, QuickBooks Online Simple Start and Kashoo. They offer their services mainly to small enterprises. Big corporations like Oracle and SAP would be targeting large enterprises.

Reference:

https://blogs.oracle.com/modernfinance/5-finance-technology-predictions-for-2025

Blockchain is described as a kind of database with built-in validation; however, its ledger is not stored in a master location or managed by anybody. Instead, it is distributed, existing on multiple computers simultaneously so that anyone who are interested in having a copy of it can easily do so. More noticeably, the block validation provides a security system in such a way that “old transactions are preserved forever and new transactions are added to the ledger irreversibly”. In other words, the data is immutable. As a result, it provides a wonderful benefit for FIS fraud detection and great help for not only auditors both internal and external but also financial regulators to generate useful analytics. Beyond financial sector, the system is also invaluable for “managing the provenance of assets, date-stamping events, geo-stamping those events in a specific location, establishing identity, and so on.” Nonetheless, as being a distributed nature, it requires constant computational power in many multiple locations, which could be a big challenge when volume and velocity of data increase quickly. With highly valuable potentials it brings, I believe that blockchain will soon become the norm for data records applied in many industries. There are already startups engaging in this blockchain-based cryptocurrency such as Bitcoin, Ethereum and Ripple.

Source: https://arstechnica.com/information-technology/2016/11/what-is-blockchain/

In this blog, I am going to introduce a revolutionary technology that utilizes blockchain, the DAO. While I believe that the DAO has great potential and could be a break-through for the development of Internet of Things, I hold doubts about its performance and security in its early stage of development.

To start with, the DAO uses a blockchain based currency called Ethereum, which was launch in 2015. Its currency is called Ether, and it is widely considered “Bitcoin 2.0”, and has outperformed most of its competitors and jumped to the second place in terms of market value in just one year. What makes Ethereum so popular and attractive is that it allows building smart contracts.  Smart contracts are general-purpose codes that execute on every computer in the network, and could be programmed rules or orders. Therefore, smart contracts are identified by developers as a means to build autonomous organizations.

A German company, Slock.it introduced the DAO in 2015 as a prototype for its ultimate decentralized Internet of Things project. For example, people can share rides without being governed by Uber. The DAO relies on codified business rules to govern the organization, which are contributed by developers in the network. In the DAO, users could purchase tokens as voting rights, and a decision is made on any project upon a 50% pass rate.  The DAO was so popular that it raised $150 millions in the first month and generated over 50 projects for users to vote.

However, is the DAO as promising in its security as in its ideas? We’ll find it out in the next blog.

Source: http://www.coindesk.com/understanding-dao-hack-journalists/

Blockchain is a distributed public ledger that was first introduced as the base technology for the digital currency Bitcoin. Currently, Provenance, a UK based blockchain company, is seeking to use the technology to provide consumers greater transparency in the supply chain journey of the products they are purchasing. The mission of Provenance is to provide consumers with the ability to effectively support companies whose business operations are ethical and socially responsible.

An example of how this technology could be used is with tracking the supply chain of canned fish. The blockchain technology would be used to illustrate to the consumer where the fish was caught, processed, packaged, and distributed for sale. Through creating supply chain transparency, Provenance is giving consumers the ability to combat the illegal fishing and human rights abuses that are common in the seafood industry. Overall, this technology will not directly reduce unethical business practices, but it will provide consumers with greater power in supporting ethical business operations. Provenance’s use of blockchain is just one example of the numerous applications of the revolutionary technology.

Reference:

https://www.theguardian.com/sustainable-business/2016/sep/07/blockchain-fish-slavery-free-seafood-sustainable-technology

Currently, the business commercial banking segment is worth $1.85 trillion worldwide.  Banks have estimated that around $500 billion of that sum is expected to be removed by third parties or FinTechs over the next five to seven years, however.  A significant portion of this figure is supposed to come from paper payments that have moved into electronic form.  According to CEO and founder of FI.Span, Lisa Shields, API in banking is what the future of banking needs to use.  API stands for application program interface, which is a set of routines, protocols, and tools for building software applications.  At the Desutsche Bundesbank G20 conference in Germany, it was reported that the       desire for more choice, better-targeted services, and improved pricing for consumers were going to come through FinTech. Along with consumers, banks would also profit from FinTech with lower transactions costs, stronger operational resilience, and better capital efficiency.  With the amount of money banks are looking to lose over the next five to seven years, it may be smart to start working with FinTech firms rather than keeping themselves separate.

 

https://www.cryptocoinsnews.com/fintech-can-help-banks-tap-500-billion-hole/f

The biggest form of debt for millennials is the student loan from undergrad or graduate school. Roughly $1.3 trillion in student loan debt was issued last year and most of them were stuck in a lower-wage job, which made is difficult to pay off the debt. One advantage they have is that they utilize technological apps to help finance payments, track investments and gain financial advice to help grow and maintain wealth and credit. A startup company called Mint allows users to create budgets, track spending and check credit scores all on their mobile device. Another application called Acorn automatically rounds up your payments up and invests your change, which can be quite lucrative with everyday purchases and payments. These companies exemplify how the millennial generation are utilizing financial technology to help with their every day financing. However, an issue of security always looms when you trust your bank and credit information with an application. Many people stray away from this technology because of this issue and is something that can’t be dealt with until acquired by a larger banking institution. Nonetheless, the continuing growth of the fin tech industry will heavily impact millennials due to the tools and advice that young adults can use to grow their money.

These two articles talk about a recent partnership/promotion between Square Reader and Apple Pay. The articles go over what the promotion is, reasons for it, and why it may make sense for both companies.

Last week, I talked about how the retail industry hasn’t fully embraced mobile payments. Here, we have two companies working together to possibly change that trend. It is mentioned that Square merchants can educate and expand the use of Apple Pay (and by extension, mobile payments in general), which could allow Square to gain a greater foothold in a market that it helped grow. The partnership indicates that Square has some confidence in the potential growth of mobile payments systems, and that they are willing to take a likely short term monetary loss (from increased costs and loss of swipe fees) for future gains. It is also interesting that Square might be disrupting itself, since it’s core business relates to physical cards, and not mobile payments.

I think on paper, the deal makes sense, but it does carry some risk on Square’s part (not as much on Apple’s part). The merchants affected by the promotion might be too small to make a difference, and for a company that already has a cost problem, increasing costs with the new readers might not be the best idea.

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Square And Apple: Who Is The Big Winner Of Their Payments Pair-Up?

http://www.businessinsider.com/heres-how-free-apple-pay-could-help-grow-square-2017-2