Financial Information Systems

Citigroup has recently been focused on figuring out how to counter the challenges that the fintech companies are bringing, as these new startups are penetrating almost all of the functions that traditional financial banks offer. This is an important step to combat their threatened business, and Citigroup is taking a smart approach when dealing with the tech startups. CEO of Citigroup, Stephen Bird, decided to create an elite group within Citi of about 40 employees from varying backgrounds. Their purpose is to work on projects in a rapid manner. In 4th quarter of 2016, they were able to release a new version of their mobile banking app, after only 10 months of development. Historically, this project would have taken years to complete. Because financial institutions offer so many services, it may be hard to understand how fintech startups can disrupt almost all the aspects of their business. This graphic shows which areas are being affected by fintech companies.

One way that Citi is evolving to keep up with fintech competitors is by having their new mobile app have open architecture, allowing customers to have access to the best functions of the fintech apps. Interestingly, Citigroup may be most vulnerable to fintech companies, as 51% of their revenue come from consumer banking. Their analysts view this area as the most vulnerable. This may be a reason that is spurring Citigroup to adapt to their new challenges.

Article Link: http://fortune.com/citigroup-fintech/

2016 has been a very eventful year for technology hacking. According to a new report from CyberScout, there has been a 40% YoY increase in 2016 of US data breaches. This might have been overshadowed by claims of Russian hackers tampering with our election, but it is very alarming.

The reports elaborates stating hacking, phishing, and skimming attacks accounted for 55.5% of instances. Many of these cases involved CEO’s being phished for sensitive information. One would believe that executives overseeing a corporation have the capability to discern cyber threats. Unfortunately, this is not the case. In 2015, Mattel was phished for $3 million. Chinese hackers posed as the new CEO and ordered a wire transfer to a bank account. The email looked valid and received the proper approvals almost immediately. This technique is used in conjunction with knowledge of a company’s financial procedures.

This is the status quo — technologically illiterate executives lacking the critical thinking skills of a teenager. I propose that all executives must pass a cybersecurity course each quarter. These tests would update frequently to capture all developments in hacking technology. This should be a mandated training exercise to prevent further data breaches. This report should be alarming for all industries.

Link: https://www.finextra.com/newsarticle/30014/number-of-us-data-breaches-jumps-40-in-2016

Artificial intelligence is set to make huge strides in banking. While it has some present applications, going forward the technology is likely to increase immensely. AI can identify patterns that humans generally cannot through taking in immense amounts of data, making it incredibly useful with numerous business applications (Marous).

Artificial Intelligence is growing so quickly that “Ray Kurzweil from Google estimates that AI will surpass human intelligence by 2019” (Marous). While many praise this as objective success, it is hard to not be even a little nervous. The film industry has portrayed numerous situations where robots/AI take over society and humankind is in danger, though this is unlikely in reality. While I do not personally believe we need to be afraid of the terminator, we should all gain a better understanding of what AI really means for banking and business applications. In this context, AI will improve customer personalization, productivity gains, fraud detection, and better customer recommendations (Marous). Ultimately, I believe that AI should be pursued in business as long as security is considered as well.

Source: https://thefinancialbrand.com/63322/artificial-intelligence-ai-banking-big-data/?utm_medium=email&utm_source=fintechweeklycom

Technology has swiftly evolved and disrupted the financial services industry (payments, banking, capital markets, insurance and wealth management). It has led to the rise of startups offering digital payment services that are disrupting the way old school banks offer services to customers. The increased adoption of AI, IoT and big data technologies has led to the development of enhanced techniques that help identify risks, create algorithm-based investment plans and platforms for users to optimize their banking portfolios. The rapidly evolving Fintech industry does present its fair share of threats and uncertainties. In my opinion the key security challenges to this industry are as listed below:

1. Data Security and Ownership: With the increase in the penetration of online banking services, enterprises are now able to accumulate huge volumes of customer related data. This data is available in digital formats, which makes it easier to analyze and generate insights but also makes the data more susceptible to security breaches. Also, the challenge of establishing the ownership of this data remains grave. Personal recommendation: Companies can overcome the potential threat of litigation by enforcing methods that securely dispose customer data once they have unsubscribed from the use of the said financial services.
2. Privacy: As organizations aim to provide an integrated omni channel experience to customers by extending a host of banking and payment services in a unified fashion, managing the digital identities of customers becomes challenging. Personal recommendation: While digital identities have become safer at one level, given the ubiquitous nature of their use in the evolving Fintech world, cloning of these identities can lead to greater risks. The use of mobiles as authentication devices and one time passwords can reduce the reliance on conventional authentication mechanisms such as passwords and PINs.

As increasing computing power becomes available to customers through smart devices, there is a greater need to revisit the conventional security models. The security architectures being deployed by organizations need to be modified and redesigned while taking into account these trends, as they have greater implications on the financial services sector. While security remains an integral part of Fintech solutions from the customers point of view, the liability for which lies with the service provider.

In conclusion, moving forward, security and data privacy are going to play a key role in winning consumer confidence and driving the adoption of Fintech.

Reference: https://www.pwc.in/assets/pdfs/consulting/cyber-security/banking/security-challenges-in-the-evolving-fintech-landscape.pdf

Rocket Mortgage is a super fast service portal of the company Quicken Loans, which caters to self-service users who want to apply for a home loan without talking to loan officers. It’s only a tool that collects information such as pay stubs, bank statements and tax returns to calculate how much money you are eligible to loan, and not a money lender itself, despite being called rocket-‘mortgage’.

Although I wouldn’t say that you get the best deals out there, I feel it makes the lending business more transparent by helping you steer clear of lenders with low advertised rates but “fine-print disclaimers”.

How it works:

• When you make your profile with rocket mortgage, it can instantly verify employment and income details for more than 60% of working Americans.
• With your authorization, it downloads asset statements from 95% of U.S. financial institutions. This helps you easily fill personal information and click “See my Solution”
• The app displays a customized loan amount you’ll qualify for within minutes based on your credit score and debt-to-income ratios.
• Slider bars allow you to change the closing costs, loan term and interest rate. Then you click the “See If I’m Approved” button.
• Using automated data extraction (ADE) technology, lenders are able to verify checklists in minutes, cutting the time it takes to evaluate loan files by up to 80%. Thus re-defining traditional “stare and compare” approach to verifying data across several documents.
• If you’re approved, first-time homebuyers FHA-backed loans. You can lock your interest rate and print out an approval letter, then go house hunting.

Contrary to public hesitation, such developments in Fin-tech improves the mortgage experience by:

1. Saving the client time, but limiting the use of alternative credit data.
2. Giving lenders easier access to borrower’s bank information
3. Making approvals less prone to human error

So to wrap it up, digital lending is here to stay because it created a whopping $79 billion in mortgages in 2015.

References:

• http://www.housingwire.com/articles/36277-reasons-the-rocket-mortgage-actually-decreases-mortgage-risk
• http://www.mortgageorb.com/expanding-the-definition-of-digital-mortgage
• https://www.nerdwallet.com/blog/mortgages/quicken-loans-and-rocket-mortgage-review

 

 

 

 

In Fintech, firms such as LendingClub and Prosper Marketplace offer peer-to-peer lending services to borrowers and investors. Rather than traditionally loaning money from banks, borrowers are allowed to borrow money from investors. Recently however, local court rulings have made these new business practices difficult. Furthermore, The Office of the Comptroller of the Currency (OCC) released a white paper “proposing that these online lenders become national bank charters”. This allows federal regulations to be put in place to govern these online lenders. Their reasoning is that these Fintech solutions are nothing new, and that technology has always existed in the financial industries.

Interestingly however, is that banks and the government has recognized the potential for these new financial technologies. Goldman Sach’s has recently released their own peer-to-peer lending platform called Marcus, and the U.S. Treasury acknowledges that online lending services could reach $90 billion by 2020. Although using technology in the financial industry is nothing, the future of Fintech in lending is undeniably huge, and the underlying technology will never stop growing.

Source:
https://www.bloomberg.com/gadfly/articles/2017-01-19/newfangled-fintech-meets-oldfangled-financial-regulators

Blockchain, the technology behind bitcoin, has been picked as one of the next technologies that would change the financial sector. Experts have said that in order for it to be used, it would need to be done in phases. I agree that in order for blockchain to become integrated into financial systems, it needs to be integrated slowly. The financial systems have been in place for decades and if blockchain were to change the way the system works too fast, the repercussions would be too great. For example if blockchain was integrated into the system as fast as possible, it would cause a high interest in the technology which would cause an increase in research and development. Now this might not seem that bad, but if the research and development of the technology were to outpace the integration and updating of the financial systems in use then problems would occur in communication and data transfer. Slow and steady is the way to go and it would allow the integration of blockchain into non-essential systems while testing and debug any issues that may appear along the way.

Source: http://blogs.wsj.com/cio/2017/01/20/the-internet-blockchain-and-the-evolution-of-foundational-innovations/

Belgium and London have agreed to set up a “fintech bridge” that will enable cooperation between the two countries in the financial sector. The deal was struck between “B-Hive”, (part government owned platform that was designed to link Belgium’s fintech sector with that of traditional fintech sectors), and Innovate Finance (trade body of Britain’s fintech sector). The announcement comes after Britain’s success signing similar “fintech bridge” deals with Australia, Singapore, and South Korea.

After Britain left the EU, some were worried that startups and other financial firms would leave Britain in order to remain taking advantage of the EU”s passporting system which allowed free trade of goods and services throughout the EU. Belgium’s Finance Minister says that there was no intention to use this bridge as a way to poach employees and companies to relocate to the EU, instead reassuring that London will stay the financial capital of Europe. “Britain’s fintech sector, employed over 60,000 people and generated $8 billion in revenue, according to the Treasury.” This shows a strong sector in Britain that may be resilient to move elsewhere unless economic conditions became extremely favorable.

http://www.nytimes.com/reuters/2017/01/11/business/11reuters-belgium-britain-fintech.html

Accenture released a report earlier this week showcasing how investment banks can reduce costs as much as $12billion a year by utilizing blockchain technology. The consulting firm looked at eight banks to determine the feasibility and savings of this technology stating that blockchain will “obviate the need for reconciliation and could prove a helpful resource for auditing.” Some banks have started to implement this technology to run back-office processes, but there is skepticism that banks are simply following the trend of block chain versus thinking of the future feasibility of this technology in banks.

The report also specifically looked to automating finance reporting and creating a distributed ledger. Such topics are significant portions of what our class encompasses. I found the following to be issues of implementing blockchain in banks and other institutions:

• Uncertainty over security  
• Integration issues with systems already in place
• Initial costs to implement such technology are unknown
  • Implementation and integration may outweigh future benefits  
• Legal and regulatory acceptance of blockchain being used in this way
  • It can take years before adoption protocols are put in place and adoption may be low thus creating a divide between those who use blockchain and those that do not

http://www.reuters.com/article/us-banks-blockchain-accenture-idUSKBN1511OU

https://www.accenture.com/us-en/insight-investment-bank-challenges-blockchain-technology