Financial Information Systems

In November last year, India demonetized around 86% of the total value of the currency in circulation overnight by abolishing the largest denomination bank notes of Rs. 500 and Rs. 1000 bringing the country’s economy to a grinding halt. In a country that is heavily reliant on cash, this demonetization drive inflicted by the government has received varying levels of support from the society. While the common man remains the worst hit, having to deal with numerous hardships, the “FinTech” firms on the contrary have gained an unprecedented advantage. Indians who are otherwise averse to use any other means of transaction apart from cash are now forced to adopt a cashless economy by using digital payment options like e-wallets, online banking, debit and credit cards, etc.

In a country where there are fewer than 25 million credit cards for a population of over a billion, will the FinTech industry find a strong foothold? While I still have my doubts and believe it’s a far fetched dream to attract Indian consumers to adopt a cashless economy, numbers published in a recent article by Bloomberg (1) left me baffled. Amidst the demonetization shakeup with people being compelled to switch to a non-cash mode, Indian FinTech companies like Paytm have seen manifold growth in transactions and their customer base:

A 700% increase in their overall traffic, 1,000% growth in the amount of money added to the Paytm wallet, User base of around 150 million and over 5 million new users added since demonetization and around 7 million transactions worth Rs. 120 crores a day.

In India the “FinTech” software market is now forecasted to touch $2.4 billion by 2020 according to NASSCOM. While these numbers seem promising and India could end up being a rare bright spot for financial technology investors, I believe they still have a long bumpy road ahead of them. Listed below are a few roadblocks that I believe will continue to haunt the growth of FinTech in India:

1. One of the major hurdles in my opinion is the current digital infrastructure in India.The lack of smartphones and internet connectivity are the prime reasons preventing India from going cashless.
2. India is home to around 21% of the total unbanked population in the world where around millions still do not have access to formal banking services.
3. Shops in rural towns that account for the vast majority of the country do not have a point-of-sale terminal that accepts digital payments.

Thus, until the “Cash is king” mentality still remains prevalent in India, it will take years if not decades to part ways with paper bills posing a serious threat to the growth of FinTech in India.

Reference (1): https://www.bloomberg.com/news/articles/2016-11-23/cash-ban-the-best-thing-to-happen-to-indian-digital-payments

 

 

 

Media has labeled Fintech as “the big bank disruption”, and Fintech’s growth has been substantial in recent years: the global estimated value of Fintech was $3 billion in 2013, $12 billion in 2014, and over $20 billion in 2015. Industry experts believe that 2017 is merely the “tip of the iceberg” of what we can expect for Fintech disruption.

The expected trends in 2017 include a growing focus on artificial intelligence, which will help Fintech companies make better decisions using predictive analytics to understand big data. With the increase of smartphone ownership, there will also be an increasing demand for mobile transactions. By 2021, contactless card transactions are expected to double worldwide, making physical cards obsolete. However, as contactless transactions increase, fraud prevention measures must be put in place. Multi-factor authentication, such as fingerprint or face recognition and iris scans, will become necessary.

While contactless payments are gaining traction, I believe the transition period to adopt this form of payment will be slow. For example, businesses were required to upgrade to EMV-enabled terminals in 2015, but I have seen many businesses yet to do so. Also, I am curious to see how traditional banks will to respond to Fintech disruption.

Reference: https://letstalkpayments.com/hottest-fintech-trends-2017/

Bitcoin is a cryptocurrency and payment system introduced in 2008. New bitcoins are created by a process called mining where users are rewarded by bitcoins for providing their computational power for providing computing power to verify the transactions.

In the http://finance.yahoo.com/news/why-chinas-central-bank-fears-bitcoin-192321568.html article shows how the counties are increasingly monitoring virtual currencies and operators.  This has resulted in changing of terms for the firms. In my view, this might cause people to refrain from using this currency.

Here are my views on Bitcoin advantages and disadvantages

Advantages:

• Global currency can be used anywhere.
• Can be transferred anywhere in the world in very less time across the world.
• Protects from geographic and currency fluctuations
• Reduced no of intermediaries in payment system

Disadvantages:

• No physical backing: can collapse anytime
• Illegal activists can use it to avoid any suspension
• Bitcoin price volatility greatly affecting its holders
• A Safe haven for holders. Difficult to be monitored by countries
• Countries like china are increased monitoring the bitcoin companies

 

Reference: http://finance.yahoo.com/news/why-chinas-central-bank-fears-bitcoin-192321568.html

https://en.wikipedia.org/wiki/Bitcoin

http://www.coindesk.com/china-bitcoin-exchanges-trading-policy-updates/

 

 

 

Singapore’s central bank and financial regulator, Monetary Authority of Singapore (MAS), has a fintech lab that aims to attract fintech companies through the “sandbox.” The “sandbox” allows fintech innovators to conduct small-scale experiments and test them in a low-risk environment before pushing it out on a larger scale.

A big reason why Singapore has created the “sandbox” is because of reports that state a huge loss in jobs due to fintech. According to a 2016 Citigroup report, European and American banks could lose about 2 million jobs in the next ten years due to fintech’s ability to allow customers to do more online. Naturally, Singapore fears this could happen to them as 12.6% of its GDP is reliant on finance.

Singapore aims for a flourishing fintech industry that supports rather than interferes with big banks. In three years, the MAS plans to invest $158 million dollars in the fintech sector. The goal is to combine the strength of both fintech and banks. Fintech firms are more nimble and cost-effective, while banks have built an image of credibility and stability, as well as being better equipped with resources.

I can see the benefits of working in a partnership between banks and fintech innovators to expand the market. It will be interesting to see whether banks and fintech merge or collide in the near future.

Reference: http://www.economist.com/news/finance-and-economics/21714384-city-state-wants-fintech-bolsters-not-disrupts-mainstream

Traditional accounting system is usually a single stand-alone system. The current accounting system is integrated with other systems to improve efficiency and boost revenue. Rather than relying on a huge data center, Accounting system is moving to the cloud computing to serve more clients with less spending on hardware infrastructures.

First, system on cloud can help CPAs to better serve their clients. CPAs take note that “the customization options cloud computing offers bring more efficiency, strategic insight and automation”. CPAs can work on higher-margin roles such as consulting and analysis rather than dealing with backend manual workflows. Cloud-based accounting systems can also create an audit trails as part of general ledger, which makes auditors’ job simple.

Cloud-based accounting system is also secure. The advance encryption technology and safeguards minimize the worry of moving data to the cloud. Since multiple copies are kept in data centers at different location, the likelihood of lost data is also reduced.

Reference:

http://www.cpapracticeadvisor.com/news/12294496/how-small-accounting-firms-find-big-advantages-in-the-cloud

The benefits of using a Financial Information System are:

• Rapid Decision Making: The Financial Information systems enable you to make quick and rapid decisions as it provides accurate, verified and consistent information.

• Better Planning: The system gives you a realistic and accurate view of your overall financial situation. This enables the company to make predictions, forecast and plan accordingly.

• Efficiency: With validations and security features of FIS there is no need to re validate and confirm the facts multiple times before making a final entry. It also provides historical information. It helps improve efficiency by minimizing efforts.

• Collaboration/Integration: FIS provides a platform or a base to integrate all the various business processes, functional processes and financial information of your company. This leads to better accessibility and improves performance.

• Numbers to action/ Reporting: FIS enables better analytics and reporting of financial information than traditional financial systems. They aggregate all the information together and has high scalability.

Reference: http://smallbusiness.chron.com/benefits-financial-management-information-system-71943.html

Bitcoin’s price fell 10% this week when the People’s Republic of China announced their intent to investigate companies using bitcoin (CNBC). As explained in the article, “Chinese investors dominate the global bitcoin volume trade” which has led Chinese authorities to question whether the use of this financial system is having a negative effect on the renminbi (CNBC).

The idea that a national government is looking into an peer-regulated system like bitcoin begs the question of how far does a country’s jurisdiction reach in regulating its own citizens’ use of such system. This investigation, at least according to the article, indicates that the Chinese government is attempting to reduce Chinese bitcoin users’ exchanges. Because of its large presence in China, it will be very interesting to see how authorities will investigate whether or not this digital currency has a significant effect on the renminbi, their national currency. In the age of skepticism of financial information systems, the whole world will be watching and waiting to see how the bitcoin will react and whether or not this peer-to-peer financial system can withstand this economic superpower. (WC 183)

Reference: http://www.cnbc.com/2017/01/11/bitcoin-falls-5-as-china-plans-to-investigate-firms.html

In the years since the crash of 2007-08, policymakers have concentrated on making finance safer. The magical combination of geeks in T-shirts and venture capital that has disrupted other industries has put financial services in its sights. In this way a new generation of startups is taking aim at the heart of the industry—and a pot of revenues that Goldman Sachs estimates is worth $4.7 trillion. Like other disrupters from Silicon Valley, “fintech” firms are growing fast. They attracted $12 billion of investment in 2014, up from $4 billion the year before.  However, the fintech firms are not about to kill off traditional banks. The upstarts are still tiny. Nonetheless, the fintech revolution will reshape finance in three fundamental ways.

First, the fintech disrupters will cut costs and improve the quality of financial services. They are unburdened by regulators, legacy IT systems, branch networks—or the need to protect existing businesses.

Second, the insurgents have clever new ways of assessing risk, which can be called data-driven lending. This kind of data-driven lending has clear advantages over decisions based on a single credit score or meetings between banker and client.

Third, the fintech newcomers will create a more diverse, and hence stable, credit landscape. The business of internet-based firms is less geographically concentrated than that of bricks-and-mortar lenders.

If fintech platforms were ever to become the main sources of capital for households and firms, the established industry would be transformed into something akin to “narrow banking”. The bigger effect from the fintech revolution will be to force flabby incumbents to cut costs and improve the quality of their service. That will change finance as profoundly as any regulator has.

References:

http://www.economist.com/news/leaders/21650546-wave-startups-changing-financefor-better-fintech-revolution

http://www.inc.com/magazine/201509/maria-aspan/2015-inc5000-fintech-finally-lifts-off.html

Financial information systems (FIS) are the neural network of business organizations. They record the financial impact of every business transactions and translate the consolidated impact into actionable information on cash flow, revenue, profitability, and taxation for executives, shareholders, and external stakeholders.

Today, with businesses generating up to one million transactions each day, FIS are the cornerstone of effective and accurate financial reporting on the strategic level but also for day-to-day operations. Additionally, FIS are an important element in ensuring regulatory compliance. Modern FIS allow you to investigate, audit, and optimize business processes using financial information.

In the future, FIS will play an even more important role. Innovations in financial technology (fintech) record, integrate, and manage financial information in radically different ways. Fintech will change not only the role and scope of FIS but will affect existing business models and promote completely new business models.

Understanding the fundamentals of FIS, the relationship of FIS and business processes, and being able to analyze and design FIS using innovative financial technology help you to become an invaluable addition to any business organization.

Let’s do this!