Where’s the White List?

Wednesday April 11, 2018

Investopedia defines blacklist as, “a list of persons, organizations or nations suspected or convicted of fraudulent, illegal or criminal activity, and therefore are excluded from a service or penalized in some other manner.” In short, when an entity fails to meet payments or poses a threat, their name enters a ‘blacklist’ which makes it difficult for them to apply for any type of financial service.

With terrorism, money laundering and financial crisis, the blacklist does a great job at constantly updating and gathering threats. This service has helped to protect banks from shady clients and the risks they could pose to the economy or to the banks themselves. Each merchant or individual trying to open a bank account is subjected to a specific process to guarantee the legitimacy of their identity and reputation. Banks oftentimes rely on third-party resources to provide credit scores or individual reports in order to determine if they are a safe customer. If they have been flagged as threatening, typically it will be difficult for them to open a bank account anywhere. There are also measures that these individuals can take to remove themselves from the blacklist, but it isn’t a simple process, and usually comes with multiple disadvantages.

Blacklisting has its benefits, and while the world has its handful of dishonesty, it also has its upstanding citizens. Just as banks have databases of blacklists, they should consider issuing a whitelist. For instance, if an individual has a clean history of abiding by financial regulations and making payments on time, they should be placed on the whitelist. That way, they don’t have to deal with the time-consuming process of attempting to open a bank account. When a client or merchant has proven to be legitimate, they shouldn’t have to repeat the same security measures each time they need to utilize financial services.

With just one perspective, individuals and merchants are at an unfair disadvantage when applying for bank accounts. Without a continuum of financial client ‘types’, it is easy for banks to label merchants as bad or dangerous to work with. Unfortunately, this takes a toll on a lot of businesses and individuals. Legitimate merchants are forced to look for alternative banking solutions, which oftentimes is more expensive for them. Ironically, it is the new businesses that cannot afford the expensive option. Also, a merchant that is unable to associate themselves with a respected bank will put a bad light onto their business. Potential customers may not trust the company because they have no perceived value behind them. If a bank can’t trust them, who can?

A whitelist can even the score. Banks will benefit because they will have something to compare blacklisted clients to. They will not be so quick to assume what a risky merchant or individual is. It is estimated that banks spend $100 billion per year on compliance costs. With a whitelist, banks will not have to spend as much time, finances and resources on compliance duties. Instead, if someone appears on the whitelist, they will not need additional screening. This is also beneficial to loyal and honest merchants. The deducted time applying for bank accounts will allow them to move forward on the projects and goals.

Safety is one of the most important aspects of any business. It is important for any respected institution to guarantee the security of their clients, but also guarantee security to their business as well. Blacklists do a great job at ensuring that banks they are contracting with upstanding individuals or institutions, but this comes at such a large cost to the banks those attempting to open a bank account. Unfortunately, so much of the ability to thrive in the business world today lies on the ability to open a bank account. Individuals and merchants are punished every day because of rigid guidelines in regards to who poses a threat. Whitelists will give honest merchants the earned advantage of financial services without the security scrutiny. In return, banks will save great deals of time and money, and can invest their resources in other ways of expanding or modernizing finance.

Are We In A Fintech Bubble?

Wednesday April 4, 2018

Economic bubbles seem to be everywhere in the last couple of decades. From the dot com bubble to the Chinese housing bubble, everywhere seems ready to pop. There is no denying that over-inflated and overvalued market segments can pose a significant risk to the economy, but nevertheless, not all bubbles are created equal. Recently there has been much talk of a growing bubble in the fintech sector, and while there is some validity to the claims, there is also a danger of making out the risks to be larger than they actually are.

Fintech may be the new kid in the room, but it’s growing fast and garnering tons of attention. It Fintech is growing so fast, in fact, that there are a few reasons to be concerned. Since 2008, global investment in fintech has jumps from just under one billion dollars to $12 billion in 2014; notable banking executives are ditching their old teams in favour in fintech startups; and new fintech startups and incubators are popping up like mushrooms after rain.

Given all this, it’s understandable why investors might be leery. It wasn’t at all long ago that the world felt the shocks of bubbles bursting, with some of the reverberations still palpable today. Investors, of course, also remember the shattered dreams of a previous generation of startups that were given eye-watering valuations. Yahoo paid $1.1 billion for Tumblr in 2013, before writing down more than half of the social network’s valuation in the following years.

And yet, there are factors at play that should mollify investor fears. To put it bluntly, fintech is simply not that big yet. At the time, Tumblr enjoyed 300 million views per month. By contrast, recent fintech acquisitions seem puny. When Spain’s BBVA acquired US-based Simple in 2014 the digital bank only had some 100,000 customers to its name. The money spent in these acquisitions also pales in comparison. BBVA paid only $117 million for Simple.

There are also deeper, more structural reasons for why fintech isn’t experiencing a bubble, at least not as we usually imagine them. While fintech may be a fancy buzzword, the core of the idea is here to stay. Whatever you may call it, banking — and money in general — are going to change drastically in the coming years. The fintech sector merely exemplifies the paradigmatic change we’re going through. There are great risks to an overvalued market, but this is something different.

In order to stave off a collapse (and inevitable rebirth) of fintech the climate of the financial industry has to change. Currently, the market is saturated with startups hoping to get bought. Banks are indeed buying and incorporating these services into their own offerings, but this is not sustainable. Financial institutions need to stop playing adversarial catch-up, and rather foster an atmosphere of cooperation with fintech startups. If financial giants take these companies under their wings, both sides could profit immensely.

Fintech startups, for their own part, have a lot of growing up to do, and they must do so quickly in order to gain the trust of banks. It is enough to recall the case of Lending Club to understand why the old timers could be wary. But perhaps, more than anything, it is a problem in communication.

“I often meet with banking executives and with these young startups and it’s like they’re speaking different languages. They are talking about the same thing, but they don’t know how to say it to each other. That’s where I come in. Fintech still has a lot of growth in it that is going to waste because the two sides just don’t understand each other. If they can’t learn to do that, the situation could get more risky”, says Eyal Nachum, a fintech veteran and Chairman of the Board at Lithuanian company, International Fintech UAB.

The industry is growing fast, and to keep it stable all partners must be vigilant and active to develop a new framework in which financial interactions take place. Banks especially must develop novel strategies with adapting to this change and to working together with the forces that drive it. Of course, there are risks in every emerging industry, fintech included. Without a doubt, too, there are signs that fintech is experiencing some unbalanced growth. But to call this a bubble would be nothing short of misleading.

Smarter Homes, Smarter Payments

Tuesday February 6, 2018

It is difficult to deny that the world today is constantly connected. Thanks to the Internet, information is available to us in nanoseconds, and it seems that smartphones are penetrating every area of the globe. Since its emergence in the mid-90’s, the Internet has revolutionized everything from completion of daily tasks, to health care, to education, to payment methods.

We are still seeing the astounding effects of this groundbreaking shift today. Now that the hype of Internet has died down, and its banality has settled in, we are ready for the next big technological leap: enter the Internet of Things.

What is the Internet of things?
What exactly is the Internet of Things, (or IoT)? The Internet of Things pertains to a network of physical devices, vehicles, and home appliances embedded with network connectivity. This connectivity allows for the exchange of information and data, and accomplishes tasks through Internet usage. This essentially means that any device with an on and off switch can be connected to the Internet. It is estimated that IoT will connect nearly 25 billion devices by 2020 with a nearly $2 trillion global economic benefit.

The Internet of things blurs the lines between the physical world and computers, as human effort becomes less necessary, and wireless networks carry out tasks with greater efficiency and accuracy than people. The application of IoT devices is far-reaching. From collecting information on natural ecosystems, to syncing to energy systems such as heat and Internet, to interconnectivity of medical devices, there is virtually no realm that has been untouched by this new phenomenon.

From Smartphones to Smart Homes
Who hasn’t panicked at some point after leaving the house and worrying that the lights have been turned off, or the garage door is closed? With the advent of smart homes, it is now possible to control these activities from outside the home. Smart homes are entirely connected, meaning that everything from activation of electronic devices, to monitoring inventory in the refrigerator is regulated by wireless activity that can be accessed by users on the go.

Smart homes can eventually lead to greater ease when overseeing usage of appliances and conserving energy. IoT can detect whether a light has been left on, and the homeowner can turn it off remotely using this technology, eliminating the stress they inadvertently are wasting energy and money. Furthermore, smart refrigerators can even send photographs to the homeowner of the contents inside the refrigerator, what is missing, and what needs to be bought.

The Internet of Things and FinTech
Because the Internet of Things is essentially a mega data network, and financial technology relies heavily on analyzing data, there is an undeniable connection between the two. According to Eyal Nachum, Chairman of the Board at financial technology company, International Fintech UAB, “The moment that Fintech will penetrate into IoT, we will see a huge push forward and a dramatic shift in accessibility”.

If homes equipped with IoT can track the usage of energy being used, financial technology can be used to grant consumers the opportunity to pay accordingly. This concept is called pay-by-use. Pay-by-use allows users to pay based on the amount of data they use, rather than paying large monthly bills with a set sum that does not fluctuate according to usage.

The elimination of large monthly bills means that more users can gain access to this technology. Pay-by–use allows access to IoT to a wider range of populations, not just the wealthy or tech-savvy. This could be especially useful for the elderly or disabled populations, who can greatly benefit from IoT.

Let’s take an example of a man with impaired memory who forgets to turn off the air conditioning in the summer. Through IoT, he can be alerted to turn off the air, which would reduce the amount of energy being wasted. If it would be possible for him to pay only for the amount he used, he could freely utilize this technology, instead of being hindered by unfeasibly large bills.

To pay by use rather than a fixed price not only increases accessibility to these products, but also increases the quality of the services offered as well. If the service provider knows that it will only receive revenues based on the high quality of service they provide for a limited amount of resources, hey will be more inclined to provide more accurate and thorough service.

The Internet of things could just be the next big revolution. With its profound applications, and far-reaching benefits, it has the capacity to change the way we live. There is almost no realm that has been unaffected by IoT, including Fintech. The next challenge is to make it accessible, so that like smart phones, we can all reap the benefits.

Digitizing the Transportation Industry

Tuesday February 6, 2018

Financial technology is influencing the world with growing speed as the scope of Fintech startups broadens to reach a variety of industries. In recent years the world of Fintech has exponentially expanded, penetrating into the spheres of banking, insurance, e-retail, and social media. Consumers worldwide are now relying on Fintech companies to aid in operations such as customer banking, payment transfer, insurance, pensions, and wealth management.

At a time when consumers are interested in maximizing their time and minimizing their effort, financial technology is a surefire solution for providing efficient transactions that cater to the financial needs of their customer base. Financial technology offers assistance with useful services such as applying for loans, tracking and managing investments, and overall management of personal and corporate financial requirements.

Although the sphere of influence of financial technology has grown, there is still one sector that has been virtually untouched. The transportation industry has not yet fully adopted the innovative applications that financial technology has to offer. Like Fintech, the auto industry is a constantly growing enterprise. The automobile industry, which has now re-gained traction since a 2007 dip in revenues, saw significant increases as automobile sales have spiked since 2015. The relationship between the tech and auto industries has only strengthened in recent years due to talk of new autonomous cars that could eventually be manufactured by technology companies.

While Fintech companies have accessed some niches within the auto industry, there is much more than can be done to cater to the financial needs of car owners. It is true that tech companies are now taking steps toward simplifying the process of automobile purchasing, however, there still remains a gap when it comes to implementing digital transactions related to everyday usage of cars.

Currently, certain technologies exist that aid in the process of purchasing a vehicle. It is possible to apply for an auto loan with the help of financial technology that performs credit checks and scans data virtually. Similarly, thanks to financial technology, one can complete the process of financing their automobile without dealing with the redundant offline process of filling out paperwork. What is missing, however, is technology that improves customer experience in the realm of maintenance and everyday usage of the car.

If automobile payments would become digitized, user experience would be swifter with less time spent in interface. It seems only natural that with the existence of applications that allow you to purchase coffee with the click of a button, that the same would be true for petrol and toll payments. Similarly, if all matters related to car insurance payment would be handled through online management, the process would become much less time-consuming. Even purchasing food at a drive-thru food establishment using an online method would constitute a more pleasant experience. If it were possible to receive one solidified bill at the end of each month which included all financial needs pertaining to one’s automobile, this would eliminate much of the hassle that automobile owners must deal with.

Financial Technology has the capability to shape the future of the transportation industry, and make the experience of owning an automobile more time effective. The industry now must look beyond the preemptive and initial steps in the process of auto purchasing and adopt a long-term game plan to provide efficient solutions when it comes providing options for digital transactions to car owners.