Category: Jacob Parker-Bowles

Fintech: Startups vs. Big Banks

On May 31, 2017

Fintech is taking control of the future of finance across the world. There are multiple aspects of financial technology that will be shaping the way we handle the exchange of money. Whether it be transactions from smartphone or advancements in accounting, fintech has full control of how we manage finances in the 21st Century.

Adapt or Die

With apps already out like Venmo, large corporations are trying to get ahead in the technological race to adapt fintech. Apple has already begun to get a leg-up on the fintech world by releasing Apple Pay. The accessibility of money has been demanded by consumers and Apple is listening. Big banks are starting to find they may be losing the battle against financial technology if they do not adapt. While this may be bad news for traditional small banks, large financial corporations are beginning to invest in fintech start-ups.

The advantages for big banks to invest in these start-ups are due to their ability to have fast innovation and edge. As well, financial technology allows users to make decisions that are more precise and fast. Why would customers stay at slow financial institutions when they have the ability to utilize resources like one-click loans or secure credit card processing?

A Mutual Relationship

Banks have viewed the growth of financial technological companies as a threat to their business and industry. Yet, there is a great opportunity between large financial corporations and fintech companies trying to gain traction. Large banks need the innovation that these start-ups have and the start-ups need the financial support and tracking that the banks can give them. Partnerships between the industries could prove beneficial for both.

Essentially, it comes down to both parties finding a middle ground to benefit from one another. The heart of fintech comes down to innovation, collaboration, and openness. If banks do not realize this and change their business model, they may end up on the sidelines while small start-ups take their place.

Across The Globe

Countries like Brazil have started to see the effects of banks not collaborating with new fintech businesses. Many large banks such as Itau and Banco Bradesco has slowly been closing their physical banking centers due to the changes in the industry.

India’s banks, which dominate the country’s financial landscape, also have a grim outlook. An online payment company, Paytm, announced a $1.4 billion invest while large banks are struggling to keep up.

Convenience Over Customer Service? How Online Banks Appeal to a Changing Clientele

By Jacob Parker-Bowles

On May 8, 2017

In FinTech, Jacob Parker-Bowles

There is an unfortunate tradeoff with the implementation of new technology: the more advanced technology becomes, the less personalized our world is as a result. When simple jobs can be performed by robots, as many now can, there’s no need to invest the money into human labor. At certain restaurants, people can place their orders via iPads. You can pay your friends back through an app on your phone without having to travel to an ATM to take out cash. You can book an entire vacation from your phone. You can place an order online without the need to talk with a human until your food arrives at your doorstep. Luckily, the need and desire for human interaction in the way we conduct business still exists, so technology has not eclipsed customer service entirely. But it seems that things could be headed in that direction, and banks are one sector where we can already see that trend.

Without that crucial customer service element, what remains to retain customers? As paradoxical as it may sound, banks are attracting new customers by keeping them away. “Banks are finding new growth opportunities through online and mobile channels, proving once more that consumers are increasingly attracted to the convenience and speed of mobile and online solutions,” says letstalkpayments.com.

When so many people, especially the millennial generation, turn to their phones for just about everything, it only makes sense that banks would tap into that lucrative channel, prioritizing convenience over customer service. Bank transactions dropped off by nearly 50 percent between 1992 and 2012, as online and mobile capabilities came into play. In order to retain customers, banks have had to play by new rules to appeal to a changing clientele.

Some banks are combining new technologies with traditional banking elements to appeal to a younger generation. For example, Savings Bank of Danbury in Connecticut just opened a new branch, and they pulled out all the bells and whistles to cater to tech-savvy millennials. Instead of a person, a large screen recounting the bank’s history in an ongoing loop greets customers as they walk through the door. The new branch features lounges with iPads and laptops where customers can interact with bank staff through technology, rather than face-to-face in a traditional teller line.

According to Martin J. Geitz, president of Simsbury Bank, the millennial generation are outgrowing the baby boomer generation, and as such are coming to define the economy. Says Geitz:

We are now embarking on the threshold of the millennial generation driving the economy as so many are entering the workforce and their demands and tastes for products and services will really define what banks offer and other consumer-driven products. The millennial generation grew up with a smartphone in their pocket. They have a different relationship with technology than we do. It’s important that we provide functionality at their fingertips.

Banks are offering a variety of features that allow customers to conduct all of their finance needs remotely, without ever setting foot in a bank. For instance, people can now transfer money to one another through cardless ATMs and checks can be deposited through an app on one’s phone just by taking a picture of it. In fact, there is an entirely new breed of banks that’s risen up in response that is moving away from brick and mortar locations entirely, operating solely online. An example of an online bank is Simple, aptly named for its mission to make the banking process as simple and convenient as possible. The bank gained more than 100,00 customers in its first two years and was promptly snatched up by Spain’s second largest bank, Banco Bilbao Vizcaya Argentaria (BBVA).

For the time being, brick and mortar banks are here to stay. They may not be the grand, pillared buildings of years past, with imposing high ceilings and marble floors, but nonetheless, there is a large fraction of the general populace that doesn’t fully embrace or understand technology, and still desires a certain degree of customer service. Mobile banking technology will continue to expand, but it will need to do so in such a way that combines the service of traditional banks with the convenience of online banking.

Jacob Parker Bowles Mobile Payment Apps (3)

The Role of Artificial Intelligence in Finance

By Jacob Parker-Bowles

On March 30, 2017

In FinTech, Jacob Parker-Bowles

You’ve probably heard of the word fintech before, short for financial technology- just about everyone has these days. It’s usually a trending hashtag on Twitter. However, for those outside the finance sector, your understanding of what financial technology actually is and how it affects the industry may be somewhat limited. I don’t mean to insult anyone’s intelligence here; I simply mean that unless you actually keep up with trends in the finance industry, it would be difficult to have a firm understanding of the technologies that are being applied to it, as they’re constantly evolving.

Up-and-coming financial technology companies have the user in mind, as they work to optimize the user experience and streamline financial transactions through artificial intelligence. Artificial Intelligence, often abbreviated AI, can be thought of as a group of related technologies training machines to respond to and simulate the human brain. These related technologies include: “natural language processing (improving interactions between computers and human or ‘natural languages), machine learning (computer programs that can ‘learn’ when exposed to new data) and expert systems (software programmed to provide advice).” While this is all well and good for everyday people who just want to simplify their finances, banks are being forced into a position where they will have to either respond and adapt, or fail.

The financial landscape is rapidly changing, and it isn’t sticking around for stragglers. According to BBC News, “Machines are now responsible for most of the activity on Wall Street.” The stock market floor of a few years ago, with traders frantically shouting and signaling to make deals on commodities, is not the floor of today. Computers can respond in a matter of nanoseconds, whereas the average human response time is half a second. When it comes to stocks, every millisecond matters, so machines and high efficiency traders trained in these machines have started to take the place of traditional traders.

With Wall Street already responding to changing technology, it’s only a matter of time before banks and financial services will be forced to respond as well. As the latest Technology Tool for Today (T3) conference demonstrates, a number of finance companies are eager to jump on the bandwagon. Fidelity’s eMoney conducted a live AI demonstration of an interaction between Alexa and eMoney’s eMX personal finance platform in which Alexa could answer questions such as how much is in one’s bank account. EMoney also showed off a new virtual reality 3D financial planning experience where users can learn how to manage their finances through an online guide and communicate with an advisor afterwards through a video session- all from the convenience of home. Another fintech company, Redtail Technology, introduced a newer, more user-friendly version of their CRM software.

While AI presents a major disruption to business across multiple industries, the finance industry realizes its incredible potential. The finance industry is very much user-dictated, so any technology that will enhance the customer experience and make them more likely to trust in a bank’s services cannot really be a bad thing. Banks will simply need to rise to the challenge, because as research suggests, AI could double economic growth rates in 20 countries and increase labor productivity by 40 percent by 2035. According to Forbes:

Artificial intelligence provides banks, capital markets firms and insurers with an enormously powerful set of tools to transform and streamline some of their most fundamental financial processes. The challenge for many, however, is not only to identify and adopt the best AI technologies but to reshape and rethink their operating model and talent development to take advantage of AI’s transformative capabilities.

Deceptively Dark Money: The Hidden Dangers of Dark Money

By Jacob Parker-Bowles

On February 22, 2017

In FinTech, Jacob Parker-Bowles

Unless you’re involved in the financial industry or politics, then you may have no idea what dark money even is, but you’ve probably heard the term tossed around by politicians and the media. It sounds like something shady and mysterious that could get the owner into trouble, and that is pretty much exactly what it is. However, dark money transactions occur all the time and government officials do nothing to stop it. And why would they? Dark money, since gaining traction in the United States during the 2010 midterm election, fuels elections, playing such a large role in the campaigns of political figures that it would be futile to try to reverse its existence.

I should probably explain what dark money actually is before getting into why it’s so dangerous and its power to influence elections. Dark money is essentially just money that is donated to nonprofit organizations or super PACs (political action committees) from various undisclosed donors to influence the decisions of voters in elections, mainly in the form of political advertisements- so if you’ve ever seen one of those propagandistic political commercials that seem to play on an endless loop around the time of elections, then you’ve no doubt witnessed the products of dark money.

The use of dark money to influence elections has taken off exponentially in just the few years it has been in use. According to the Center for Responsive Politics, spending from nonprofit organizations that do not disclose their donors has increased from $5.2 million in the 2006 election to $300 million in the 2012 presidential elections and $174 million in the 2014 midterm elections. In the most recent election period, political organizations outside of official party/campaign groups spent over $15 million in 2015 alone and only reported $5 million to the Federal Election Commission (FEC).

There is debate over just how much dark money influenced President Trump’s campaign, with Andy Kroll citing in an article for Mother Jones that while Trump initially denounced donations from outside groups to fund his campaign, he ultimately raised more than $300 million from wealthy and small-dollar donors, lobbyists, and businesses, which he used to pay consultants, pollsters, fundraisers, and ad makers to run the promotional end of his campaign. Additionally, according to Kroll, he received more than $100 million in anonymous support from dark money groups.

Whether or not these statistics are entirely factual is beside the point. It’s clear that dark money has come to play a large role in elections. Undisclosed funds are indisputably shady transactions, yet there are generally two camps when it comes to dark money, which helps to explain why this practice isn’t going anywhere anytime soon.

Campaign finance reform activists

While many people outside of politics or finance may feel uncomfortable about dark money, there are those who are staunchly against it. Campaign finance reform activists, encompassing groups such as Democracy 21 and the Campaign Legal Center, argue that voters have the right to be informed of who is funding political campaigns. According to the Center for Public Integrity, “Such information, they assert, is essential to voters’ ability to evaluate the merits of political messages- and to know if certain special interests may be trying to curry favor with politicians.”

Supporters of anonymity in politics

Then there are those that defend dark money, those that support anonymity in politics and assert that founding documents such as The Federalist Papers and Thomas Paine’s Common Sense were published anonymously. The Center for Competitive Politics argues that the threat of dark money is “overblown” and “disclosure comes with a cause,” meaning donors have the right to remain anonymous to avoid harassment or negative press.

As these views demonstrate, there are two sides to every story. However, the risks associated with dark money cannot be ignored, and its influence in political elections is undeniable.

Jacob Parker Bowles: When Technology Turns Tumultuous

When Technology Turns Tumultuous: 2017 Tech Predictions

By Jacob Parker-Bowles

On January 17, 2017

In FinTech, Jacob Parker-Bowles

Following the Tesco Bank hack in November 2016, many are led to wonder what this breach of security means for the future. On Monday, November 7, Tesco, a major UK bank, reported that over 9,000 customer accounts had been compromised and a total of £2.5 million had been taken from those accounts. This was the largest-ever cyber attack on a UK bank to result in a mass loss of money. Yet, following the attack, Tesco released the statement, “Tesco Bank has not been subject to a security compromise and it is not necessary for customers to change their login or password details.” They were careful to avoid using the word “hacked.”

But isn’t that exactly what it was? Well, according to an opinion piece from Payments Industry Intelligence, not exactly. Tesco itself could not even explain how this “systematic and sophisticated attack” even happened, only that (unlike the Yahoo! data breach), no personal data was compromised. Mark Weston, head of information technology at international law firm Hill Dickinson explained that, whether the attack was internal or external, no bank is immune to fraud. This could have happened to any bank.

The author of the opinion piece theorizes that there are one of two things that could have led to the security breach, the first being that criminals made fraudulent debit card transactions by securing a large batch of real Tesco Bank debit card numbers from a third party (like one of Tesco’s core outsourcing partners), which would have contained both the CVV and CVV2 numbers and account numbers. The second theory is that the criminals made transactions using US magnetic stripe contactless debit cards (which the US is gradually phasing out in favor of chip cards) and Tesco Bank’s authorization systems did not recognize this transaction type; therefore, they did not validate the CVV values and the criminals could have inputted random values.

As technology becomes more and more advanced to the extent that nearly everything, even banking, is done by machine, there exists a much greater risk of fraud. According to BBC News, “The more connected the world becomes- think connected cars, smart homes, sensor-laden cities- the more opportunities for hackers to break into the system and wreak havoc.”

Therefore, BBC predicts, according to cybersecurity firm Trend Micro, that in 2017, the internet of things (IoT) and industrial internet of things (IIoT) will play a larger role in targeted attacks, and another major bank will fail as the result of a cyber-attack. The firm also predicts that hackers will continue renting out their ransomware infrastructures that allow them to break into computer systems, encrypt data, and demand a ransom to decrypt it.

Worse yet, hackers are no longer interested in merely stealing data and acquiring money from it; they are figuring out how to alter it, which could have potentially disastrous consequences. Major companies and entire stock markets could collapse. Essentially the entire modern world is run by a delicate web of data; data alteration has the power to bring down power grids and water supply systems. Life as we know it could be at risk. Additionally, hackers will continue to target human vulnerabilities by tricking people into transferring money into criminals’ accounts. In the US in 2016, the average payout was a whopping $140,000.

Some of the other tech trends projected for this year may sound exciting in theory, but advances in artificial intelligence, virtual reality, and automation could spell out doom as well. If we keep entrusting robots with human jobs, such as call center and customer service jobs, then there will no longer be a need for those workers and the labor market and economy will suffer unless some kind of system is put in place to accommodate for the loss of jobs.

So, the lesson here is simple. Changes in technology can be exciting and life-changing, but according to BBC, “2017 could also be the year that the world is forced to deal- finally- with the tangible impacts of technology upon human society.” Technology has the power to save lives, to revolutionize the way humans work and function- but it should be taken with a grain of salt, because technology also has the power to lead to the destruction of the lives we have become accustomed to.

Fast Cash is Like a Quick Draw

By Jacob Parker-Bowles

On December 14, 2016

In FinTech, Jacob Parker-Bowles

A new report from the Harvard Business School equates fast-cash loans for small businesses to the wild west. If you’ve seen episodes of the new HBO show Westworld, then you probably realize the wild west is not a place you want to be. Old-timey westerns like Gunsmoke and Bonanza, or everyone’s favorite cowboy, John Wayne, glorify the notion of the wild west, but if you were to step back in time to the lawless frontier territories of the late 1800s, you’d probably feel more like a host of Westworld’s futuristic theme park where mayhem is the rule than one of Ben Cartwright’s heroic sons.

Fast-cash loans for small businesses are the same way; in theory, they seem like a great idea- a way to get money quickly without going through the hassle of a bank. For small businesses just starting out, fast money would seem like the perfect solution to jumpstart their businesses by investing in the equipment and technology needed to get started and worrying about paying it back later. However, as with many things in life, there’s a catch.

The sector of alternative small-business lending has really taken off in the last few years, with the emergence of the new fintech (financial technology) industry. A few years ago, businesses would have to go through a bank to get a loan, providing various information and data like tax returns and financial statements. The whole process would take weeks or even months. It was especially difficult for small businesses to secure the loans they needed due to a credit gap, a lack of funds available for small businesses requiring smaller amounts of money, usually less than $250,000. Now, thanks to advancements in technology, a series of digital platforms exist, such as Quickbooks Financing, Lendio, Fundera, and NerdWallet, that connect small businesses with lending companies of a sometimes-dubious nature, such as Lending Club, OnDeck, BlueVine, FundBox, Kabbage, and Prosper.

Because fintech lenders rely on more digitized methods than traditional bankers, their process of getting money to small businesses is typically much more efficient. But here’s the catch: these lending companies don’t offer their services without a steep price to pay. They often charge exorbitant interest rates and hidden fees because federal regulators do not have control over small-business borrowing in the way that they do consumer borrowing. The Truth in Lending Act does not apply to small business transactions. According to USA Today, “A short-term loan can turn into a long-term nightmare.”

The Harvard Business School report identified the main problems with this type of lending, as well as potential solutions, which are as follows:

Problems

High costs: Lenders typically charge small business borrowers APRs (annual percentage rates) between 50 and 300 percent.
Additional and hidden fees: Borrowers are slammed with additional fees when they renew their loans and stacking (when multiple lenders give loans to the same borrower) can occur, resulting in additional and hidden fees. Also, unlike traditional loans, many of these fast-cash lenders require payment of the full interest even when loans are paid off early.
Misguided advice: Fast-cash brokers will often persuade small businesses to take out larger loans because they get the highest fees on them.

Solutions

Mandatory disclosure of APRs, fees, default rates and borrower satisfaction
An option to regulate nationally rather than state-by-state
Greater borrower security for small-business owners
Rules/guidance on partnerships between banks and new lending companies
Digital broker platforms should act in the borrowers’ best interests and disclose any conflicts of interest

As it is now, the fast-cash system of lending to small businesses is far from perfect; however, as with most new forms of technology, there’s certainly potential there: “There’s so much promise in the rise of lending to small-business market,” said Brayden McCarthy, co-author of the report. “It’s been ignored for a long time, but we want to make sure that disclosures are robust enough so borrowers know what they’re getting into.” It is especially important in the United States, entering into a new Presidency, that both lenders and borrowers are protected, co-author Karen Gordon Mills explained. Hopefully, once all the kinks are worked out, this fast-cash lending system will be a little more tame and a little less wild.

Jacob Parker Bowles: Fintech For Everyday People

The Most Useful FinTech Apps for Everyday People

By Jacob Parker-Bowles

On November 21, 2016

In FinTech, Jacob Parker-Bowles

It has become undeniably clear that Fintech is here to stay. Last month, I wrote about how even the notoriously entrenched big banks are getting involved with “disruptive” banking tech and buying, investing in, and creating new fintech apps to feed the growing consumer demand for a new kind of banking, banking that is intuitive, accessible, and designed to integrate seamlessly with everyday life.

Well designed fintech cuts out the middle man and delivers a product directly tailored to the user experience. So what exciting new apps should you be using to simplify your financial life? Here are a few of the most useful new financial apps for everyday money managers.

Acorns

We all know how important it is to save up money, but often it’s much easier said than done. It takes discipline, planning, and no small amount of stress. Acorns tries to take all of these out of the savings process. Instead, Acorns simply rounds up all of your transactions and funnels the spare change into a mutual fund to help you build your retirement savings painlessly. If you buy a sandwich for $5.78, Acorns will add 22 cents to your account. You’ll barely notice as your savings steadily grow in the background.

Zopa

Next time you need a loan, large banks won’t be your option to turn to. Zopa eliminated the middle man (and, unfortunately, the safety and insurance of lending capital) by going straight to individual people. Peer to peer lending allows ordinary people to make interest by providing loans, and offers great rates that often beat out the banks to people looking to borrow. It doesn’t get much more disruptive than this – cutting banks out of loans.

Nutmeg

If you want a dedicated account manager for your investments, but don’t want to work with big banks and big bank prices, Nutmeg can step in. The app designs an investment portfolio based on your personal risk tolerance, and manages the account indefinitely. They advertise total transparency, lower costs, and you can keep tabs on your investment from any mobile device throughout the day. While Nutmeg still uses human fund managers in the backend, there are many other “robo-advisers” that manage your money using either a combination or entirely artificial intelligence.

Wise Transfer

While banks often set currency exchange rates for a profit, Wise Transfer gives you the mid-market rate, or the “real exchange rate” when switching between currencies. The service charges a small fee to connect people who are sending or receiving money across borders for peer to peer money exchange. Once again, it’s all about streamlining the process and making it transparent.

Jacob Parker Bowles: Digital Disruption Doesn't Have To Mean Disintegration

Digital Disruption Doesn’t Have to Mean Disintegration for Legacy Banks

By Jacob Parker-Bowles

On October 7, 2016

In FinTech, Jacob Parker-Bowles

The banking industry is old — centuries and centuries old. And while banks have certainly developed over the years into economically complex mega-institutions, those developments haven’t always translated into a better deal for the customer. To make matters worse, disatisfaction with banks skyrocketed in the wake of the 2008 crash until it was practically a household topic. In short, banking was ripe for disruption.

And disruption came. The fintech industry has seen explosive growth since in the last few years — the market has been steadily doubling each year. In fact, you may be hard-pressed to find anyone under 35 who isn’t relying on a mobile finance app or other fintech innovation in their day to day lives, whether they know it or not.

More and more, consumers prefer to turn to their mobile phones for services that banks have had a hold on for decades. If you need any further proof, take Venmo, which sold for US$26 million a mere five months after it launched, and processed $4 billion in person to person transactions in the second quarter of 2016 alone. The runaway success of Fintech startups staking claims in all corners of the financial sector isn’t an accident. Rather, they are revealing a gaping hole in the market where the needs of consumers went unanswered for a long time.

Rather than zeroing in unwaveringly on the bottom line and basing all decisions on risk analysis — and leaving consumers cold in the process — fintech startups are refocusing attention on the consumer experience. Faced with the the institutional power of legacy banks, financial startups are competing by providing services that are attractive simply for their quality, convenience, and accessibility. With startups left and right, there’s more variation in service than ever before.

So what will all the disruption mean? Big banks are left with two choices: remain entrenched in their traditional inefficiencies and poorer service, or embrace the changes and join the development race to give customers what they want — or someone else will.

The pressure for banks to rise to the challenge is enormous. Despite the popular portrayal, however, it doesn’t need to be a bitter rivalry. Big name financial institutions may not have the speed and agility of fintech startups, but their institutional power is not about to evaporate overnight. It took a while for banks to get with the times, but it’s highly unlikely that this period of disruption will lead to long term obsolescence.

More and more, we are seeing legacy banks joining the fray. According to one software company’s survey, 94 percent of banks are acting on digital transformation initiatives, and 76 percent are working to integrate new tech with their existing systems.

Rather than remain set in their old ways while customers flock to their mobile phones, legacy banks are waking up and starting to acquire successful fintech companies, set up new incubators for further innovation, and even begin their own development — see, for instance, Bank of America’s IT transformation.
And it’s good news for all of us. It’ll mean better services for everyone as startup mentality innovation meets large-scale power and funding. Luckily for all, it’s not a winner-take-all market; Venmo and Chase are both here to stay.

Welcome!

By Jacob Parker-Bowles

On August 25, 2016

In FinTech, Jacob Parker-Bowles

Welcome to the Offical FinTech Blog of Jacob Parker-Bowles. Please stay tuned for more updates!