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  • @fintechna 9:40 pm on September 20, 2016 Permalink | Reply
    Tags: 'Any, , , , , , Revolution, , , ,   

    Blockchain Revolution Won’t Happen ‘Any Time Soon’, Says Bank of England Official 

    A senior of doesn’t believe widespread adoption will anytime .

    Source

    Blockchain Revolution Wont Happen Any Time Soon, Says Bank of England Official fintech
    CoinDesk

     
  • @fintechna 10:40 am on September 8, 2016 Permalink | Reply
    Tags: , Revolution   

    Navigating the Blockchain Revolution 

     Navigating the Blockchain Revolution Blockchain

    Last labor day week there were perhaps  5 articles or stories on the discovered through an alert on Google Scholar.  This week there are over 50.  It gets increasingly harder to navigate this landscape, especially for generalists. Gartner and other innovation and trend discovery operations are now suggesting that the blockchain is being hyped.  They are simply wrong.  Academics and startups in the space are real.  Funding in the space is real.  Even in tech wastelands, the open source nature and tradition of blockchain is fueling very rapid exploration and development.  

    I think the attempt to discount the depth and breadth of the impact of blockchain is due to traditional outlets of news and information being overtaken by the movement of crowd.  They customarily work with major software firms with PR operations that translate and shape evolving products and innovations for them. However, with open source programs and crowd sourcing, nobody can maintain an edge for long.  Funding and staff may enable a toehold, but real traction is very hard to achieve in this kind of environment.  Let me put it simply.  There will be very few protected applications in this space and that means that Gartner won’t be able to access a constant set of actors. It also means that traditional monetization models will fail.  What will succeed is something like the DADE, a multitude of distributed application development entities that access development resources of the crowd and allocates ownership through proof of work and proof of stake.  The that is covered up by the hype of blockchain is the revolution in distribution of micro-ownership and therefore micro-compensation that is at the heart of the sharing economy.

    The quickly shifting landscape generates a panic even in those of us who were early adopters, especially if we thought we could leverage traditional monetization channels through providing services or consultation or developing proprietary protected applications.  Developing proprietary blockchains is the latest result.  These proprietary blockchains are already dinosaurs and wasteful and redundant.  However, for the desperate and the short sighted, they offer the false hope of a reliable and predictable income stream.   Expect more pot shots at open source from folks who have sunk assets into these proprietary blockchain systems.  If you are a news outlet or a reporter, “follow the money,” and you will understand what motivates the desire to undermine the empowerment and democratization on offer through open blockchains.


    is Co Founder at Kleverer.com

     
  • @fintechna 4:54 pm on July 3, 2016 Permalink | Reply
    Tags: , , , , , , , Revolution, ,   

    The next Banking (R)evolution 

    The next Banking (R)evolution fintech

    The introduction of new technologies has facilitated new consumer and customer behaviors. These new behaviors have facilitated the adoption of new technologies. The resulting virtuous circle has ushered a period of rapid change which has profoundly change one industry after another. Industry incumbents have had to face a new reality where vertical integration, a fancy word for “owning the entire value chain” has turned into a liability. Indeed, the virtuous circle I mention has allowed new competitors to deliver value at one point of the value chain, without owning the entire value chain. Take the media and entertainment industries as an example. It used to be that “content was king” and “pipes were dumb”. Based on these heuristics Hollywood studios ruled over an entire value chain and were comfortable living in a world where the only thing they needed to do was to deliver their content to movie theaters. This is no longer true. Even though original content still rules, pipes are not dumb anymore. Pipes are actually smart, and that are built on top of platform strategies. Content is important, but so is how you create content, how you deliver it, with what and to whom, how you measure how it is delivered, plus the balkanization of communities of users make it eminently more difficult for a vertically integrated entertainment business to remain at the top of the food chain without profound changes. Witness the rise of Netflix, Amazon with their different value propositions around entertainment content and compare to how the main Hollywood studios are armed for the future.

    The financial services industry in general, and the industry in particular are now faced with the same tectonic changes other industries have faced. For , this is an even more perilous exercise as most of them have never faced a breakdown of their value chain in the past and have enjoyed “near” monopoly in their geographies thanks to accommodating regulatory frameworks.

    For simplicity’s sake, I break down a bank’s business into four layers (borrowing from a Boston Consulting Group framework):

    • Infrastructure: comprised of IT hardware (mainframes, cloud, hosted) and software (core banking system, CRM, client reporting, transaction/payment processing, analytics)
    • Products: comprised of three parts which are accounts, lending and the rest (payments, savings, investments, brokerage, advisory)
    • Interface: comprised of branches, web apps, mobile apps, customer service centers
    • Clients ecosystems: comprised of retail, SME and enterprise.

    Yesterday’s bank owned each layer. Clients dutifully visited their branches or relationship managers to consume products created by their bank which were delivered by the infrastructure owned by the same bank.

    To the extent that banks faced competition it was from another bank which also owned its entire vertical stack end to end, which was operating in the same geography. Oligarch banks ruled.

    Today’s bank is under threat at each layer of its stack instead which makes for a much more complex competitive landscape.

    First, clients spend more time somewhere else than with a bank. We all know the relative decline of branches. Not only are retail consumers not visiting their branches as much as they used to, but they are also increasingly spending time in completely different ecosystems than in the past; communities where a local bank relationship manager has little leverage if any. These ecosystems are called Facebook, Google, Amazon, WhatsApp, Snapchat, Instagram, Pinterest. (Even though such change is not as pronounced with SME and enterprise clients, there is also change with these segments.) Second clients are used to a different customer experience based on the service they are getting from these digital communities, thereby making bank web apps and mobile apps always play catch up. In other words, clients are moving banks, and bank customer interfaces are under threat. Third, products are under threat although we have to nuance this statement and look at lending separate from the rest. Let’s look at the rest first. Accounts are being loosened from the tight grip of Mr Banker – PSD2 in Europe, the open bank initiative in the UK will take care of that – allowing, under consent, third party access to account data and meta data. Payments is experiencing the highest level of competition given it has the lowest barrier to entry, either from startups endogenous to the industry, new entrants exogenous to the industry (Amazon, Apple, Google, Facebook) or grown up startups (PayPal). Brokerage and Investments are prone to the same opening to multi-competition. This leaves us with lending which I believe should be analyzed completely differently than the rest because no one will ever be able to come up with a “zero marginal cost” lending product. Indeed, the cost of borrowing is comprised of the bank’s cost of borrowing and a margin to compensate for risk and provide adequate profit. That cost will never scale to zero or near zero. This, in my view is the main reason why lending will never experience an “Uber” moment where banks will be completely disintermediated – further, think of the unintended negative consequences of a massively large lender for example – whereas the main cost of the “rest” is that of delivery and marginal cost of delivery can and should be driven down to near zero. Fourth, infrastructure is where there has been to date the least disruption and competition, notably around core banking systems and CRM, even though holds the promise of much change in asset servicing.

    To date the overwhelming number of competitors attacking the above layers have not been successful. Fintech startups focused on investments ( advisory), brokerage, lending have not reached escape velocity and acquired meaningful market share to the detriment of banks. Some pundits believe it is because banks have much more defensible business models (regulation, licenses…). Although I do agree most startups have failed so far, I also know not to discount the entrepreneur/startup threat over the long run on the basis of a failed first wave. I am actually paranoid for banks as the overwhelming types of strategies banks have put in place to deal with change are in my opinion either inadequate or short term focused.

    Indeed, banks have focused on revenue optimization strategies (pricing, cross selling, upselling, margins) or cost reduction strategies (layoffs, better hardware, better software) by applying concepts (digital banking, API banking, mobile banking, cognitive banking) on existing business models. To the exception of a few banks who recently started working on a platform strategy – which forces them to address the competition they are will face at each of the four layers – all other banks are still in a “vertical integration” paradigm. This will change – the market will force that change, some banks will adapt, other competitors will rise to the challenge.

    I view all these bank moves as incremental evolutionary steps, good enough to compete another day, not good enough to reinvent banking drastically.  A digital bank – and there are many startup digital banks in the UK for example – is still vertically integrated, even though it holds the promise of being a “better” bank.

    Incumbents will have to choose how they want to compete going forward. Below are some of the potential options available:

    • The “Better” Vertically Integrated Bank: Essentially more of the same, that is a bank that still owns the entire stack, will compete against a multitude of competitors, but will do so better armed marginally – digitally so, less siloed, better hardware, better software, less employees. Although I believe some will be successful at this strategy, I am afraid it will be a very risky one. No network effects to speak of, no ability to drive to meaningful zero marginal cost of delivery for all products such a bank would offer
    • The “Platform” & Vertically Integrated Bank: Same as above but with some type of platform strategy that will allow a bank to partner with third parties and share the value created by delivering better product and service to consumers. Probably less risky than the above and one many banks will want to deliver. Still a difficult proposition in a world where modularity will be more and more important.
    • The partially Vertically Integrated Bank: Whether traditional or platform driven, this Bank will drop a few non core activities, not enough to not be vertically integrated but enough to reach another level of rationalization. I expect tier 2 and tier 3 banks with limited resources to be the best candidates to follow this model and some shrewd tier 1 banks to make a hard turn towards this model. Very interesting as a platform.
    • The “Interface” Bank: No more vertical integration for this type of bank. To date we have only seen Interface examples (Simple is but one of the examples). The Interface specialists have suffered from a disconnect with the ecosystems where users gravitate and have not been successful to date. They key to success will lie with how an Interface bank partners with these digital ecosystems. My gut tells me AI powered virtual assistants may have a shot at being very successful Interface Banks. Strong potential for network effects and driving to zero marginal cost of delivery
    • The “Product” Bank: By far the most intriguing layer strategy. Product banks focused on innovating only on one particular product or a family of products (when was the last time the financial services industry came up with an innovative lending product tailored to someone’s cash flow patterns for example). A Product bank would partner with Interface providers and/or ecosystems of users for example. Not network effect to be expected for lending products – definitely for other products – but the benefits of innovation and differentiation can be powerful. I would even expand the horizon of what a product could be by including “data”. Data being the new hot asset class and data management as well as identity management being crucial in our digital age, why not see the emergence of data banks.
    • The ”Infrastructure” Bank: I see three separate models. First, the generalist “Bank as a Service” (BaaS) model that will deliver services to Product Banks, Interface Banks, startups, partially vertically integrated banks, fintech startups, enterprises. BaaS is the most promising bank model of the future as the focus is on the provisioning of products as a service, or of services. We are not dealing with lending here, we are dealing with delivering the building blocks to enable lending – the same applies to all other activities. As such there is a very high probability for this model to drive to near zero marginal cost of delivery. In this context, we can apply the “Uber” label. Second, the differentiated specialist BaaS. This model is particularly relevant for high value add services such as advanced data analytics, underwriting analytics, risk analytics. Remember one of the points I made at the beginning of this post: there are no dumb pipes anymore, only smart pipes. To date banks are arming themselves with the services startups specialized in data analytics can offer (CRM, fraud…) but it is conceivable the specialization will be so important going forward and the pipes so strategic that a “Bank” will provide this as a service going forward instead of a non-licensed startup. Third, the commoditized specialist BaaS. I expect some infrastructure services to become commoditized faster than others. Think hardware fine tuned for banking use cases or core banking systems. Think about an AWS offering but for banking. Much like there are core processors for specific activities (video, gaming, AI tomorrow), there may very well be core infrastructure providers for banks.

    I have to make several additional comments to tie loose ends.

    If the above vision comes to fruition and we do see a segmentation of banking, I fully expect the regulatory and licensing landscape to change. In other words, we will see a new regulatory approach where different types of banking licenses will be issued based on the business model and its implicit and explicit risks to the market and to clients/consumers. Just to give one example, an Interface Bank as an AI powered Virtual Assistant may have to meet certain licensing requirements around providing financial advice to its clients but may not need to comply with lending requirements. To be clear, some fintech startups competing or providing services at each layer level may not require the same type of banking licensing as the Banks that will operate at each layer level.

    Further, competition at each layer level forces one to think platform strategy which results in either developing and implementing one’s own platform strategy or becoming one of the building blocks of someone else’s platform strategy. There is no escaping platform strategies.

    Additionally, layer specialization, other than with Lending, and I repeat myself here, can deliver very strong network effects enabled buy near zero marginal cost of delivery. This I believe will be in and of itself a revolutionary paradigm for banking.

    Finally, the bank that will successfully partner and integrate with ecosystems of users, regardless of the approach taken, will stand a higher chance of success than trying to create their own new communities or continue with existing ones. Like it or not, social networks are here to stay and will take on a greater importance in our lives going forward.

    Trying to craft a roadmap for the above vision is tricky. We are in the early innings of platform strategies or API/marketplace strategies for banks and much remains to be done – no one has declared a BaaS for example. I venture that we shall see increased activity along these vectors in the 5 years &; the actions of Facebook, Google, Amazon, Apple, Alibaba (and Snapchat, Instagram, WhatsApp, WeChat&;.) will make that absolutely inevitable. Incumbents may also naturally gravitate towards a few of the six options I laid out above &8211; either as a result of further divestitures, acquisitions or mergers &8211; leaving space for new entrants (large tech companies, fintech startups). In other words, the industry is large enough to see various participants succeed and avoid a banks lose, new entrants wine scenario, or vice versa.

    Last parting thought. I strongly believe the above also applies to the insurance industry &8211; with the appropriate tweaks.

    FiniCulture

     
  • @fintechna 3:35 pm on June 24, 2016 Permalink | Reply
    Tags: , , , , Auditing, , , , , , Revolution, , ,   

    Blockchain and the Auditing Revolution – Real Time Audit within the Capabilities of Blockchain 

    is the process of conducting an independent examination of an organization’s accounts, books and/or documents in order to determine whether the organization’s financial statements present a fair view of the business. It is based on a set of pre-determined guidelines, normally the International Accounting Standards, or GAAP (generally accepted accounting principles).

    Auditors themselves are normally independent third-party intermediaries who are employed to verify the accuracy of companies’ financial statements. Indeed, the financial statements themselves can be viewed as a summation of what happened in a company’s ledger throughout the accounting period. Ultimately, the auditor then decides that either the financial statements make sense, or they is a discrepancy between what the company’s management has provided and what the true numbers should be.

     

    Auditor and Client relationship

    Because the client is responsible for paying the auditor, an inherent bias emerges. This pecuniary relationship between auditor and client could tempt the auditor to provide a false (or rosier) assessment of its client&;s accounts, for the chance of repeat business from the client at the end of the next accounting period. Moreover, the client may also present the auditor with false or exaggerated figures to inflate the company’s true value &; this is known as ‘cooking the books’.

    Whether the auditor can detect this or not is largely immaterial – the fact that potential exists for compromising the accuracy of the financial statements at the expense of the public is of grave concern. This has significant implications for how internal and external parties &8211; including regulators &8211; perceive the quality of the auditing process.

    There have been high-profile cases where poor standards of auditing have been uncovered, and which have had significant consequences on the accounting industry. Enron is arguably the most high profile example. Arthur Andersen, the firm responsible for auditing Enron’s books since it started doing business in 1985, played a significant role in the scandal, particularly once it was revealed that the accountancy firm was guilty of obstructing justice by playing an influential part in the shredding of a huge number of incriminating documents just before the investigations commenced.

    The scandal was just one in a number of cases involving auditing incompetency where corporate accounts were misrepresented, including the UK’s Polly Peck International, Germany’s Metallgesellschaft, and Cendant Corp and Sunbeam Corp in the US. Indeed, by the Enron collapsed in early 2002, it was revealed that 700 US companies had to restate accounts in the previous 4 years alone.

     

    The collapse of Enron

    The fall of Andersen highlighted the pressure on accountancy firms to boost profits, while the company itself compromised the integrity of the auditor’s role as an independent third-party by making partners effectively become salespeople. This made auditors agenda-driven, as they began empathising more with their clients, and in doing so, destroyed the auditor’s dual function of servicing its clients but also equally looking out for the public interest.

    Indeed, the basis for many auditing failures since then has been the questionable business relationship between auditor and client, which has generated much conflict of interest. Instead of a company’s auditors being appointed independently by shareholders, many were chosen by the company&8217;s internal management, or even worse, they were hired to senior management positions, often with the intention of saving costs. Perhaps in the wake of the Enron scandal, the biggest fallout experienced by the global auditing industry was the loss in public trust.

    Auditors are trusted upon to issue their opinion as accurately as possible, while the public also trusts that the company has not tried to cook the books. According to Ellen Masterson, former global head of methodology at PwC, moreover, the priority for client management was to reduce the cost of the audit, meaning that auditors were “pressured to do the minimum”.

    In the aftermath of Enron, the Sarbanes Oxley Act was implemented which required that top executives sign off on audits, fully in the knowledge that they would be held criminally responsible if the books had been cooked. Furthermore, auditors now have to report to an audit committee, which has widened the gap between a company’s management and the auditing firm. Audit-committee members can also be prosecuted by regulators for fraudulently influencing a company&8217;s auditors. While Sarbanes-Oxley has decisively improved the auditing process, there is still no guarantee that executives who sign off on audited accounts know for certain that what they are approving is 100% accurate.

    Auditing today, therefore, is still lumbered with such inefficiencies, remains based on ‘reasonable assurance’, and is broadly unchanged from what has been practised for decades, meaning that the process is now ripe for a new, innovative transformation. At present, each account (such as assets, revenues or liabilities) is viewed as a set of combined transactions, which produces a final balance at the end of the period.

    During the audit, the auditor will verify a certain number of these accounts with the trading parties and determine the accuracy of the balance using a sample of previous accounting entries. They may also, on occasion, speak to employees to detect whether ethical accounting practices have been followed or not.

     

    Trust – the auditors most expensive good

    Therefore, trust of the auditor and the company still remains at the core of the auditing process, and thus is still potentially subject to fraud and manipulation. Further still, there may very well be another auditor verifying the very same transactions at the other end. As such, the entire process remains inefficient, while the quality of the audit still largely depends on judgement calls by the auditor, meaning that it remains subject to accuracy disputes.

    Despite Sarbanes-Oxley, moreover, auditors still have the pressure of generating repeat business from clients, so the temptation to stray from objective analysis still exists. Some studies have even shown that firms are reporting downward pressure on audit fees due to clients questioning the value of audit services, especially given that they are now increasingly ‘commoditised’ as a result of being heavily regulated, and thus there is little differentiation among the services being offered by various auditors.

    Many believe that could transform this process, in part because the removes the need for auditing to depend on trust. Blockchain provides a globally distributed, decentralized ledger of which everyone has the exact same copy. Whereas auditing at present entails the confirmation of transactions and balances on a company’s accounting ledger at the end of the period, a transaction on the blockchain would provide a permanent and immutable record of the transaction almost immediately. In effect, blockchain allows the recording of the transaction to take place at the same time as the transaction itself.

    All that would be required at the time of the transaction would be for the two trading parties to compare accounting entries while maintaining data privacy. To ensure the data can’t be changed, digital signatures would be used, whereby companies would publish their keys to a public authority who would verify their identities. “The existence of digital signatures from both parties implies that the transaction data is agreed upon” explains Roger Willis, former member of Ernst & Young’s (EY) forensic data analytics and audit teams.

    Once posted to the blockchain, the transaction is time stamped and exists forever. As described by prominent proponent and investor Trace Mayer, “Everyone agrees on consensus that those transactions actually happened, and boom you have that verification. You have the debit, the credit, and the confirmation by the network”.

    CPA at Xen Accounting, Ryan Lazanis believes that “everything that is on the books of the company and therefore everything comprising a company’s financial statements could occur on the blockchain”. If true, then the blockchain’s existence would not require the employment of a third-party auditor for verification purposes; instead, everything is recorded and verified in -time.

    The redundancy (or indeed, the wholesale elimination) of the auditor’s role, therefore, could transform the entire accounting industry. This would have a whole range of benefits. Charles Hoskinson, former CEO of revolutionary blockchain company Ethereum, for example, attests that because blockchain provides transaction histories that go back to their inception, the auditing process would be immune to manipulation, as “every single penny could be accounted for by this incorruptible entity”.

     

    And what are the big-4 doing today

    The ‘big four’ accounting firms – Deloitte, PWC, KPMG and EY &8211; are also investigating how blockchain can improve the auditing process. Deloitte, for example, is currently focused on developing automation for some of its audit processing. According to Deloitte Consulting principal Eric Piscini, the solution his company is developing will allow the company to post every transaction onto the blockchain in real-time. To audit the company then, Deloitte would simply look at the blockchain and all its transactions.

    There would be no need for external verification of the records “because the blockchain is immutable and time-stamped&;. Piscini also believes that blockchain will make the auditing process quicker, cheaper and more transparent for regulators, thereby substantially improving accessibility. EY’s Willis agrees with this sentiment, suggesting that auditing all revenues and expenses for multiple companies could be conducted “in literally a split second because the companies are capturing, signing and agreeing all the data at the time of transaction”.

    This would ostensibly be good news for the Securities & Exchange Commission (SEC), who recently expressed the urgent need for a Consolidated Audit Trail (CAT), which would create a system that would enable the regulator to comprehensively track markets across various venues and systems, providing increased transparency and better access to critical data.

    Given the immutability and decentralized accessibility of blockchain, however, the access and accountability of the SEC’s audit trail could be wholly improved. As highlighted by McKinsey, “blockchains contain detailed and precise histories of asset movements, which has the additional benefit of being attractive to regulators”, suggesting that consolidated audit trails could very well use blockchains for the purposes of capital market transparency.

    The post Blockchain and the Auditing Revolution &8211; Real Time Audit within the Capabilities of Blockchain appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.

    Fintech Schweiz Digital Finance News – FintechNewsCH

     
  • @fintechna 4:06 pm on June 14, 2016 Permalink | Reply
    Tags: , , , , , , , primed, Revolution   

    India’s fintech revolution is primed to put banks out of business 

    India’s fintech revolution is primed to put banks out of business fintech While global stock markets reset and U.S. tech unicorns readjust to new expectations and valuations, India&;s tech renaissance is just beginning to flourish. Infosys founder Nandan Nilekani calls it India&8217;s &;WhatsApp Moment,&; echoing how a simple software solution from Silicon Valley turned the Asian telecommunications industry upside down. Read More

    India’s fintech revolution is primed to put banks out of business fintech India’s fintech revolution is primed to put banks out of business fintech India’s fintech revolution is primed to put banks out of business fintech India’s fintech revolution is primed to put banks out of business fintech India’s fintech revolution is primed to put banks out of business fintech India’s fintech revolution is primed to put banks out of business fintech

    India’s fintech revolution is primed to put banks out of business fintech
    fintech techcrunch

     
  • @fintechna 4:32 pm on May 18, 2016 Permalink | Reply
    Tags: , , , , , Revolution, ,   

    ‘Blockchain Revolution’ Comes to Wall Street at Nasdaq Event 

    The authors of “ ” spoke this morning about their latest published work at an hosted by .‘Blockchain Revolution’ Comes to Wall Street at Nasdaq Event fintech
    fintech techcrunch

     
  • @fintechna 1:41 pm on May 17, 2016 Permalink | Reply
    Tags: , Confused, , , , Revolution, Separating   

    Confused By Blockchain? Separating Revolution from Evolution 

    What’s a , what’s not and why does it matter? Former itBit director Antony Lewis attacks these questions in this opinion piece.Confused By Blockchain? Separating Revolution from Evolution fintech
    fintech techcrunch

     
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