Financial (fintech)

Fintech (financial technologies) are posing a serious threat to the traditional financial institutions as it offers speed, convenience, easy access, a world of information and coverage at a lower cost; usually via smart phone.

They are found in many financial businesses like bookmaking, insurance companies, banks, fund managers, stockbrokers, etc.

On the other hand, financial decisions have long-term ramifications and

" can't improve your decisions because you make them faster..."

Grant Pearson as quoted by Mark Abernethy, 2017

The fintech apps come under 6 headings

i) foreign-exchange/global payments (foreign-exchange turns over US$ 4 t. daily; fintechs can do what the big banks can do at half the fees and 50% reduction in time to receive payment, eg TransferWise, Airwallex, etc)

ii) business lending (traditionally borrowing is a slow process that requires guarantees like mortgaging your assets, eg house. An alternative is fast, cheap and flexible; it involves servicing customers via their smart phones including deposit accounts and cash flow lending; lender's decision is based on sales activity and the loan is paid back from a percentage of each EFTPOS transaction, eg Tyro. Another approach is offering unsecured business borrowing from the smart phone (mostly a 12 month term with a maximum of $50,000), eg Moula, Spotcap, Prospa, OnDeck, etc

NB Your trading history and credit score have to be appropriate)

iii) personal lending (competing with Visa and MasterCard but at a lower interest rate and with smart phone convenience; involves P2P to match your risk with investor appetite, eg Money Place, SocietyOne, Nimble, etc; a convenient and low cost way to refinance a credit card without increasing your mortgage)

iv) investing (what does an effective portfolio look like? Already Robo advice, where a computer suggests your best options for investment weightings is available in the marketplace. Some organisations are going further by integrating previously unavailable information like

- exchange traded funds (ETF), ie using your smart phone you can change is your portfolio based on agreed factors. This reduces potential conflict-of-interest because ETFs follow market returns, eg Stockspot, etc

- accessing herd behaviour and seeing what others, like top investors, are buying, eg SelfWealth, etc

- access to institutional research and create easy to read infographics and a snowflake matrix on stocks from their value to future likely performance, ie one-glance research with high quality information, eg Simply Wall St

- Roundup money from transactions or used their money from daily finances to invest in micro amounts, eg Acorn)

v) money-management (using your smart phone to balance your finances and run household budgets, ie consolidate net worth, bill scheduling, cash flow management, share portfolio management, etc eg Microsoft Office, Sharesight, Xero, MoneyBrilliant)

vi) others

- micro insurers (in short single items for a set amount of time, eg Trov Australia)this

- crypto currencies, ie Bitcoin (CoinJar, etc)

- linking Xero and MYOB to allow businesses to sell unpaid invoices to a lender in a debtor-financing arrangement, eg Timelio)

Financial, eg Payoff (peer-to-peer lending)

· The debt consolidation market is worth around $ 500 b. as part of the $ 3 t. US consumer credit market

· Payoff aims to disrupt the traditional financial model of lending market by the banks and credit card companies by using Internet platforms and new technology to directly connect borrowers with lenders. They are aiming to capitalise on the public's lack of trust in traditional bank lending and to develop a foothold in the financial relationships with banking customers

"...A lot of lending is aimed at keeping borrowers in a perpetual state of debt. We want to help borrowers pay off their loans as soon as possible..."

Scott Saunders as quoted by Tracey Alloway, 2014

· Payoff wants to align technology with behavioural science (incorporating psychometric testing to guage borrowers' willingness to repay debt) to offer debt refinancing to customers at around 5% cheaper than traditional lenders.

· Payoff issuing the model established by eHarmony (on-line dating site) of using psychometric profiling on the Internet to make relationship matches; eHarmony is responsible for nearly 4% of the new US marriages

. The credit assessment process incorporates psychometric testing such as questionnaires about financial, social behaviour, etc to gauge borrowers willingness to repay debt. Using eHarmony (on-line dating site) model of "matching", ie using psychometric profiling on the Internet, to make relationship matches.

NB eHarmony is responsible for nearly 4% of the new US marriages

· Payoff have automated as much as possible of the underwriting process to keep costs low; they use FICO (measure of a customer's risk profile) plus online data to judge the borrower's credit worthiness, ie

"...The credit assessment process also incorporates psychometric tests such as a questionnaire about financial behaviour and the more subtle embedded assessments to help Payoff gauge borrowers' willingness to repay debt..."
Tracey Alloway, 2014

· Different from other lending platforms, Payoff helps those who are rejected to improve their credit profile by using a program called "Lift".

· Other developments in the P2P area include

- "Lending Club" (the largest P2P lender and about to float at an estimated value of $ 5 b. (2015)

- bankers have been bundling loans originating on the platforms into bonds

- years of low interest rates have encourages the entrance of professional investors like hedge funds and asset managers

- discussions are underway for partnerships with Facebook and retailers like Home Depot

- Union Bank is buying loans from "Lending Club" platform

Other examples of P2P include British P2P lenders, such as Zopa, RateSetter & Funding Circle have arranged more than £1.6 b. in 2014 (this figure is expected to double in the next 6 months) but is still a small amount of the UK's £1.2 t. in retail deposits
It matches borrowers and lenders directly through online platforms; it feeds off the public mistrust of the big banks plus low worldwide interest rates. Able to offer borrowers more competitive rates than the risk-averse banks as overhead costs are lower

"...the whole theme of P2P is investors wanting to take control of their investments. People are disenchanted with fund managers. Even people who invest in our mortgage funds are now using our platform...... they don't want to pay us to manage their investment. They want to do it themselves..."

Ian Thomas as quoted by James Chessell, 2015
Some of the advantages of P2P include increasing competition in the banking sector and supporting tech entrepreneurialship


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