2 posts tagged with "fintech"

1. Technology Trends and Observations:

• Shift from "blockchain-powered" to "AI-powered" company claims.

• Emphasis on AI, machine learning, and blockchain as tools, not business models. Their value depends on their application in products and economic models.

  • Ramp & Finix's AI application on analytics, reporting, and expense automation.

• Generative AI's potential in reducing labor costs and the challenge to differentiate genuine AI usage from PR hype.

  • Publicly available large models cannot satisfy the specific and refined needs of fintech institutions.
  • The financial sector resists the "black box" nature of previous AI generations and hasn't fully embraced them with the arrival of Gen AI.
  • Institutions should build their own mid-sized models using their data.
  • They should adopt Gen AI's interactive patterns to enhance the experience of existing products.
  • The current goal is to improve products rather than inventing new Gen AI products from nothing.

2. Industry Insights:

• Insights from Cannabis Banking Summit: Challenges and opportunities in cannabis banking. Engagement with cannabis leading banks and credit unions to enhance risk management and compliance.

  • "Too much cash in our community is a problem", which is inconvenient, expensive, and often dangerous.
  • Working in the challenging realm of cannabis banking fosters the development of robust compliance, governance, and risk management systems, a point underscored by several bankers who have leveraged this expertise to branch into similar high-risk sectors like online gaming and crypto.

• Pay-by-bank has emerged as a popular payment method that offers a convenient and secure way for customers to make online purchases directly from their bank accounts.

3. Political and Regulatory Influence:

• Regulatory processes in the U.S. are slow, with a prediction of a 3-5 year adjustment period for banks heavily involved in "banking as a service."
• The regulatory focus is mainly on the Bank Secrecy Act (BSA) and anti-money laundering (AML) concerns.
• The increasing cost of compliance in the "banking as a service" space and the challenged promise of middleware platforms to reduce these costs.
• Banks are signing up for FedNow, but they're mostly only signing up to receive payments, not to send them.

4. Banking as a Service (BaaS) and Open Banking:

• Rise in "banking as a service" discussions with a perception of it being problematic rather than positive.
• Open banking's proactive approach in educating policymakers contrasts with the lack of momentum for "banking as a service."
• Skepticism around the extent and impact of open banking, especially its ability to facilitate account switching.
• Debate around standard-setting bodies and the belief that Fintech companies haven't been involved enough in shaping these standards.

5. Compliance, Compliance, Compliance. Dodd-Frank Act Section 1033 – Consumer Access to Financial Records

• Financial Data Exchange (FDX) will become the standard-setting organization for open banking.
• Big tech firms like Apple face challenges with rules requiring data sharing for companies with over $10 billion in annual revenue.
• Anticipation of bi-directional data sharing between banks and fintechs leading to further debates.

DC/EP stands for Digital Currency Electronic Payment, a central bank digital currency.

• It is: a dual-layer research and pilot project plan.
• It is not: a payment product.

Current State of Electronic Payments​

More than half of China's population is using electronic payments, with mobile payments accounting for a significant portion of personal consumption payment methods.

What Problems Does DC/EP Aim to Solve?​

1. Consumers need better and cheaper payment methods, with retail as the core use case.
2. Mobile integration has replaced many items such as ID cards, keys, and wallets.
3. Merchant application scenarios exist both online and offline.
4. Encourage competition and innovation among various upper-level institutions.
5. Protect privacy.

Dual-Layer System​

• The first layer is the central bank.
• The second layer consists of commercial banks, telecom operators, and internet payment platforms.

The second layer has the motivation and cost to perform well, while the first layer ensures that the second layer bears sufficient risk and responsibility.

How to Promote It?​

For smaller countries, it is relatively simple to replace paper money with plastic notes within a year; however, in China, each update of the Renminbi has taken about 10 years and still leaves many legacy issues. Fortunately, multiple parallel solutions are possible, making the continuous scalability of the solutions important.

One of the main tasks of the central bank is to maintain currency stability.

• The focus of research and development is not on the digital currency product itself, but on settlement and clearing.
• Improve the connectivity of different payment products.
• Prepare emergency and alternative solutions.

Main Technological Solutions​

1. Account-based electronic wallets, with merchants using QR codes.
2. NFC.

Other options include bank cards and IC cards.

Privacy Protection​

User privacy must be protected, but it cannot be 100% anonymous; acceptance of oversight by authoritative institutions is necessary.

Issues with Blockchain​

Alternative solutions involving blockchain and distributed ledger technology are still under development, but:

1. Throughput is insufficient to support retail use cases.
2. The immutability requirement conflicts with the need for chargebacks in case of incorrect payments.

Cross-Border Payments​

Libra's focus on cross-border remittances as a key application is problematic because retail terminals cannot be used directly, leading to issues of double conversion on both sides of the border.

Different national conditions result in significant resistance; for example, internationally, there is concern about anti-money laundering, anti-terrorism, and anti-drug financing, while China also pays attention to anti-gambling. Many countries have a need to prevent dollarization.