Will fintech bring financial engineering to the masses?
For years, the wealthy have had access to a range of tools to maximise their financial position, including a team of experts that help to avoid paying higher taxes than necessary. Today, a new wave of financial technology, or fintech, has arisen that is democratizing these financial engineering techniques, and bringing benefit to the masses.
Fintech is helping the everyday consumer in several key areas.
Historically low-interest rates have accelerated a move to purchasing homes. But, it’s still difficult for prospective buyers to cough up a down payment. Consider the fact that, even before the pandemic, would have struggled to pay for an unexpected $400 expense.
This is where fintech comes in. Organisations like Unison will contribute up to 50% of a down payment, or 10% of the total cost of a home, and then take a share of the profit once a home sells. HomeFundIt offers a crowdsourcing platform that allows a user’s network to make purchases at select retail stores, and pledge a portion of that sale to the user’s down payment.
Stock prices are leaving many investors priced out of the market. It’s not so easy to invest in Tesla when the company’s share price is trading over $400 per share. Or is it?
Advancements in FinTech have led companies like SoFI to offer fractional share investing. For just $1, consumers can now own a piece of a company like Tesla or Amazon, diversify their portfolio and avoid fees. It’s this kind of innovation that will allow easier access to the stock market and opportunity for the average investor to increase their wealth.
Coronavirus continues to shift businesses to a digital world, leaving less of a need for employees to travel. Also, organisations naturally want to preserve their funds during economic uncertainty. Could fintech help businesses to facilitate travel while helping to preserve a company’s bottom line?
The answer is yes. Take TravelBank, which helps businesses to manage travel expenses by allowing companies to garner an estimate of their employees’ trips, and incentivizes employees to come under budget. Should an employee do so, he or she can split their total savings with their company, and apply those funds to purchasing credits with partner organizations like Lyft.
Fintech will continue to bring value to the average consumer in these areas and beyond. Most notably, the technology will facilitate a shift in financial services, that prioritizes the benefit of the many rather than the few.
This article was contributed by Daniel P. Simon, CEO, Vested
BIS and MAS publish blueprint for cross-border payment idea
The Bank for International Settlements and the Monetary Authority of Singapore (MAS) has published a proposed blueprint for the multilateral linking of domestic real-time payment systems across borders.
The blueprint, titled Project Nexus, outlines how countries can fully integrate their retail payment systems onto a single cross-border network, allowing customers to make cross-border transfers instantly and securely via their mobile phones or internet devices.
The Nexus blueprint was developed through consultation with multiple central banks and financial institutions across the globe. It builds on the bilateral linkage between Singapore's PayNow and Thailand's PromptPay, launched in April 2021, and benefits from the experience of the National Payments Corporation of India's (NPCI) development and operation of the Unified Payments Interface (UPI) system.
The Nexus blueprint comprises two main elements:
- Nexus Gateways, to be developed and implemented by the operators of participating countries' national payment systems, will serve to coordinate compliance, foreign exchange conversion, message translation and the sequencing of payments among all participants. These gateways will be predicated on a common set of technical standards, functionalities and operational guidelines set out within the proposal.
- An overarching Nexus Scheme that sets out the governance framework and rulebook for participating retail payment systems, banks and payment service providers to coordinate and effect cross-border payments through the network.
“To achieve significant cost-reduction in cross-border payment transfers, enhancements must be made on two fronts: direct connectivity between domestic faster payment systems, and frictionless foreign exchange on shared common wholesale settlement infrastructures. The BIS Innovation Hub Singapore Centre is working on both. The Nexus project maps out a much-needed set of standards to achieve seamless cross-border payment systems connectivity.” said Sopnendu Mohanty, Chief FinTech Officer, MAS.
How do cross-border payments work?
Cross-border payments are currency transactions between people or businesses that are in different countries. The sender will choose a front-end provider, such as a bank or a money transfer operator (e.g. Transferwise), to initiate the payment. The receiver then receives the payment via the medium specified by the sender. Traditionally, cross-border payments flow via the correspondent banking network (CBN) which most front-end providers use to settle the payment. But, in recent years, new back-end networks emerged to optimise cross-border payments and enable interoperability between payment methods and provide senders with more possibilities to reach the receiver.
The increased international mobility of goods, services, capital, and people have contributed to the growing economic importance of cross-border payments. The value of cross-border payments is estimated to increase from almost $150 trillion in 2017 to over $250 trillion by 2027, equating to a rise of over $100 trillion in just 10 years.