Since the referendum to leave the EU passed in June, apprehension surrounds the UK on multiple fronts, foreign and domestic. Speculation surrounds foreign relationships, trade agreements, and defense policy. In addition, the new leadership within the UK is still settling into 10 Downing Street, following the resignation of David Cameron. One relationship that is not immune to speculation and uncertainty is the relationship between the United Kingdom and China, especially in regards to defense relations. The future of UK-Chinese defense relations is closely tied to economic cooperation between the two states.. Economics and defense are not mutually exclusive for the Chinese government, and China is interested in maintaining its economic ties to European trade and cooperating with the UK. China is also highly invested in increasing growth,gaining influence in the world, and planning its defense policy, as exemplified by the building of islands in the South China Sea to enforce its resource claims in the region.
On the other hand, the future of the UK defense policy, along with UK strength and structure, is surrounded with uncertainty and will likely undergo some changes. The UK imports large amounts of military technology from the United States and other countries. With Brexit forcing the UK into trade unpredictability, many trade agreements will have to be redone, and the defense industry will need to ensure that all agreements can be made and implemented smoothly. However, more doubt lies in the future of the UK’s defense policy, due to the change in Prime Minister. Former Prime Minister, David Cameron, was a staunch supporter of the defense sector and raised the budget last year to increase military spending. Theresa May is a supporter of the UK renewal of the Royal Navy’s nuclear submarines, and she is keeping Michael Fallon on as defense secretary, in order to maintain stability in the military (1). Although Prime Minister May is attempting to ensure some military consistency, her defense and foreign policy is still unclear, as her appointment to Prime Minister was rather quick. This means that the UK’s defense relations are much more likely to change, especially with the UK leaving the EU.
Brexit was mainly passed for domestic reasons, as many felt that the middle class of the UK was being drained by a unified Europe. In addition, the British people also felt that there was a loss in British identity, as the once most powerful state in the world had become bogged down by union with 27 other European countries, forcing the UK to support fiscally failed states, such as Spain and Greece. Although the referendum mainly passed for domestic prosperity, Britain may now look to other parts of the world in its shift of foreign and defense policy. Instead of directing defense resources towards the EU, Britain now has the opportunity to become involved in other regions in the world.
China’s defense policy is highly related to their economic policy, as protecting their economics interests and their growth in the world stage is their primary goal. For this reason, UK-China defense relations are strained by the UK’s referendum to exit the EU. China and the UK’s relationship seemed to be at its best after President Xi Jingping’s visit in 2015. During the visit, economic cooperation was the cornerstone, as the People’s Bank of China announced it would be issuing debt bonds in Yuan in London, the first time China has issued debt anywhere outside its borders (2). This was a big announcement for UK-Chinese cooperation, which would likely extend to defense cooperation, as economic ties often include closer defense relations, because of common goals and interests. This is a historic shift; the UK and China historically have not always been on great terms, largely due to British imperialism. In the 1800s, Britain and China were involved in two opium wars, in which Britain was victorious and gained control over trade routes and territories in China (3). In addition, Britain claimed Hong Kong as a colony until 1997. Due to this history, and now the UK’s exit from the EU, defense and economic cooperation will slow.
UK-Chinese defense relations are not conventional like those of close allies. China sees the UK as a great economic opportunity for investment, and a gateway to access European markets. But since the UK is exiting the EU, China will likely not prioritize aligning itself with UK as it has in the past. China would much rather gain economic access to all of Europe rather than just the United Kingdom. Defense relations will likely follow the trends of China and the UK’s economic relationship. Another reason why the UK is not likely to align defensively in the future is historical and current alliances. The United States is uneasy about Chinese intervention in the UK, which is well within the US’s historical sphere of influence, especially after the United Kingdom joined the Chinese-led Asian Infrastructure Investment Bank (4). Prior to Brexit, the UK had to deal with the tug of war between allies, European influence, and opportunities to increase economic and defense cooperation with China. In addition, there are many instances where the Chinese government will use leverage of defense related issues with economic issues, as it has in the UN Security Council. The Security Council is a great example of alliances playing a large role in defense relations between the two countries. During UN Security Council disputes, the UK aligns with the United States because of historical, defensive, economic, and cultural reasons, while China often votes against the US or with Russia. This indicates that UK-China defense relations will continue to be hindered by existing alliances, at least within the UN.
Ultimately, much of the uncertainty regarding defense relations between China and the UK lies in the new leadership of the United Kingdom. David Cameron’s resignation did not signal stability to Beijing, and was a large step back from the progress made in 2015. It is unclear in the early stages of the new UK government whether Theresa May will increase economic and defense relations with China, at the cost of improved relations with other allies. China will also likely look towards doing business with Brussels, in order to gain more access to the rest of Europe, rather than focus on the UK. The coming months will decrease uncertainty regarding the UK’s foreign and defensive policy around the world, as the new government settles in. However, China may look elsewhere, due to the uncertainty Brexit brings.
(1) Chuter, Andrew. "UK Shuffle Spells Uncertainty for Industry." Defense News 18 July 2016: 1+. Print.
(2) Le Corre, Philippe. "China's Offensive in London." Foreign Affairs. N.p., 05 Apr. 2016. Web. 24 July 2016. <https://www.foreignaffairs.com/articles/china/2016-04-05/chinas-offensive-london>.
(3) Pletcher, Kenneth. "Opium Wars." Encyclopedia Britannica Online. Encyclopedia Britannica, n.d. Web. 24 July 2016. <https://www.britannica.com/topic/Opium-Wars>.
(4) Mody, Seema. "China Is Horning in on USA's 'special Relationship' with UK." CNBC. N.p., 29 June 2016. Web. 24 July 2016. <http://www.cnbc.com/2016/06/29/china-invests-in-uk-as-special-relationship-with-usa-falters.html>.
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Cryptocurrencies are on the rise, though their future may be unpredictable. Hackers and computer scientists have created a new unit of exchange; this currency is completely digitized, and it is not monitored by any governing institution or organization. Although lack of accountability sounds like it would make cryptocurrencies too unpredictable, volatile, and risky for any investor or consumer, their use is on the rise. Currencies such as Bitcoin are becoming more popular and accepted in the private sector. However, the future of cryptocurrencies is unclear, due to the problems that unregulated currencies often pose, mainly in how governments respond to them. The anonymity of cryptocurrencies may create a market for predominantly illegal transactions, especially if governments outlaw them in the future; however, growth in the private sector shows that cryptocurrencies may adapt in the future for widespread use, even if there are adjustments to be made.
Of all the cryptocurrencies, Bitcoin has the greatest demand and most media attention. A person or group, under the alias of Satoshi Nakamoto, started the currency in 2008; to give some context regarding the massive growth of Bitcoin, the currency was originally valued at seven cents. It grew steadily; however, towards the end of 2013, Bitcoin jumped from $125 to about $980 per coin in nearly two months (1). Bitcoin is becoming increasingly popular, but it is a good representation of how volatile and unpredictable these currencies are, as their value can be highly arbitrary.
The way in which bitcoins are produced is not what one would normally assume, considering how most modern currency is manufactured. The coins are mined by supercomputers; mining is the discovery of new bitcoins, as the founding group has maintained that there will be a finite number of bitcoins released. Coins are discovered by groups of computers writing code to solve highly complex algorithms. The Bitcoin network is designed to have the algorithms become more complex as time goes on. Whoever completes an algorithm first gains the block of bitcoins. Today, approximately 12 bitcoins are discovered and released approximately every 10 minutes. The maximum amount of bitcoins that will be produced is 21 million; currently, there are 15.7 million in circulation (2). Because of this process, competing for bitcoins has become a huge industry.
When Bitcoin was originally released, computer desktops could mine bitcoins; however, because of the increasing value of bitcoins since their release, the technology quickly evolved. Now, application-specific integrated circuits (ATIC) do most of the mining, due to how competitive mining has become (3). The key to mining bitcoins, besides getting enough powerful computers to quickly solve the algorithms, is keeping energy costs down. Today, mining requires so much energy that using CPUs or old technology would make the energy costs so great that they would outweigh the revenues gained from obtaining bitcoins. To provide context for how powerful computers must be now, companies created huge ASICs in areas where it is cold, in order to keep the computers cool, and where energy is cheap, such as in Iceland. For example, one facility in Iceland dedicated to mining bitcoins generated $4 million in just a few months, and that was in 2013 (4). To give further context to how powerful the Bitcoin network is, in 2013, the entire network was reported to be 256 times more powerful than the top 500 supercomputers in the world combined (5). That is an astonishing amount of computing power; what’s more impressive is just how fast the power of the network grew. The phenomenon of Bitcoin’s rise to prominence shows that when there is demand, the private sector will produce results, even when there is huge uncertainty, as there often is for cryptocurrencies.
Although there has been tremendous development in the cryptocurrency industry, there are major issues to consider. The first big issue with these currencies is that they can be used for illegal activity, due to their anonymity. Because cryptocurrencies are untraceable, it is easy for criminals to use them as a means of exchange, especially when it comes to the dark web. For instance, until the federal government closed it, bitcoins were used on the infamous “Silk Road”, in which drugs were sold and openly traded through the dark web. Cryptocurrencies can also be used to as a means of exchange for arms trade, which is especially worrying when it comes to terrorism. Instead of requiring large amounts of cash or an elaborate financial management system, cryptocurrencies provide an easy way for criminals or terrorists to carry out illegal activity. Governments in the future may look to regulate or eliminate cryptocurrencies, if they prove supplemental to criminal and terrorist activity.
Beyond cryptocurrencies and criminal activity, there are large financial and consumer risks. First, these unregulated currencies are not backed or insured by any institutions. This means that if a hacker gains access to a holder’s bitcoin stash, their entire fortune could be stolen, with virtually no opportunity of getting it back. This also implies that cryptocurrency holders must know what they are doing, and must find the right computer software to protect their wealth. It is unlikely that the average consumer will engage in maintaining cryptocurrencies in the near future, due to the dangers of maintaining them.
In addition to the threat of hackers and lack of insurance policies, cryptocurrencies are volatile—specifically Bitcoin. Because there is no government regulation or physical backing to the currency, bitcoin value is based completely on perceived value. This means that if Bitcoin receives bad media coverage, or government regulations indicating a shaky future for Bitcoin, then the perceived value can drop drastically. In the past, Bitcoin has grown and fallen dramatically within just a few days. During these time periods, Bitcoin’s 30 day volatility index has reached upwards of 14-15%. Cryptocurrencies will likely steer risk-averse investors away from the currency.
Government regulation of cryptocurrencies could be a risk to their future, but it could also be a great asset, depending on the ruling of the governing body. Regulation is risky for cryptocurrencies, as restrictions could be so aggressive that they inhibit the freedom of the currency, reducing its value. In addition, there is always the risk that governments may look to outlaw the currencies outright, if they can prove they are being used predominantly for illegal activity, or if the currency is perceived as a threat to the government’s financial system. At the same time, many proponents of cryptocurrencies see regulation as a positive step for their future. This is due the fact that if cryptocurrencies are properly regulated, they could be fully integrated into the marketplace and investors’ portfolios.
Although there are a lot of obstacles in the future, it is hard to argue with the increase in demand for cryptocurrencies and their continued growth. For the Bitcoin network to grow into what it is today shows that when there is demand, there is often growth. Even though Bitcoin is the largest and most popular cryptocurrency, it is not the only one. There are other, such as Litecoin and Ripple, to name a few. Litecoin is similar to Bitcoin; however, the coins can be mined from regular computers, the volume is 84 million coins, and the currency is worth less than Bitcoin (6).
Based on the demand, it is unlikely that bitcoins will be outlawed. However, there may be some adjustments to the industry, in order to gain more consumer trust. The likelihood of continued growth of the industry is high, as major companies such as Expedia and Amazon have started accepting Bitcoin. The private industry is a powerful tool to keep cryptocurrency alive and growing; just don’t expect cryptocurrency to overtake government-backed currency any time soon.
(1) "Bitcoin Price Index - Real-time Bitcoin Price Charts." CoinDesk RSS. N.p., n.d. Web. 13 July 2016. <http://www.coindesk.com/price/>.
(2) "Bitcoin Block Reward Halving Countdown." Bitcoin Block Reward Halving Countdown. N.p., n.d. Web. 13 July 2016. <http://www.bitcoinblockhalf.com/>.
(3) "Bitcoin Mining Definition." Investopedia. N.p., 21 Apr. 2014. Web. 13 July 2016. <http://www.investopedia.com/terms/b/bitcoin-mining.asp>.
(4) Popper, Nathaniel. "Into the Bitcoin Mines." New York Times. New York Times, 21 Dec. 2013. Web. 13 July 2016. <http://dealbook.nytimes.com/2013/12/21/into-the-bitcoin-mines/?_r=0>.
(5) Cohen, Reuven. "Global Bitcoin Computing Power Now 256 Times Faster Than Top 500 Supercomputers, Combined!" Forbes. Forbes Magazine, 28 Nov. 2013. Web. 13 July 2016. <http://www.forbes.com/sites/reuvencohen/2013/11/28/global-bitcoin-computing-power-now-256-times-faster-than-top-500-supercomputers-combined/#e6e3f7b28b76>.
(6) "The Future Of Cryptocurrency." Investopedia. N.p., 10 Sept. 2013. Web. 13 July 2016. <http://www.investopedia.com/articles/forex/091013/future-cryptocurrency.asp>.
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When the Cold War ended, there was hope that the United States and Russia would be able to work together. The United States took the reigns as world superpower, and there were moments of cooperation and aligning of goals during the late 90s. However, U.S.-Russia relations have deteriorated to their lowest point since the end of the Cold War. US presidents, since the mid 90s, have each taken different approaches and attitudes towards Russian relations, specifically in relation to Putin. Both sides see the other as the aggressor; Russia sees NATO expansion as a threat to their security and regional influence, while the United States sees Russia’s invasion of Ukraine as internationally illegal and aggressive. Russia continues to antagonize the United States and NATO with provocative flyovers near naval warships, covert action in Eastern Europe, and diplomatic antagonism. The Syrian conflict further divided the two countries in terms of goals, and even with the common enemy of ISIL, cooperation has only marginally increased in the region. Furthermore, it is not likely that Putin will be initiating any cooperation in good faith between the United States and Russia anytime soon.
One major point of conflict between the United States and Russia is Eastern Europe, and who is going to have more influence there. NATO continues to grow into Eastern Europe, in order to ensure regional security and increase cooperation between the United States and European allies. In many ways, it makes sense for the United States and its Western European allies to continue to push NATO eastward. After all, many European countries are the United States’ closest, most culturally similar allies. In addition, besides deterring Putin from overly aggressive actions in Eastern Europe, NATO still can maintain its relevancy by introducing counter-terrorism efforts into its goals and objectives. The growth of ISIL and other terrorist organizations in the last few years provide NATO a new objective, especially as counter-terrorism operations become increasingly global.
However, Russia and President Putin’s regime see NATO expansion from a much different viewpoint. Russia no longer has a comprehensive buffer zone, as the Soviet Union once did in Eastern Europe. They see the expansion of NATO towards their borders as a direct threat to their security and their citizens. Putin’s view on securing national interests is different from the West’s. Because many Russians moved west when the Soviet Union controlled a large amount of buffer states, there still exists a small minority of people in these states who identify as Russian. This is one part of Putin’s reasoning for invading Ukraine in 2014, as he proclaimed a policy that vowed to protect Russians abroad (1). This policy is very troubling to the United States, NATO allies, and especially to those smaller NATO allies who lie close to Russia. For example, the Baltic States have a large minority of ethnic Russians. Of Estonia and Latvia’s population, 24% and 26% of people consider themselves to be ethnic Russians, respectively (2). This poses a serious threat to the stability of the region and the United States, because of NATO’s Article V, which states that an attack on any NATO member constitutes an attack on every member.
Not only is Russia’s annexation of Ukraine aggressive towards the United States and NATO, but the way in which Russia covertly implemented itself into Crimea is most unsettling. Prior to and during Russia’s invasion of Crimea, Russia actively participated in covert actions in order to destabilize Ukraine, and lessen the chance of a formidable military response. In a report to the EU, Ukrainian officials submitted proof that Russia participated in and supported covert action, in the form of providing weapons and training to separatists, intimidating Ukrainian officials, and other tactics against the Ukrainian government (3).
All of this covert action, and the invasion of Ukraine, strains Russia-NATO relations, specifically U.S.-Russia relations, for multiple reasons. First, this type of action is highly unsettling to former USSR, currently NATO member states. Although the Baltic States do have a decent minority of ethnic Russians, they are nervous about destabilizing activity caused by the Russian government. This forces NATO to respond, often in the form of increased military assets and training missions for Eastern Europe. These aggressive covert and military actions by Russia force a response from the United States; Russia’s activities destabilizing a region show that Putin is willing to rewrite borders when he has an opportunity. Also, the United States is still highly involved in NATO and provides the largest amount of money and military assets to the international organization, indicating the U.S. is still highly invested in maintain security and stability for its NATO allies.
In addition to Ukraine, Syria is another conflict area that further worsened U.S.-Russia relations. The beginning of the conflict proved to be a tense time for the United States and Russia. Both sides had, and continue to have, very different views on how to end the conflict, especially at the beginning. Originally, the United States wanted Assad to go because of his brutal measures against his own people. However, the U.S. stance is becoming more vague, and much of the focus is now on fighting ISIL, as removing Assad’s government completely could leave a political void that would be filled by multiple factions, leading to more instability in the region. Russia, on the other hand, was and is still backing Assad to remain in power; Russia and Assad remain allies, as Putin sees an opportunity to have more influence in the region. The misalignment of goals from the beginning of the conflict proves that Russia and the United States were never likely to cooperate well in the region, set aside everything else that the two countries disagree on around the world.
When ISIL became a truly global security risk, it looked like an opportunity for cooperation between the two countries. However, having the common enemy of ISIL only seems to stop the bleeding, not fix the wound, in regards to U.S.-Russia relations in the region. Any sort of cooperation would mean Russia maintaining agreements in the region, but that is not likely to happen if Putin sees an opportunity to push his objectives in Syria. If anything, the Syrian conflict and fight against ISIL is decreasing trust between the two countries, because of Putin’s opportunistic attitude and the volatility of the conflict areas.
It is unlikely that U.S.-Russia relations will improve anytime soon, as long as Putin is in power. There are large amounts of people in the U.S. government who continue to fail in correctly interpreting Putin and his motivations. However, the United States must be ready to see Putin for what he really is, an opportunist seeking to maintain power and expand Russian influence. Putin keeps the pressure on in Russia by silencing those in the media that would in anyway undermine his legitimacy. Last year, former Deputy Prime Minister Boris Nemtsov, an advocate against the war in Crimea, was shot and killed near the Kremlin, suggesting a possible government sponsored kill, specifically because of the precision of the murder (4). At the same time, Putin uses superficial diplomatic cooperation with the United States to calm leaders enough, so they do not produce any formidable response to his aggressive tactics around the world (5). Russian fighter jets buzzing the tower of a U.S. destroyer is one small example of Putin and the Russian government provoking the United States, further deteriorating relations, and getting away with it.
The next United States President will likely have to take a stronger stance against Putin, in order to deny him from gaining geopolitical momentum when opportunities arise, indicating a future of shaky relations. The Cold War is not likely to restart, at least not to past escalations; however, circumstances do not look particularly optimistic.
(1) "Transcript: Putin Says Russia Will Protect the Rights of Russians Abroad." Washington Post. The Washington Post, 18 Mar. 2014. Web. 09 July 2016. <https://www.washingtonpost.com/world/transcript-putin-says-russia-will-protect-the-rights-of-russians-abroad/2014/03/18/432a1e60-ae99-11e3-a49e-76adc9210f19_story.html>.
(2) Person, Robert. "Baltic Russians Aren't Pawns in Strategic Game." The Moscow Times. N.p., 26 Oct. 2015. Web. 09 July 2016. <http://www.themoscowtimes.com/opinion/article/baltic-russians-aren-t-pawns-in-strategic-game/540416.html>.
(3) "Ukraine Submits Evidence of Russian Covert Action." EurActivcom Ukraine Submits Evidence of Russian Covert Action Comments. N.p., 16 July 2014. Web. 09 July 2016. <http://www.euractiv.com/section/europe-s-east/news/ukraine-submits-evidence-of-russian-covert-action/>.
(4) "Russia Opposition Politician Boris Nemtsov Shot Dead." BBC News. N.p., 28 Feb. 2015. Web. 09 July 2016. <http://www.bbc.com/news/world-europe-31669061>.
(5) O'Hanlon, Michael. "U.S.-Russian Relations beyond Obama." The Brookings Institution. N.p., 20 Apr. 2016. Web. 09 July 2016. <http://www.brookings.edu/blogs/order-from-chaos/posts/2016/04/20-putin-obama-next-administration-ohanlon>.
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“Do you want to just Venmo me?” is a phrase often heard when the check comes at a restaurant for millennials, specifically those in college. Venmo is a new Fintech app that allows users hook up the app to their bank account and send specific amounts of money to other Venmo users. The app is becoming so well known in some areas of the country that its title is often used as a verb, just how Uber’s name is when people say “let’s Uber there”.
Apps such as Venmo are revolutionizing and growing the financial technology industry. Start-ups are changing all aspects of finance from online payments to buying stock on the stock exchange. The new influx of fintech apps provides young people more financial opportunities by making it easier to gain financial knowledge and access the stock market and investment tools.
Venmo is one of the fastest growing and well-known fintech apps throughout the country. Braintree first acquired the mobile payment app in 2012 for $26.2 million, and, just one year later, Paypal bought Braintree for $800 million. Currently, Venmo is a part of Paypal’s large portfolio, and is rapidly growing in recognition and use (1). The app is especially popular among millennials, as it allows customers to quickly transfer money between other users. One of the biggest uses is splitting restaurant and bar checks, instead of enduring the struggle of splitting a check among multiple credit cards, or exchanging cash among friends. The best part, and the primary reason for its popularity among young people, is that there are no fees. This means that someone can make as many transfers as they want without worrying about small hidden fees that can add up. This makes Venmo even more attractive than just using cash, as, unless it your bank’s ATM, withdrawing cash also includes fees.
Although Venmo is growing and creating quite a name for itself, the app is a very small portion of Paypal. The most attractive aspect of Venmo is that there are no transfer or subscription fees; however, this also means that Paypal is making very little to no money off of the popular app. Currently, Venmo only makes up about 3% of Paypal’s total volume, meaning that whatever a customer transfers to another user goes into the volume count.
Also, the only revenue stream for Paypal from Venmo is when customers use their credit cards on their accounts, but that is very small margin (2). Paypal will have to find a way to monetize Venmo without losing their customer base that does not wish to pay fees.
One possible option that Paypal is exploring is Venmo Pay—a feature that will allow merchants to accept Venmo payments from consumers. The merchant would be charged around 3% of the total purchase, similar to a credit card transaction (3). This idea is similar to Apple Pay and is a sign of increased competition in mobile transactions between customers and merchants.
Another possibility is for Venmo to stay in the person-to-person arena, but to move upstream, meaning to monetize at larger amounts of transfers. This would be difficult to attract customers that are doing large person-to-person transactions because of where Venmo currently sits in the market. Moving upstream means having to directly compete with large banks, and that may produce a difficult fight to attract non-millennials.
Another Fintech firm that is attracting a new generation to financial management is the stock trading app RobinHood. This app allows users to invest in the stock market and does not charge them a commission fee on any trades. Within a year of release, RobinHood boasted hundred of thousands of users, over $1 billion in trades, and $66 million in funding (4). Instead of large firms charging per trade, RobinHood does not deter users from making trades because of steep trading fees. This encourages younger investors with smaller portfolios to invest, as many are normally dissuaded from investing because an account with only a few hundred dollars will gain such a small yield if the account costs money or the takes a trading fee. In addition, the simplicity of the app makes it much more attractive than the apps from larger firm, such as E*trade or ScottTrade, that feature more complex mobile applications in addition to trading fees.
RobinHood already indicated its influence in the global economy with its younger user base after the Brexit vote. After the vote, the DowJones dropped more than 600 points; however, younger millennial investors bought much more than they sold. RobinHood’s average user is 28, and their users had 2.5 buys for every sell after the Brexit vote. This behavior indicates that younger investors are more than willing to invest, especially in downturns, when there are no fees (5).
The app prides itself on keeping current information on stock markets while maintaining the app’s simplicity, making it easier for the young investor to decipher information. Additionally, Robinhood is already profitable and has an easier road to monetization than other Fintech apps, such as Venmo. The app earns interest off money stored in the app and is also testing a feature that allows customers to trade on the margin, in which RobinHood charges a 3.5% fee (4).
Overall, RobinHood is the first to provide free trading on a mobile app and are educating younger investors along the way. This allows RobinHood to appeal to a younger demographic in an industry that tends to focus on the middle-aged adult.
Of course with any growing industry, there will those who fail either through poor implementation, stagnation, or, in LendingClub’s case, a lack of regulation. LendingClub is an online website that connects lenders and borrowers directly without the use of a bank. The lack of oversight and regulation from the removal of the middle man lead LendingClub into very hot water. Currently, LendingClub is under investigation by the Department of Justice and New York’s bank regulators for allegations claiming employees intentionally altered loan applications to make them more appealing to investors (6).
Many Fintech companies, such as LendingClub, do not hold money so they have less regulation; however, LendingClub may be a good indication that more regulation is coming of the Fintech industry. Person-to-person loan companies are not under the same regulations as banks, so they are not required to keep cash on hand. If a significant number of lenders take their money out, there could be a cash problem. In the future, Fintech firms will undoubtedly face increased regulation from Washington, as the Fed is wary of under regulated financial firms causing economic downturns.
Although not every fintech firm will be successful and increased regulation is on the horizon, the Fintech industry does have a positive future. Fintech firms are building apps that are making investing much more accessible to lower income and younger investors. Furthermore, paying bills will become easier, as firms like Venmo are growing rapidly and causing businesses to adapt to new, easier forms of payment. Of course with any expanding industry, there will be growing pains. Finding ways to monetize free Fintech apps and simultaneously avoiding being the weight of enhanced regulation will be one of the many challenges. However, apps like RobinHood show that many fintech firms are revolutionizing the finance world as we know it.
Going forward, large banks and asset management firms will need to consider acquiring these firms or implementing similar applications under their own platform in order to maintain market share.
(1) "PayPal President Talks Venmo Growth and Going beyond the Pay Button." New York Business Journal. N.p., 10 June 2016. Web. 03 July 2016. http://www.bizjournals.com/newyork/news/2016/06/10/paypal-president-talks-venmo-growth-and-going.html
(2) Staff, Motley Fool. "PayPal Holdings Inc.'s Venmo Is Growing and Plans to Monetize." The Motley Fool. N.p., n.d. Web. 03 July 2016. <http://www.fool.com/investing/2016/07/01/paypals-venmo-is-growing-and-plans-to-monetize.aspx>
(3) Shevlin, Ron. "The Future of Venmo." The Financial Brand. N.p., 17 Nov. 2015. Web. 03 July 2016. <https://thefinancialbrand.com/55401/the-future-of-venmo/>.
(4) Constine, Josh. "Stock Trading Was Expensive And Ugly. Robinhood's App Makes It Free And Pretty." TechCrunch. N.p., 26 Oct. 2015. Web. 04 July 2016. <https://techcrunch.com/2015/10/26/free-stock-trading-app/>
(5) Egan, Matt. "Millennials Jumped into Stocks during Brexit Scare."CNNMoney. Cable News Network, 30 June 2016. Web. 04 July 2016. <http://money.cnn.com/2016/06/30/investing/millennial-investors-brexit-market-scares/>.
(6) "With Lending Club Disgraced, An Industry Looks For Lessons." NPR. NPR, 10 June 2016. Web. 05 July 2016. <http://www.npr.org/sections/alltechconsidered/2016/06/10/481474919/with-lending-club-disgraced-an-industry-looks-for-lessons>.
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As the world becomes more automated, security concerns regarding financial and security data are becoming harder to protect. The financial data of the public is at risk, and it is left to banks and corporations to protect massive amounts of data. The Target data breach of 2013 released the credit card information of 40 million Target customers, and up to 60 million people had their personal information accessed (1). In 2015, the Office of Personnel Management announced that 21.8 million federal employees had their personal information stolen, including birth dates, home addresses, and Social Security numbers (2). Both the government and the private sector are looking for new ways to keep sensitive information safe. Biometrics is playing an increasingly significant role, as the tech industry is making strides in the quest to keep information safe.
For the private sector, identity theft is surging with the increase in online shopping and banking. It is often difficult to prove that identity theft occurred, and it is often a major distress for those affected. Hackers are becoming increasingly effective at gaining valuable data using minimal information. Nowadays, hackers can begin gaining sensitive personal financial details with just a phone number and address. Biometrics offers personalized security and is becoming increasingly accessible to the public (3); the iPhone 5s was the first major implementation of biometrics in the commercial sphere, allowing users to unlock their phone by fingerprint alone. Biometrics is no longer used only to protect highly sensitive state secrets; it is becoming increasingly available and affordable for the public. There is always a balance between security and privacy, especially in the private sector, as until recently, the public has been unaware of the vulnerability of their information. However, highly publicized cybersecurity breaches in recent years are making the public more aware of the sensitivity and value of their data, increasing their tolerance for tougher security measures.
With investment from large corporations, biometric firms have made great strides in recent years, allowing for quick implementation of the most recent technological advancements. For instance, OCBC Bank in Malaysia recently launched OneTouch banking, which allows customers mobile access of their bank accounts, using Apple’s Touch ID technology (4). In 2014, EyeVerify, which specializes in biometrics of the eye, received $6 million in equity funding from multiples sources, including companies like Wells Fargo and Samsung (5). New types of cardiac biometrics are becoming increasingly available; Nymi, a Canadian based company, developed a wristband that identifies an individual through their specific cardiological signature. This firm also engaged in equity funding and received $14 million in 2014 from firms such as MasterCard, Relay Ventures, Ignition Partners, and SalesForce Ventures (5). Cardiac verification is currently one of the most secure types of biometrics, and shows serious promise for biometrics in the future. This technology could be integrated into multiple products already on the market, such as the iWatch, Fitbit, and other types of smart bands. In addition, private companies with sensitive information may look to supply employees with this type of technology, in order to ensure security of valuable information.
The biometrics industry has attracted high net worth investors. Billionaire Gary Fegel of Glencore, a commodity trading company, invested $15 million in FST Biometrics, an Israeli based firm. FST focuses on facial and body language biometrics that can identify someone from long distance. A former Israeli general started the company about eight years ago, and today the company serves foreign governments and some major companies, such as Facebook and Visa. FST claims to complete one million identification tests a month, with a 99.97% accuracy rate (6). The attention of high net-worth investors has the potential to spark the interest of other investors and promote industry growth. The privatization of the space industry has resulted in billionaires Richard Branson and Elon Musk to start what has become a private sector space race, and large companies such as Boeing have already obtained government contracts in space exploration. The biometrics industry could have a similar growth scenario. Demand is growing from both the public and private sector for increased information protection. Apple’s Touch ID technology bolstered biometric demand and growth in showing that biometric technology is marketable beyond highly secure government sites.
Many banks are testing different types of biometrics on customers and moving towards full implementation. USAA implemented biometrics in the form of facial, voice, and fingerprint scans to its 1.7 million customers. JP Morgan Chase customers can access their accounts using their fingerprints, as can a third of Bank of America’s customers. As mentioned earlier, Wells Fargo invested in eye recognition, and is releasing the technology to a small group of customers. This technology was so fast in identifying individuals that developers increased the recognition time, in order to make customers feel that the technology was adequately obtaining their eye characteristics (7). The increased use by banks indicates how fast the implementation of biometrics is unfolding in the private sector. The amount of customers using the technology shows a public willingness to integrate biometrics into their normal lives, as biometrics identifiers are becoming more available. The biometrics industry looks very attractive to investors and consumers alike .
Federal biometric programs exist in the Departments of Commerce, Defense, Homeland Security, Justice, and State. Coordination of research and development of biometric technology for these departments is the responsibility of the National Science Foundation Industry/University Cooperative Research Center, specifically the Center for Identification Technology Research (CITeR). The goal of the Center is to promote efficient and effective technology transfer between private and government sectors through its research. However, the major potential for inefficiency seems to be in the transfer of technology between the massive government departments who, in uncoordinated efforts, individually have invested in government and privately developed biometric technologies and programs.
For example, the Department of Homeland Security (DHS) has developed the Transportation Worker Identification Credential System, used for personnel working in all transportation modes for physical or computer access in security areas of all transportations systems nationwide. The DHS also operates the Registered Traveler Program, which it contracted with private sector developers to offer for voluntary use for the benefit of business travelers, which works alongside a government developed NEXUS biometric program for travelers frequently going between the U.S. and Canada. The DHS’s main national identity program is the Office of Biometric Identity Management, created in 2013 to collect, analyze and store data on watch list persons who pose a threat to national security, replacing the outdated and bloated US Visitor and Immigration Status Indicator Technology program.
Notably, most government developed biometric programs are still in the research stage, for potential use or integration with existing programs. Within the Department of Justice, the operative biometric programs are the Integrated Automated Fingerprint Identification System (IAFIS) and the Next Generation Identification System (NGI), established to research and integrate advanced biometric technology into the IASFIS. The Justice Department’s National Institute of Justice also develops, collaborates, and integrates biometrics, mainly working with state and local governments. The FBI’s most important biometric identity management is the Biometric Center of Excellence (BCOE). The center’s function is to share FBI technology with all national security and law enforcement agencies, while providing guidance on complying with federal laws and procedure.
The US State Department is a newcomer in biometric development and implementation, advancing in response to the need for secure access to classified data, replacing passwords with positive biometric identification, and photo identification on passports with imbedded anti-fraud chip technology (11).
Biometrics is a continually growing space for law enforcement and intelligence agencies. No longer is biometrics limited to fingerprint scanning, the technology now includes recognition of facial details, palm prints and irises (8). With the development of these new technologies, the need to create technology that promotes security through the collection of biometric information and criminal records has been rapidly developing. To make better use of new technologies, the FBI’s Criminal Justice Information Services has implemented NGI. First introduced in 2011, this system has merged biometric data and criminal records. The NGI was developed by the FBI but provides accurate and efficient biometric services for all levels of law enforcement, from local to international jurisdictions. The NGI is constantly evolving with the implementation of new technologies (8).
In 1999, the FBI’s Criminal Justice Information Services implemented the IAFIS, which is considered the precursor to the NGI. The IAFIS was replaced because it was no longer able to keep up with the advances in biometrics, and the system would take up to two hours to run a set of prints (10). Lockheed Martin developed the NGI with the help of other technology companies (9). The deal between the FBI and Lockheed Martin was originated in 2009 and is estimated to be worth close to $1 billion. Lockheed Martin is heading the project and has brought many leading technology firms on to collaborate on the project.
In 2014, the FBI announced the implementation of facial recognition and the estimated database of 51 million photographs (10). This facial recognition program is under the NGI system and will be accessible to all law enforcement officers. The facial recognition program was developed for use in crime scene investigation, while its predecessor, fingerprinting, is meant for identifying suspects in real time. Morphotrust was the company behind the development of facial recognition software (10). This software provides a great opportunity for improvements in law enforcement, but it also raises concern over privacy matters. With over 30 million security cameras in the US and no public plan for how or when they will be incorporated into the software, the public is concerned over whether the government will be able to track anyone at anytime. The FBI has developed the software in a way that as other biometrics technologies become viable, they can be added into the database.
While biometric identifications systems have been developing rapidly, government agencies have been slow to adopt and integrate systems due to security concerns on integrating privately and publicly developed programs. Legal privacy issues arise with every new development and integration of government biometric programs and may justify the slow implementation of the technology.
(1) Dezenhall, Eric. "A Look Back at the Target Breach." The Huffington Post. TheHuffingtonPost.com, 6 Apr. 2015. Web. 26 June 2016. <http://www.huffingtonpost.com/eric-dezenhall/a-look-back-at-the-target_b_7000816.html>.
(2) "Cybersecurity Resource Center Cybersecurity Incidents." U.S. Office of Personnel Management. N.p., n.d. Web. 26 June 2016. <https://www.opm.gov/cybersecurity/cybersecurity-incidents/>.
(3) Penny, Wayne. "Biometrics: A Double Edged Sword - Security and Privacy." SANS Institute, n.d. Web. 26 June 2016. <https://www.sans.org/reading-room/whitepapers/authentication/biometrics-double-edged-sword-security-privacy-137>.
(4) "OCBC OneTouch™." OCBC OneTouch™. N.p., n.d. Web. 26 June 2016. <http://www.ocbc.com/personal-banking/online-banking/onetouch.html>.
(5) Relander, Brett. "Biometric Banking: Huge Prospects For Tech Profits | Investopedia." Investopedia. N.p., 20 Apr. 2015. Web. 26 June 2016. <http://www.investopedia.com/articles/investing/042015/biometric-banking-huge-prospects-tech-profits.asp>.
(6) Morrell, Alex. "Why Billionaire and Former Glencore Boss Gary Fegel Is Investing $15M In A Biometric Security Firm." Forbes. Forbes Magazine, 29 May 2015. Web. 26 June 2016. <http://www.forbes.com/sites/alexmorrell/2015/05/29/why-billionaire-and-former-glencore-boss-gary-fegel-is-investing-15m-in-a-biometric-security-firm/#42620c7a57b2>.
(7) Corkery, Michael. "Goodbye, Password. Banks Opt to Scan Fingers and Faces Instead." The New York Times. The New York Times, 21 June 2016. Web. 26 June 2016. <http://www.nytimes.com/2016/06/22/business/dealbook/goodbye-password-banks-opt-to-scan-fingers-and-faces-instead.html?_r=0>.
(8)"Next Generation Identification (NGI)." FBI. FBI, 17 Mar. 2010. Web. 26 June 2016. <https://www.fbi.gov/about-us/cjis/fingerprints_biometrics/ngi>.
(9)"Integrated Automated Fingerprint Identification System." Wikipedia. Wikimedia Foundation, n.d. Web. 26 June 2016. <https://en.wikipedia.org/wiki/Integrated_Automated_Fingerprint_Identification_System>.
(10) Pagliery, Jose. "FBI Launches a Powerful Facial Recognition System." CNNMoney. Cable News Network, 16 Sept. 2015. Web. 26 June 2016. <http://money.cnn.com/2014/09/16/technology/security/fbi-facial-recognition/>.
(11) "Federal Programs." Biometrics. N.p., n.d. Web. 26 June 2016. <http://www.biometrics.gov/referenceroom/federalprograms.aspx>.
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Chadd Dunn is a senior at the University of Southern California double majoring in business administration and international relations. He focuses mainly on international economics,