WTF is an SDK?

explaining common fintech jargon in simple language

WTF is an SDK ?

A SDK, or software development kit, is a tool that allows developers to integrate third party features into their own software, apps, or platforms.

Imagine a developer who wants create a mobile commerce app, but doesn’t want to spend the time or money building a payment system from scratch. The developer finds a SDK from a third party payment provider that fits his specific needs and integrates it into his app. This allows the app to be released in weeks as opposed to months.

Who uses SDKs?

A skilled software developer with a healthy dose of programing experience uses SDKs for app creation and development.

What are examples of SDKs in finance?

The best place to find SDKs in finance are mobile apps, and more specifically, payment processing. Most card networks, like Amex and Mastercard, have SDKs that allow developers to incorporate card processing into mobile commerce apps. Companies like CardFlight have SDKs for EMV acceptance, and PayPal has an SDK for incorporating its mobile checkout service. Apple provides SDKs that bring Apple Pay into apps as well.

SDKs make appearances outside of payments, too. Banking SDKs allow the creation of secure mobile banking apps, and stock market SDKs allow for real time ticker prices in mobile apps and websites.

What are the benefits of using an SDK?

Building financial service capabilities from scratch can be a daunting task for developers. Creating a service that abides by regulations, has universal payment acceptance, and works consistently can take months to create and cost hundreds of thousands of dollars to build. By utilizing SDKs, small companies and developers can quickly create applications with secure features for a moderate price.

What do SDKs mean for the future of finance?

As finance moves more digital, SDKs will continue to play a major role. Choosing the right SDK is an important decision for a fintech.

On the provider side, it’s become important for a financial service companies to create SDKs in order to maintain market share. For example, SDKs have allowed card companies to become further entrenched into mobile payments since smaller apps use credit and debit card SDKs for payment processing. For smaller tech companies, creating a well-designed SDK can be the way to get a foothold into the financial services market.

It’s also part of the blueprint for the idea of platformification. Creating a SDK is an easy way to put multiple companies onto the same platform, while new upstarts can use the security and familiarity of a platform to secure consumer trust at an early stage.

WTF is the MCX?

explaining common fintech jargon in simple language

What is the MCX?

The MCX , or Merchant Customer Exchange, is a consortium of U.S. retailers founded in 2012. The group created a a merchant-owned mobile payment app, now known as CurrentC.

The MCX website currently lists 63 merchants in the consortium, including many of the largest retailers across various sectors,including 7-11, Bed Bath and Beyond, Kmart, Exxon Mobile, Walmart, Gap, and Olive Garden.

Why was the MCX created?

Depends who you ask. Some would say CurrentC was created for customers. As retailers release their own proprietary mobile payment apps, consumers don’t want to download multiple payments apps, so CurrentC was created to simply things. The aspiration is that the app will work at all retail locations.

Another popular theory is that the MCX was created by merchants to combat interchange fees and third party mobile wallets. Merchants and banks are stuck in an endless battle over the fees banks charge merchants for card processing, known as interchange fees. CurrentC utilizes gift cards and ACH to fund accounts, circumventing credit card companies and removing interchange fees from the equation.

The technology powering CurrentC provides further evidence of merchants trying to eliminate all outside payment sources. CurrentC uses QR codes for payments, not the newer NFC technology. Mobile wallets like Apple and Android Pay utilize NFC technology and are powered by credit card APIs, cementing card interchange fees into a merchant’s daily life.

Its been a few years now…why hasn’t CurrentC been released?

There has been beta testing of CurrentC, but the MCX’s mobile payment app is in a rough place now. CurrentC got hacked in October of 2014, and there have been some concerns over privacy issues. Not being able to get it together pushed a few retailers to jump ship and create their own mobile apps or open up their systems to mobile wallets like Apple and Android Pay. Walmart, CVS, and Kohl’s are only a few of the retailers that have created their own mobile payment products.

MCX has gotten some bad press since its founding. Trying to passively cut out mobile wallets like Apple Pay and create a merchant-exclusive mobile payment app has rubbed some customers the wrong way.

Some would argue CurrentC was doomed from the start, and was only a power play against banks and third party wallets. It’s difficult enough to create a mobile payment app for one store with a good user interface. But creating a single app that fills the needs of over 60 retailers, ranging from restaurants to gas stations to big box stores, seems damn near impossible.



What is SWIFT?

An acronym for Society for Worldwide Interbank Financial Telecommunication, SWIFT was launched in 1977 in Brussels to help establish practices for financial institutions. Specifically dealing with standardizing fund transfers between banks, SWIFT has become a multinational banking community communicating in the same language.

What does SWIFT do?

A few things, but they’re most known for providing a network that allows financial institutions to “communicate”. But we’re not talking about text messages or Christmas cards. Financial messaging deals with fund transfers, with each message calling on another bank to either send or receive funds. SWIFT also creates software that allows banks to send messages over their network. Companies don’t need to use SWIFT-developed programs to use the network, and can use their own or third party-developed software to send messages over the SWIFT network.

It’s important to note that SWIFT doesn’t hold any financial information themselves. The firm only provides a way to send financial messages and transfer funds between financial institutions.

How big is SWIFT?

Pretty big. SWIFT claims to have over 11 thousand financial institutions in its network. Over 6 billion FIN messages were sent in 2015, with a single day high of 27.5 million messages.

So Swift is foolproof, right?

Ummm…well, not so much. SWIFT has been hacked a bunch of times in 2016 alone. In February, the Bangladesh central bank was hacked, resulting in an $81 million theft. In May, $12 million got taken from an Ecuadorian bank. In June, a Ukrainian bank lost $10 million to a hack.

SWIFT has started responding to critiques on its security breaches, and just announced the release of a Daily Validation Report that helps banks stay on top of potential frauds.

Why is SWIFT important?

SWIFT is an influential cooperative that people don’t fully understand, which adds to its allure. It’s been around for a long time and is pretty well entrenched into international banking systems. For example, when Iran was hit with economic sanctions, the country’s banks were kicked out of SWIFT.

At the same time, SWIFT has been heavily criticized with susceptibility to hacks and security breaches. Blockchain enthusiasts also feel that SWIFT’s days are numbered, and that distributed ledgers will soon replace financial messaging. Even though that remains unlikely in the short term due to how deep its roots are in the banking world, SWIFT has been investing in blockchain innovation through its subsidiary, Innotribe.

WTF are mobile wallets?

What is a mobile wallet?

A mobile wallet holds all the information that would be in your ordinary wallet, except it’s stored on your mobile device. But unlike George Costanza, you won’t be plagued with back pain if you stuff your mobile wallet to brim. All sorts of stuff you’d normally put in your purse or wallet can be stored in mobile wallets, from credit card information to your library card. Unfortunately, they haven’t figured out the technology to include Tic Tacs yet, though maybe they’ll do it through the blockchain or at Money 2016?).

Where are mobile wallets used the most?

The most common way mobile wallets are used is for the facilitation of mobile payments. Users put their credit or debit cards into their digital wallets, and are able to pay or transfer funds via one click or NFC technology.

Who offers mobile wallets?

The most well-known mobile wallets are Apple’s Apple Pay and Google’s Android Pay. Merchants like Starbucks and Walmart also have popular digital wallets. Other solutions available include a mobile wallet combined with a physical credit card, giving users the convenience of consolidating credit cards without fully changing the habit of pay-by-swipe.

Secure wallets are also available, providing customers a digitally encrypted way to store all their sensitive information, like banking records and passport copies. Gift card consolidators merge gift cards into one place, ensuring these presents don’t end up in between couch cushions or at the bottom of a purse stuck together with old gum.

Why are mobile wallets important?

Digital wallets combine the two most important things any good millennial would never leave home without: a phone and a wallet. The ability to consolidate financial information and help people move away from schlepping around tons of credit, debit, and loyalty cards is an intriguing concept for merchants and customers alike. As consumer behavior changes, more merchants, banks, and third parties will try and lure customers to use their products.

Photo credit: festivusweb via VisualHunt / CC BY

WTF are smart contracts?

what are smart contracts?

You may not be able to see smart contracts, but chances are they’ve impacted your life in a meaningful way. From trading stocks to applying to college, smart contracts help companies automatically sift through data, automate fund transfers, and develop rules for new investing platforms.

Focusing on the financial instead of the technical aspects, here’s everything you need to know about smart contracts.

What are smart contracts?

Smart contracts are similar to directions you leave for the babysitter, telling her what to do if a specific event happens. From your kid waking up to an emergency situation, the instructions are triggered by specific events. Smart contracts are instructions programmed in a software platform that fire according to predefined rules.

Since smart contracts are computer programs, the easiest way to understand them without a background in programming is through examples. Here are three examples of how smart contracts are utilized by companies and individuals.

  • Institutions analyzing applications: Colleges evaluating prospective students and banks analyzing loan applicants utilize smart contracts to sort through data and separate the wheat from the chaff. Although institutions may call them algorithms, they are essentially a collection of smart contracts that make sure only suitable applicants are approved to go on to the next round of approval.
  • Automatically transferring assets or funds: Smart contracts can be set up at most online brokers as programs that buy or sell a security if it hits a certain price. Bookkeeping programs can automatically release payroll or give bonuses to sales employees after they meet predetermined quotas.
  • Investment vehicles run by smart contracts: The robofication of finance is dependent on smart contracts to invest automatically. Robos, quants and DAO funds utilize smart contracts to find investments, allocate funds, and buy or sell at specific price points.

Smart contracts are an integral part of blockchain technology and cryptocurrencies like bitcoin.

Why use smart contracts?

Smart contracts make life easier. It takes banks a lot of time to manually sift through every loan application, and smart contracts can help prevent human fatigue, improving decision making. Smart contracts can also help protect investments or capitalize on stock price movements by setting rules-based transactions. Essentially, smart contracts can help financial organizations and professionals save time, money, and energy.

What’s the problem with smart contracts?

Since a human writes the code defining the terms and limits to a smart contract, they’re only as smart as the person who wrote the program. Human error is still a factor in smart contracts, causing universities to accidentally send out acceptance letters to all applicants, or buying and selling stocks incorrectly after a forgotten limit order triggers, or when a hacker exploits a hole in one of the DAO’s smart contracts, siphoning away $50 million.

It’s cool that they’re everywhere, but why do smart contracts matter to me?

Smart contracts are the backbone behind the automation of finance. Correctly utilized smart contracts can help businesses and individuals sift through tons of data and opportunities to find quality information and automatically act on them. On the flip side, incorrectly designed smart contracts can be a death sentence for a business or portfolio. As smart contacts become more prevalent, understanding the underlying code behind a financial platform becomes more important, and professionals, investors and entrepreneurs alike will have to understand how smart contracts are utilized before finalizing a business decision.


Photo credit: jlcwalker via / CC BY

WTF is a roboadvisor?


This is the first in a series of articles that explain, in plain English, new technology tools and platforms that are changing the face of finance. Check out other articles in this series here.

What is a roboadvisor?

A roboadvisor (also robo-advisor or robo-adviser, if your roll that way) is an investment advisor that provides automated portfolio management using software. Instead of a human investment advisor choosing how to allocate a portfolio, roboadvisors use algorithms.

Why is everyone obsessed with roboadvisors?

Well, if they’re as good (or better than) as human investors, the success of roboadvisors threatens the livelihood of registered investment advisors (RIAs) and stock brokers. Most roboadvisors charge around 0.25% per year on their clients’ assets, driving down fees in the investment management industry. Some don’t charge any fees. In an industry suffering a crisis of trust, many younger investors have shown they’d rather trust a website than a local financial advisor.

What kind of investment strategies do roboadvisors use?

Most roboadvisors provide portfolios comprised of a handful of exchange traded funds (ETFs). Robos frequently provide ongoing, automated portfolio rebalancing and some provide daily tax-loss selling. New roboadvisors have entered the market with more sophisticated investment strategies.

Schwab's roboadvisor: What's a roboadvisor?
Schwab’s investment questionnaire

Why would clients want to work with a roboadvisor?

Some of the pioneering roboadvisors focused their marketing on newly-minted millionaires who made their money working for technology companies. These people are as comfortable using an Internet-based service to manage their investments as they are using an app to order a taxi. Clients feel like the advice they receive from roboadvisors is unbiased and the fees low. Clients with smaller portfolios have complained that they don’t get the attention of their wealth managers and consequently, don’t get the same level of service larger clients get. Roboadvisors claim to provide the same service to all their clients.

Are roboadvisors succeeding?

It depends what you mean. Many of these firms are startups and have raised lots of venture capital to launch and acquire new clients. But in terms of assets under management, they still have just a tiny sliver of the entire asset management pie. Newer entrants to the roboadvisor market are owned by incumbent asset managers, like Vanguard and Schwab. In just a few months, these in-house solutions had more assets than all the other roboadvisors combined.

different roboadvisor portfolios: what's a roboadvisor?
from the WSJ

Are roboadvisors really fully automated?

Some, yes. Many robos are what experts call hybrid roboadvisors. These hybrids combine a significant amount of portfolio automation with a more traditional interaction with a professional, human advisor. Some human advisors have introduced their own roboadvisor offerings to complement their professional workforce.

So, it isn’t all-or-none when it comes to making a decision between a roboadvisor and human financial advisor?

Correct. There are companies that provide private-label software to traditional investment advisors so that they can launch their own roboadvisor products.

What do traditional asset managers think of roboadvisors?

That depends. Some have remained skeptical, choosing instead to wait and see how this all plays out. Others have developed their own offerings, like Vanguard and Schwab. BlackRock, for instance, acquired an independent roboadvisor. To date, there hasn’t been a lot of M&A in the space.



Photo credit: ell brown via Visual Hunt / CC BY