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WHAT EXACTLY IS FINTECH? TYPES, BENEFITS, AND EXAMPLES (INCLUDED)

According to Statista, as of November 2021, there were 6,268 FinTech startups in the Asia Pacific region. It clearly shows that finance is one of the most data-affluent and inventive industries today that has created the most trendy solutions in the finance field. Moreover, it has integrations with trendy technologies to provide better financial services to businesses, companies, and consumers. The dramatically increased use of smartphones for online banking, investing, borrowing is the best example of the technologies focusing on making financial services handy to the general public.

What Exactly Is FinTech?

FinTech is a combined word for Finance and Technology. It is the innovation that competes with the traditional financial methods in providing financial service. It has changed its shape and size from InsurTech and cryptocurrency to mobile banking and investment apps.

However, FinTech application’s structures vary from project to project. Many apps use machine learning algorithms, data science technologies, and cutting-edge solutions like blockchain to perform various tasks like processing credit risks or running barrier funds.

FinTech companies consist of startups, settled financial institutions, and technology companies trying to exchange or increase the usage of financial services provided by an existing finance company.

5 Benefits of Using FinTech Apps

1. Convenience

FinTech uses mobile connectedness to boost the accessibility and ability of online transactions and mobile banking. Many consumers are using smartphones and tablets to manage their banking. The apps can help establish these processes, accomplish more, and get a good experience.

2. Personalization

FinTech app development company, while developing FinTech apps, generally adds data analytics. This helps to easily track and reach the customer’s increasing demands and needs. Because of all this data, organizations can easily convey personalized experiences and products to customers. The whole business model is now built based on access to an ample range of customer information.

3. Faster Processing

FinTech apps improve the convenience of different finance products by boosting the approval rate. This is related to banking and insurance products. Many companies use the FinTech application to automate and improve the speed of the approval process so it can get completed within 24 hours.

4. Security

One thing that all the FinTech apps have in common is focusing on security. FinTech app development companies use trendy and secure mobile technologies to develop their product. They spend on security to ensure that consumer data is safe or not. Biometric verification and data encryption are the most commonly used security measures used in the context.

5. Cost Reduction

FinTech companies can provide fewer fees than traditional banks. They don’t have extra costs such as advertisements or rentals. Instead, they can spend all their revenue on product development to improve their bid.

According to Statista, as of November 2021, there were 6,268 FinTech startups in the Asia Pacific region. It clearly shows that finance is one of the most data-affluent and inventive industries today that has created the most trendy solutions in the finance field. Moreover, it has integrations with trendy technologies to provide better financial services to businesses, companies, and consumers. The dramatically increased use of smartphones for online banking, investing, borrowing is the best example of the technologies focusing on making financial services handy to the general public.

What Exactly Is FinTech?

FinTech is a combined word for Finance and Technology. It is the innovation that competes with the traditional financial methods in providing financial service. It has changed its shape and size from InsurTech and cryptocurrency to mobile banking and investment apps.

However, FinTech application’s structures vary from project to project. Many apps use machine learning algorithms, data science technologies, and cutting-edge solutions like blockchain to perform various tasks like processing credit risks or running barrier funds. 

FinTech companies consist of startups, settled financial institutions, and technology companies trying to exchange or increase the usage of financial services provided by an existing finance company.

5 Benefits of Using FinTech Apps

1. Convenience

FinTech uses mobile connectedness to boost the accessibility and ability of online transactions and mobile banking. Many consumers are using smartphones and tablets to manage their banking. The apps can help establish these processes, accomplish more, and get a good experience.

2. Personalization

FinTech app development company, while developing FinTech apps, generally adds data analytics. This helps to easily track and reach the customer’s increasing demands and needs. Because of all this data, organizations can easily convey personalized experiences and products to customers. The whole business model is now built based on access to an ample range of customer information.

3. Faster Processing

FinTech apps improve the convenience of different finance products by boosting the approval rate. This is related to banking and insurance products. Many companies use the FinTech application to automate and improve the speed of the approval process so it can get completed within 24 hours.

4. Security

One thing that all the FinTech apps have in common is focusing on security. FinTech app development companies use trendy and secure mobile technologies to develop their product. They spend on security to ensure that consumer data is safe or not. Biometric verification and data encryption are the most commonly used security measures used in the context.

5. Cost Reduction

FinTech companies can provide fewer fees than traditional banks. They don’t have extra costs such as advertisements or rentals. Instead, they can spend all their revenue on product development to improve their bid.

FinTech Categories, Types and Examples

4 Main Categories (Types) of FinTech Apps

Before starting Fitech app development, it is crucial to know about the different types of FinTech apps to decide which type of FinTech app they want to develop.

1. International Money Transfers

Payments are the largest category of the FinTech industry. Digital payments reduce the burden of carrying cash with you; one can efficiently perform cashless payments through online payments. Many digital wallet apps can allow you to pay online safely.

Many payment companies have changed the way of payment with fast and secure digital payment methods. Sending money online has become so easy with just a few clicks with the help of comprehensive connectivity, low cost, and security. These companies offer safe online payment transactions, finance management, and account details.

There are two types of payment apps that are:

  • Paypal: It is a digital app for online transactions between customers and vendors safely. Paypal allows linking your debit or credit card with your Paypal account.
  • Payoneer: It is also an online payment app that allows overseas transactions. Among other freelancing apps, Payoneer is the most popular freelancer.

    2. Mobile Payments

    Digital payment has made every smartphone user use an online payment app for safe and fast transactions. This increasing online mobile payment technology has brought many changes in this industry that have become very beneficial for customers for online transactions or paying online.

    This is another field where the FinTech app has significantly affected the mobile payment industry. Any transaction that a customer makes will involve payment processing. Customers and businesses use mobile wallets or many other payment apps.

    3. Net Banking

    Most banking and financial institutions use net banking benefits for their customers to provide them with a better user experience. Every important banking institution holds a mobile application available to the account owners. This FinTech app helps avoid the banking difficulty, costs, and the problem of receiving the service. However, in the net banking category, we can also consider lending, insurance, and consumer financing apps.

    Conclusion

    As we all know, the FinTech app has changed our banking industries and the transaction by switching to digital payment. This blog will get complete information about the FinTech app and the benefits and types of the FinTech app. You will also get to know about finTech app development for your Business.

    I hope this blog will help you develop your FinTech app for your Business.

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GLOBAL FUND FINANCE TRENDS 2022

Off the back of another record breaking year of deals, both in size and volume, the resilience of the fund finance market is likely to continue throughout 2022. With larger funds being raised, there is a corresponding increase in the scale of financing as new entrants to the market, on both the borrower and lender side, are creating competition with traditional lenders. Generally speaking, the market continues to see new lenders and borrowers and products are evolving to meet the increasing variance of investor demands. Umbrella facilities are finding their place across all regions as larger fund managers seek to achieve efficiencies across their portfolios.

Concurrent to the macro trends identified above, Walkers has prepared a jurisdiction-specific commentary of the most salient aspects of the market today. Should you have questions about any of the trends included, please reach out to our industry specialists below or your usual Walkers contact.

Asia-Pacific: Increase in ESG and sustainability-linked facilities  

Across the Asia Pacific region we have seen a significant recent increase in the number of Environmental, Social and Governance (“ESG”) and sustainability-linked facilities in the fund finance space. Facilities incorporating ESG features have been an area of focus for sponsors and lenders in the region for some time. Walkers acted as Cayman Islands counsel to the lender in relation to the world’s first capital call facility with an interest rate linked to sustainability criteria.

We have also seen an uptick in activity in recent months, both in terms of performance-based facilities (with pricing pegged to performance against an agreed set of KPIs) and use of proceeds facilities (providing for pricing incentives for loans used for ESG purposes).

We expect that increase in activity to continue throughout 2022 as sponsors continue to look for ways to include ESG concepts in their debt lines and more lenders position themselves to be able to offer and monitor ESG-linked terms.

Aside from ESG related trends, the rapidly growing and maturing Asia private capital market has resulted in increased demand from managers for more bespoke liquidity solutions. Lenders have stepped up to fill this demand with NAV and hybrid facilities becoming more common and we have also seen a noticeable increase in the number of GP and management fee financings.

Bermuda: ILS and Collateralised Reinsurance Managers Look to Debt 

Over the course of 2021, in Bermuda we have seen a general upward trend in fund finance activity, with subscription line and hybrid facilities continuing to be popular. Most notably, in (re)insurance, a number of asset managers whose investment focus is in insurance-linked securities or collateralised reinsurance found themselves seeking alternative sources of capital and increasingly took to debt to help fund renewals in this space. With the combination of the global COVID-19 pandemic and a pattern of increased catastrophic activity in recent years, there has been a greater need for capital across the industry and we expect the trend to continue into 2022.

Cayman Islands: US Managers Turn To Asset-Based or SPV Facilities 

For the Cayman Islands, where we face primarily the North American fund finance market, we have seen a notable increase in the use of asset-based or SPV facilities by funds in large part due to the cost benefits and enhanced lender protections that such facilities offer. It is anticipated that the continued growth of super funds will lead to an increase in the demand for umbrella facilities, which offer a host of benefits including lower fees and pricing and timing efficiencies.

Another recent development relates to the Padma case which has altered the procedural steps for a creditor to seek the winding up of a Cayman Islands exempted limited partnership (“ELP”).

Prior to Padma, a creditor could present a winding up petition to the Grand Court of the Cayman Islands (the “Grand Court”) seeking the winding-up of an ELP formed under the Exempted Limited Partnership Act (the “ELP Act”) directly. But in Padma, the Grand Court reminded the parties that an ELP has no separate legal personality and it is through the ELP’s general partner/s that debts and obligations of the ELP are enforced. Accordingly, the Grand Court has no jurisdiction to order the winding up of an ELP on the presentation of a creditor’s winding up petition. The Grand Court concluded that an unpaid creditor’s remedy was to present a winding up petition against the general partner of the ELP that would then necessarily result in the affairs of the ELP also being wound up.

Channel Islands: Record Figures for Guernsey & Jersey 

2021 was a record breaking year for our fund finance teams across the Channel Islands. In keeping with Walkers’ observations in other jurisdictions, we have seen an increase in the number of transactions, the value of these transactions and the variety of products coming to market. Notably, an increased number of NAV facilities closed throughout the year and particularly in the last quarter. We are generally seeing more bespoke facilities and increasingly complex security packages, as more sophisticated fund finance solutions are required.

In addition, and on the fund formation side, we have seen an uptick in funds interested in investing in digital assets and crypto, as well as cannabis healthcare funds in Guernsey following the launch of the first such fund in 2020. It will be interesting to see if these funds present a challenge to the traditional fund finance market. Otherwise, continuing the themes of 2021, we expect to see even larger funds, larger facilities and more syndication over the course of 2022.

Ireland: Increased Demand from Established Lenders and New Entrants 

2021 was a strong year for the Irish funds industry with AUM in reaching an-all time high of approx. €4 trillion across 8,350+ Irish resident funds. Ireland also continues to be a leading hedge fund administration centre with €6+ trillion assets under administration. We continue to see increased activity from established lenders but also new entrants across sub-line, NAV and hybrid facilities which are being utilised by managers more frequently and earlier in their funds’ life cycles. This has been particularly true for the super-funds and large global fund managers where we have seen greater deal sophistication and evolution in borrower-driven bespoke terms.

ESG and social impact investing is on every board’s agenda, particularly as managers come to grips with the additional disclosure and transparency requirements rolling out across the EU under SFDR and the EU Taxonomy Regulation. 2022 promises to be a year of more green finance and sustainability-linked product innovation as market participants continue to embrace ESG factors at the forefront of their decision-making processes.

The recent overhaul of the Investment Limited Partnership (“ILP”) product has created a highly versatile, ‘best in class’ onshore, regulated and tax transparent partnership vehicle for venture capital, private equity/credit and real asset strategies including infrastructure funds. The ILP can avail of the pan-European passport under AIFMD and can be marketed to a wide Non-EU investor base through local registration and private placement rules. The amendments have modernised the existing law by updating LP voting rights, capital repatriation rules and now permits umbrella structures with statutorily segregated sub-funds that can pursue different strategies with no cross-default or cross-contamination. We are already starting to see a steady flow of new ILPs come to market in Q1 2022 as many managers see the clear benefits of the structure. We also expect legislative reform of the 1907 Limited Partnership later this year.

 

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BUILD YOUR FINANCIAL SUCCESS DREAM TEAM

Many busy physicians find they don’t have the time and energy to develop a savvy financial plan for their practice or their own personal needs. That’s why physicians needs the collaborative support and guidance of a good financial team. Many physicians never learned anything in medical school about running a business or handling personal finances, says Kyle O’Dell, investment advisory representative and managing partner at O’Dell, Winkfield, Roseman & Shipp, a financial advisory firm in Denver, Colorado.

“Because their professional lives are so busy, it’s essential they find someone they can turn to for financial advice and guidance so that they can continue to maintain their focus on patient care,” he says of his physician clients. “By working with an adviser, they can create a financial plan that can reap the rewards of their hard work.”

Finding the right financial adviser

O’Dell says the most important attribute to look for in any financial relationship is trust. “I would look for a fiduciary adviser who has experience working with doctors and understands the world they live and work in,” he says. “Finding a firm well-rounded enough—with the resources and experience to effectively manage your portfolio—can be a daunting task, but the decision can have a major impact on a doctor’s bottom line.”

Most advisers may claim they can handle all aspects of the financial portfolio, but O’Dell says before hiring someone, physicians should ask: Do they truly have that resources? Is it something they do every day?

Most experts agree that physicians should work with a fee-only financial adviser, because they do not receive commissions or financial incentives based on the advice they give.

Eiman Jahangir, MD, MPH, a cardiologist at the Permanente Medical Group, Santa Rosa, California, works with people he knows and has trusted for some time, although he reviews his policies every two years to ensure there aren’t any unexpected developments.

“Fee-only becomes important because then you can be comfortable that the financial adviser (or insurer) is not selling you a product just to make a profit,” Jahangir says.

Jahangir said physicians can use an investment calculator, such as the one on the personal financial website Physician on Fire, to see just how much it costs over time.

“A physician should start off by asking friends or colleagues for an introduction or referral to their adviser, and begin interviewing advisers until they find the right fit for their goals,” he says. “The adviser you would want to look for is someone that is both a fiduciary (charging a flat fee or receiving a cut of typically 1%) and insurance licensed. Many advisers only carry a securities license or a life insurance license.”

Other great places to start looking for fee-only advisers, according to several physicians, are the Financial Planning Association, the National Association of Professional Financial Advisors and XY Planning Network.

When searching for a financial adviser, a doctor might ask for assistance in just one area, but the right adviser should also be able to quarterback a team of lenders, CPAs and real estate agents, if necessary. He or she can also help physicians find the rest of their financial team members.

“If you have a financial adviser already, he or she should be able to refer people,” says Zachary A. Abrams, CFP, a wealth manager for Capital Advisors Ltd. in Shaker Heights, Ohio. “I have a list of accountants, attorneys, investment banks and lenders that I refer my clients to depending on their situation.”

Choosing a CPA

Another important member of the financial team is the certified public accountant (CPA).

Stephen N. Klein, CPA, partner with the New Jersey-based accounting and advisory firm Klatzkin & Company LLP, says the best way of choosing a CPA is through referrals from other physicians and doing due diligence on those they recommend.

“Interview several [CPAs] before making a decision,” he says. “While cost is always a factor, it should not be the determining factor, as it is difficult to put a price on good advice. During the interview process, you will notice differences in style, experience, the questions they ask you, their answers to your questions and the chemistry between the two of you.”

Once a physician hires a CPA, he or she will be responsible for helping the physician with the type of entity to set up for their practice, tax planning and tax preparation, as well as consulting on decisions about savings.

“They can also help by setting up an annual budget for the physician’s personal spending,” Klein says. “The physician needs to understand the importance of saving money from the day he or she first starts to earn a living. They will need to save for a down payment for a home, and other major life events, including college for their children and their own retirement.”

Finding the right lawyer

Attorneys are also a vital part of the financial team, as they can help a physician keep his or her practice out of trouble.

Glenn H. Truitt, JD, partner with iDeal Business Partners, Las Vegas, Nevada, says a relationship with an attorney involves a great deal of confidential and sensitive information, so doing due diligence on finding someone physicians can work with is an important part of complementing the overall financial team.

“Physicians, by nature, are usually quite skilled as lie detectors,” he says. “These skills should similarly be applied to their conversations with prospective attorneys. They should ask the potentially awkward questions up front, including the attorney’s background and experience in healthcare, references from other physicians and how they bill.”

Since it can be difficult to gain the necessary insight with a traditional interview, Truitt suggests giving a candidate a small project to do, with minimal guidance. “This will provide you essential insight into how they organize, accomplish and bill for work, as well as the quality of their work product and their communication skills, that you simply can’t get any other way,” he says. “Also, physicians work extreme hours, so an attorney that is only available on weekdays from 9 to 5 is likely going to be challenging for them to work with.”

Harry Nelson, JD, founder and managing partner of Los Angeles-based healthcare law firm Nelson Hardiman LLP, says having a relationship with an attorney knowledgeable about regulatory compliance is essential, as is working with one who regularly deals with healthcare issues.

Nelson says that asking other physicians for recommendations for lawyers is a smart way to find one, but that researching articles written by attorneys also can identify lawyers who are knowledgeable about any specific concerns a physician may have.

Finding the right banker

A banker is an important part of the financial team because he or she can offer services to simplify a physician’s busy life, such as dealing with student loan debt and obtaining consolidation loans.

James G. Edwards, III, managing director of SunTrust Private Wealth Management Medical Specialty Group, Atlanta, Georgia, says it’s nearly impossible for a physician, both personally and professionally, to self-finance all that they desire for their practice or personal needs.

“On the practice side, we recommend that physicians set up a working capital line of credit,” he says. “Many times, practices are going to have cash flow timing disruptions, like a delay in insurance payments, so having access to a line of credit can help bridge the timing difference.”

For capital-intensive medical practices that want to finance equipment, having access to funding is important as well, Edwards notes. “Even if they have the cash to pay for the equipment outright, interest rates have been good and terms are attractive, so it may make sense for physicians and practices to use a (bank) instead of writing a check,” he says.

On the personal side, many physicians work with banks on home mortgages and many bankers recommend that physicians have a personal line of credit for cash flow disruptions that could come based on a delay in income or a significant expense.

“Physicians should look for advisers who understand how a medical practice works corporately as well as the professional lifecycle of a physician personally,” Edwards says. “For example, when making loans to a practice, having advisers that understand the unique financial characteristics of the practice can help ensure a well-structured loan and a timely approval and closing.”

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HOW TO AVOID CAPITAL GAINS TAX WHEN SELLING A HOUSE

There’s a lot of pride associated with owning property, whether it’s a primary home or a vacation bungalow. It’s especially rewarding when real estate is properly compensated for. But while a high selling price may be exciting in the moment, it typically comes with a potential drawback. As a capital asset, any gains you make on the sale of your real estate are taxable. It’s important to understand how capital gains apply to a home and how you can lower their sting. A financial advisor may be able to help you if you’re selling property, so consider using SmartAsset’s free advisor matching tool today.

What Is Capital Gains Tax?

From personal items to investment products, almost all of your possessions are capital assets.  That includes property like cars or real estate and investments like stocks or bonds. Let’s say you decide to sell one of these assets, such as your home. The profit you make from the sale can potentially incur a tax called a capital gains tax.

Long-term capital gains occur when you sell an asset that you’ve held for more than one calendar year. Short-term capital gains occur upon the sale of an asset that’s been held for less than a year. While tax rates vary, long-term capital gains are typically taxed less than short-term capital gains.

When Do You Have to Pay Capital Gains Taxes?

It’s important to note that capital gains taxes only kick in for realized gains. That means it applies once you sell the asset for more than its basis. If a gain is unrealized, meaning you still own the item, then this specific tax does not come into play.

The long-term capital gains tax rate varies between 0%, 15% and 20%. There are a few higher rates for particular items, but they don’t apply to a home sale. In contrast, short-term capital gains are taxed as normal income, which can be a much higher rate. Income tax rates vary between 12% and 37%.

Do You Have to Pay Capital Gains Tax on Real Estate?

avoid capital gains tax when selling house

Taxes come into play almost any time you make money. So, if you make a profit off the sale of your property, you’ll probably run into capital gains tax. For example, if you purchased a property six years ago for $200,000 and sold it today for $300,000, your profit would be $100,000. You would have to report that sale and possibly pay a capital gains tax on the resulting profit. The exact amount of tax would then depend on your adjusted gross income (AGI), filing status and length of ownership.

But before you can even calculate the taxes you owe, you need to determine your tax basis. The basis is the amount of money you’ve put into the property, otherwise known as your capital investment. For a home sale, the tax basis depends on the circumstances in which you came to own your home. There are three scenarios:

  • If you bought your home – Cost basis begins with the purchase price and includes specific closing costs. Remodeling and construction expenses that add to the property value or longevity also contribute to the cost basis. Lastly, if you paid any taxes intended for the seller, those add on as well.
  • If you inherited your home – Cost basis begins with the home’s value at the time of the previous owner’s passing. This is what’s known as a step up in basis. That’s because you don’t have to account for gains taxes dating all the way back to the property’s purchase.
  • If your home was a gift – Cost basis for a gifted home stays consistent. So, the cost basis for the previous owner remains the basis for the new owner. However, there may be some exceptions. There are also potential gift tax consequences since you must report any gifts over $16,000 (as of 2022) to the IRS. This is the annual gift tax exclusion amount, which goes toward the lifetime gift and estate tax exclusion limit. As of 2022, that’s $12,060,000 for individuals and $24,120,000 for couples.

One caveat, though, is that the IRS offers a tax exclusion if the property is your primary residence. However, you need to prove you owned and lived at the house for at least two years. The latter does not need to be consecutive.

How to Avoid Capital Gains Taxes When Selling a House

If you want to make a profit from the sale of your house, you will owe capital gains taxes. However, there are some legal methods to minimize those taxes, such as:

  • The 2-out-of-5-year rule. You don’t have to live in the house for years consecutively, but cumulatively. That helps you meet the use and ownership tests. As a result, you may qualify for an exclusion up to $250,000 as an individual or $500,000 as a joint filer.
  • Qualify for a partial exclusion. According to IRS Publication 523, certain situations may make you eligible for an exclusion of gain. As long as you sold the home because of work, your health or an “unforeseeable event,” you can exclude some of your taxable gains.
  • Hold on to home improvement receipts. The cost basis of your property involves more than its purchase price. It includes any improvements you made as well. The higher your cost basis is, the lower your potential exposure to the capital gains tax.

Bottom Line

avoid capital gains tax when selling house

Everyone wants to make a profit when they sell their home. However, there are expenses to account for, including the capital gains tax. A short-term gains tax will likely result in a higher tax rate, though. So, it may be worthwhile to hold on to a property long enough to qualify for the long-term gains tax. But keep in mind that rules vary. Different types of properties may also result in changes to your potential taxes, so make sure you’ve done your research before making a decision.

Tips for Investing

  • Navigating the ins and outs of capital gains taxes can be challenging. If you want to understand your tax responsibility while selling your home, seek professional guidance. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • At one point or another, you’ll face capital gains taxes. But that doesn’t mean you can’t find other areas in your life to cut back costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.
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WHAT IS A CONTINGENT DEFERRED ANNUITY (CDA)?

Many of us plan to live long lives. But with a high life expectancy comes a longer retirement. That means finding ways to financially support ourselves past our working years is more important than ever. There are many options out there that retirees use to boost their retirement income, from defined benefit plans to equity investments. Another available option is called a contingent deferred annuity (CDA). Like other longevity annuities, CDAs provide consumers with an alternative way to access a guaranteed lifetime income. If you’re looking into a CDA, a financial advisor may be able to help you figure out how one can work into your financial plans. Check out SmartAsset’s free advisor matching tool today.

What Is a Contingent Deferred Annuity?

A contingent deferred annuity, abbreviated as CDA, is a type of insurance product. It establishes a contract between a life insurance company and the purchaser of the CDA. With it, the insurer must meet an obligation to make scheduled payments over the course of the annuitant’s lifetime. CDAs only release these payments once designated investments (not owned or held by the insurance company) are depleted. The contract specifics what level of depletion is necessary, either due to market performance, fees, charges, or contractually permitted withdrawals.

Breaking that down, CDAs are a lifetime benefit. However, the benefit is contingent on the customer’s associated investment account balance dropping below a predetermined threshold. As long as the balance remains above that lower limit, the CDA cannot pay out its benefit.

The insurer regularly tracks the approved investment account and adjusts its annual withdrawal limit according to it. The main factors the insurer uses are the asset balance and risk. If the customer contributes more to the account, the insurer adjusts the withdrawal limit upwards. Likewise, if the withdrawal is too great, the insurer adjusts the limit downwards.

Contingent Deferred Annuity Example

Consider an individual who obtains an initial CDA coverage amount worth $1,000,000. Their contract states that they begin receiving their benefit once the account drops below $1,000. At that time, they may withdraw the approved annual amount of $5,000.

Their payout starting age is 60 years old. However, their account eventually drops down to $987. As a result, they hit their benefit trigger amount and start receiving their CDA benefit. This lasts until they die.

Benefits of Contingent Deferred Annuity

contingent deferred annuity cda

There are a couple of risks each retiree should account for while planning. One, in particular, is known as longevity risk. Essentially, this risk refers to the possibility that you outlive your retirement savings. As a result, you are forced to rely solely on Social Security and either Medicare or Medicaid. A CDA provides some protection against this risk through its guaranteed lifetime income payments.

In addition, the account tied to the CDA falls under the responsibility of the purchaser or their agent. They don’t need to transfer any of the funds or securities to the insurance company. This allows the customer to stay invested in the market and potentially earn higher investment returns.

The way CDAs work creates a lifetime income floor for any purchasers near or at retirement. At the same time, the purchaser can still take advantage of possible market returns.

Risks of Contingent Deferred Annuity

CDAs are essentially stand-alone guaranteed living withdrawal benefits. And while they offer certain benefits, they are not exempt from risks. In particular, their pricing can be a potential problem.

CDAs are complicated products, making their fee structure equally complex. As a result, the benefits and drawbacks of the product may not be fully transparent to the customer. However, due to the potential advantages, you can expect the cost to be high.

In addition, CDAs’ similarity to variable annuity contracts means there may be shared risks between the two. In particular, there may be issues regarding the guaranteed living benefits. Since the responsibility for your investments remains with you, there is also the standard market risk.

Is a Contingent Deferred Annuity Right for Me?

CDAs ensure you receive guaranteed living benefits and maintain control over your investment assets. But while a CDA can be an effective shield against longevity risk, it may not suit all consumers.

However, CDAs’ policies are contingent on the covered assets dropping below the minimum threshold. So, your benefit is withheld until you deplete all of your assets. As a result, a CDA works best if you have a risky portfolio. But it can also be an effective tool for anyone facing retirement who fears running out of funds.

Still, some customers may be prepared to face longevity risk as part of retirement. Thus, eliminating the main cause for purchasing a CDA. Even more may prefer alternative approaches to their retirement income gaps. So, ultimately, purchasing a CDA should reflect your future financial needs.

Bottom Line

contingent deferred annuity cda

Nowadays, there are multiple retirement income gaps that each worker needs to fill. CDAs are one way to fill that gap. However, it is not the only way. If you see a need to improve your retirement income, consider all of your options. You may want to opt for low-stakes investments through a brokerage account. Or, you might think about renting out a property as a potential source of passive income.

Tips For Retirement Planning

  • Planning for retirement comes with its fair share of hurdles. If you want to avoid potential pitfalls, consider working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • A lot of retirement planning relies on projections. You need to guess how much you’ll need in the future to save enough in the present. SmartAsset’s retirement calculator is another free tool that can help. It provides you with an estimate, showing you if you’re currently on the right savings track.

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HOW FINTECH IS BRIDGING THE TRADE FINANCE GAP AMONG MSMES

Securing funding has long been problematic for micro, small and medium enterprise (MSME) businesses. Bank loans often require solid credit history, a long track record, or proof of ample cash revenue to gain approval. This is simply not possible for many small businesses and is especially cumbersome for small companies located in developing countries such as India and Mexico. Although investments are the key to growth for these populations, it is often hard to come by from traditional financial institutions.

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Enter fintech. Financial technology (fintech) companies have helped bridge the gap between ambitious small businesses and funding opportunities from banks, which are often out of reach. Fintech embraces a more modern approach adapted to today’s business climate. As a result, they have emerged as serious competitors to traditional banks, which often lag behind in technological developments.

Banks have historically struggled to adequately provide targeted funding for MSMEs. Small and medium-sized businesses require a much higher level of funds than those provided by consumer loans but vastly less than large corporations. Consequently, fintech companies have stepped in to serve this ignored market, which is hungry for funds. This article will discuss how fintech can serve small businesses , especially in emerging markets such as India, Latin America, and Africa.

Table of Contents show

  • 1. Traditional Banks Fell Asleep Behind The Wheel
  • 2. Global Demographics Provide Momentum For Fintech Adoption In Emerging Markets
  • 3. Fintech Connects Small Businesses With Vital Market Data
  • 4. Conclusion

Traditional Banks Fell Asleep Behind The Wheel

In an era of rapid technological advancement, it’s easy to see how a whole industry could fall behind. It’s also easy to understand how traditional financial organizations – lofty institutions of power and prestige whose histories span centuries – grew complacent with their status. Until now, banks never felt the need to expand their services or target a wider customer base. However, current data and research suggest that fintech is posing a significant threat to the dominance of traditional financial institutions.

For one, fintech provides an easy and convenient way for small companies to obtain loans. Formerly, small businesses would have to schedule in-person appointments coinciding with their local bank’s operating hours to apply for a loan, which was often rejected. Fintech, on the other hand, puts user experience at the forefront, allowing any business to apply for a loan with only a few keystrokes.

Many fintech proponents argue that fintech is beneficial for financial inclusion since it empowers rural people who would otherwise be unable to obtain funding to apply for loans easily. Small businesses often play a huge role in local economies within developing nations. For example, Mexico has over 6 million small businesses that could benefit from a line of credit or extra funding, which is six times more than their more developed neighbor Canada.

Innovations in alternative lending platforms, online banking, and mobile payments – all fueled by fintech developments – challenge the status quo by bringing banking services to previously underserved segments of the globe. While small businesses in emerging markets frequently rely on cash transactions for revenue, this payment method is notoriously susceptible to theft or mismanagement. The widespread adoption of fintech services by small businesses globally will play a huge role in lifting struggling regions out of poverty, encouraging consumerism, financial education, technological adoption, and providing much-needed funds for aspiring business ventures.

Tribal Credit, for example, is a fintech company centered around the Mexican market that has now expanded to Chile, Columbia, and Peru. The company focuses on speeding up access to credit and providing local businesses with methods to receive payments integrated with local tax laws. This ensures that small businesses that scale up aren’t suddenly hit with due tax bills and helps them establish legitimacy in the eyes of the government and society as a whole.

Global Demographics Provide Momentum For Fintech Adoption In Emerging Markets

Emerging markets comprise over 85% of the world’s population yet produce less than half that percentage of global economic input. Fintech provides a solution to unmet demands from small businesses in developing countries. It can fill the gaps left by traditional financial institutions that often focus only on serving the nation’s wealthiest political elite. For regions that suffer from political unrest and unstable governments, fintech can offer a solution by providing customers with means for storing crypto during times of uncertainty about the local currency.

According to research from Ernst & Young, providing services to unbanked individuals globally could generate $200 billion in revenue , meaning the business relationship is mutually beneficial. While setting up a retail bank in a remote or impoverished region isn’t a stellar investment for obvious reasons, fintech relies heavily on technology.

Not only does this approach result in lower overhead costs, but it also enables fintech companies to reach a much larger portion of the planet. According to recent statistics, 62% of people surveyed prefer to manage investments with an app rather than through a traditional bank, making this method of managing finances a preferred way for many across the globe.

Fintech Connects Small Businesses With Vital Market Data

Funding isn’t the only disadvantage MSMEs are faced with. Due to their small size and lack of connections within the larger global economy, small businesses are often ill-suited to predict future demand. Furthermore, lack of information can make it difficult for small businesses to grapple with supply chain issues and logistics. Fintech companies, however, can provide these businesses with electronic marketing data across entire trade regions and financial cycles that can help them prepare for potential market outcomes.

In an era of increasingly widening financial disparities, fintech provides market transparency by giving everyone the same data. The coronavirus pandemic has concentrated wealth into the hands of the already very wealthy. The corporations that had the funding and resources to pivot abruptly when global trade came to a halt were the ones that were able to pick up the slack when smaller businesses couldn’t.

However, the story isn’t over just yet. There is still a huge desire for consumers in emerging markets to support their local communities. By providing small businesses with the means to market their products and services in their communities by injecting them with much-needed funding, fintech can make a huge difference in the most impoverished regions in the world.

Conclusion

Emerging markets in Latin America, Mexico, and India are excellent investments that are often overlooked because of the risk inherent in areas where political instability or natural disasters are common. However, the best way for these regions to develop and grow economically and politically is through their small businesses, which are often underfunded.

Fintech helps close this gap by providing services to segments of the globe that were often cut off from traditional financial support. By connecting MSMEs to investors, lines of credit, business data, and tools to control their financial data, fintech can transform local economies worldwide.

Updated on Feb 15, 2022, 2:22 pm

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