Fintech Notes

FINTECH
 FinTech is a contraction of “finance” and “technology” is the use of technology in

the financial services industry resulting in the introduction of new and innovative
products and services, primarily through software.
OR
 Fintech describes any company that provides financial services through software
or other technology and includes anything from mobile payment apps to
cryptocurrencies.
OR
 Fintech describes any company using the internet, mobile devices, and software
technology or cloud services to perform or connect with financial services.
APPLICATIONS OF FINTECH
 Marketplace Lending
 Typical model for marketplace lending:
o Borrowers apply for a loan on a marketplace platform;
o Accepted loan applications are then originated by a partner bank
(lendingclub and prosper use utah-based webbank);
o The mpl performs the underwriting of the loans, using criteria
agreed with the partner bank
o Platforms purchase the loan from the partner bank;
o The platform issues a note to lenders, instead of a contract.
 Marketplace or “peer-to-peer” lending platforms make a profit from
arrangement fees rather than the spread between lending and deposit
rates.
 Marketplace lending has grown due to low interest rates, low default rates,
improved lending process and scarcity of consumer credit.
 These MPL platform allow banks to provide funding to higher risk
individuals or SMEs, while passing much of the credit risk on to investors.
 Crowd Funding Platforms
 Crowd funding platforms allow internet and app users to send or receive
money from others on the platform and have allowed individuals or
businesses to pool funding from a variety of sources all in the same
place.
 Instead of having to go to a traditional bank for a loan, it is now possible to
go straight to investors for support of a project or company.
 Mobile Payments
 Mobile payment applications allow users to carry out banking activities
without physically visiting a bank.
 Figures show the largest usage of mobile payments are those who do not
have a bank account.
 The following factors might increase the use of mobile wallets:
o More Global Mobile Wallet Providers
o More Smartphones
o More Merchant acceptance of contactless payments
 Mobile payment solutions may involve a mobile network operator (MNO)
participating in the offering along with a financial institution.
 For some mobile payment solutions, the handset is simply a device for
authentication and there may be no wider involvement of the MNO.
 Examples of new innovations:
o NFC terminals
o Mobile POS
o Retailer Mobile Apps
o Digital Wallets
o Peer to peer mobile payments
 Blockchain Technology
 Blockchain technology is being adopted due to its capability to securely
store transaction records and other sensitive data.
 It is effectively a public ledger of all transactions that have ever been
executed with that Bitcoin.
 Each transaction is encrypted, and the chances of successful cyber-
attacks are relatively low when blockchain technology is employed.
 Insure-Tech
 The term insuretech refers to the application of technology to the
insurance model, which allows companies to provide tailored insurance
services and data security.
 Insuretech helps streamline the insurance process through online claims
filing and policy management.
 Reg-tech
 RegTech broadly means technologies that facilitate the delivery of
regulatory requirements.
 It offers fast and cost-effective management of large amounts of data,
including transaction records and compliance documents, such as
corporate tax returns.
 RegTech can reduce a client’s regulatory and compliance costs, automate
the certain compliance tasks and reduce risks.
 Inves-Tech (Robo Advising)
 Robo-advisors are online investment management services that use
algorithms to optimally allocate assets and generate portfolios for
customers.
 Based on KYC information, they offer tailor-made investment solutions,
typically based on mutual funds / ETFs.
 More sophisticated models are being deployed using artificial intelligence.
 Typically, a license is required to provide these services.
 Big Data
 Through large datasets, valuable information about consumer
preferences, spending habits, and investment behavior can be extracted
and used to develop predictive analytics.
 Predictive analytics refers to predicting how consumers are likely to
behave using past information and a mathematical algorithm.
 By understanding customer behavior, firms can target new customers and
cross-sell to existing customers.
 The collected data also helps in formulating marketing strategies and
fraud detection algorithms.
 Firms can incorporate transactional-level data analysis within credit risk
model development.
 Firms can give customers access to their own data, and help them
manage their finances via apps that make use of the data.
GROWTH OF FIN-TECH
FinTech has emerged due to:
 Technology (social networks, big data)
 Favorable regulatory environment
 Demographics (rise of the millennial)
 Mobile financial services provide cheap banking solutions to the unbanked
EXAMPLES OF FIN-TECH
 Virtual Currencies
 Bitcoin etc. might constitute currencies if the trading in them is regulated; also
raises AML issues
 On-Line Payment Accounts

 Accounts through which you can send money, make payments online, and
receive money
 May be regulated as non-bank payment institutions
 Payment Initiation Services

 Service used to initiate a payment to another party
BENEFITS OF FIN-TECH
 User Privacy
 Transparency of transactions (Low chances of fraud)
 Cheaper and faster transactions
 Business growth
 Financial inclusion
RISK OF FIN-TECH
 Cyber Crime
 Lack of government intervention
 Instability (Due to over reliance on technology)
 Low consumer protection
 Terrorist financing
 Businesses focused on the “Tech” and not the “Fin”.
o may lack banking experience
 Cybercrime regulations lacking
 Data security/data protection
 AML risk
 Instability created by ease and speed of transfer of funds
 Increasing regulatory scrutiny
REGULATOR MUST FOCUS THESE POINTS TO IMPLEMENT THE FIN-

TECH TECHNOLOGY
 Consumer Protection
 Privacy
 Data Security
 AML
 Anti-Terrorism Financing
 Cyber Security
 Tax Evasion
 Promoting Innovation
 Access to Finance
 Job Creation
 Fair Lending

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FINTECH

 FinTech is a contraction of “finance” and “technology” is the use of technology in

 On-Line Payment Accounts

 Payment Initiation Services

REGULATOR MUST FOCUS THESE POINTS TO IMPLEMENT THE FIN-

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