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Fintech Notes

FinTech refers to the use of technology in the financial services industry to develop innovative products and services. Some key applications of FinTech include marketplace lending platforms, crowdfunding platforms, mobile payments, blockchain technology, insure-tech, and robo-advising. FinTech has grown due to factors like technology advances, favorable regulations, demographics, and providing cheaper access to financial services. While FinTech offers benefits like lower costs and greater transparency, it also presents risks around cybercrime, consumer protection, and data security that regulators aim to address to promote continued innovation.

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445 views5 pages

Fintech Notes

FinTech refers to the use of technology in the financial services industry to develop innovative products and services. Some key applications of FinTech include marketplace lending platforms, crowdfunding platforms, mobile payments, blockchain technology, insure-tech, and robo-advising. FinTech has grown due to factors like technology advances, favorable regulations, demographics, and providing cheaper access to financial services. While FinTech offers benefits like lower costs and greater transparency, it also presents risks around cybercrime, consumer protection, and data security that regulators aim to address to promote continued innovation.

Uploaded by

Vivek Kavta
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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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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