01 FInTech Flashcards
The Eras of Financial Technology - 1.0
- Fin. Technology (1866 - 1967)
* in 1866 the first successful transatlantic cable was laid, increasing the speed of information from two week to two minutes
* Financial interlinkages across countries and continents
* The introduction of credit cards lead to a “consumer revolution”
–>Financial service become interconnected
The Eras of Financial Technology - 2.0
- FInancial Technology (1967 - 2008)
* in 1967, the autmated teller machine (ATM) was introduced, fundamentally changing the way how customers interact with their banks.
* Financial institutions increasingly use computer and datacenters while replacing paper-base work
* Introduction of online banking and modern internet banking 1980-1990s
* Increasing computer power allows for more complex business models
* New communication channels, mobile phones, internet) connect financial markets, institutions, and clients
—->Financial service prodivers move from analog to digital
The Eras of Financial Technology - 3.0
- Fin. Technology (2008 - )
* smartphones make mobile banking and trading convenient and scalable
* Crowdfunding becomes mainstream
* P2P lending platforms emerge
* DLT, Blockchain, cryptocurrencies
––>Democratizing digital financial services
Differentiation between Dealers and Brokers
Both Dealers and Brokers facilitate exchange and match supply and demand
Dealers:
* Trade on their own account
* Sell and Buy at different prices
* Maintain an inventory
Brokers:
* Trade on behalf of their clients
* Charge commission
* Do not maintian an inventory
Common Themes of FinTech Definitions
- Modern information technology is key: (Communications, internet and (mobile) computing)
- FinTech increases efficiency of financial services
- FinTech disrups existing business models
- There is (new) focus on customers
- FinTech impacts all areas of finance
New form of intermediation:
less on-balance sheet finance.. (Dealer-perspective)
and more P2P platforms and brokerage (More broker model)
–>Democratized access to financial services
The underlying core Trends and driver of FinTech
- Inefficiency of the established financial system
- Economic and regulatory environment after the financial crisis
- Growing distrust in established financial institutions
- Open Banking and APIs
- Customer expectations and Demographics
Inefficiency of the established FInancial system
|Technological progress and reasons for not having access to a bank account
Financial services have substantially benefited from technological progress, but the efficiency gains have not always been passed on to clients
Especially in emerging and developing countries, around 1.7 billion adults don´t have access to a bank account: –>reasons
1. many financial transactions still rely on cash
2. Large informal economy, due to unregistered economic transactions
3. Social security transfer and financial aid difficult to implemen
Inefficiency of the established FInancial system
Why are other financial serbices also possibly not available or very exp
Other financial services like credit card, international payments, –>Reasons:
1. Infrastructuere may be lacking (electricity, rule of law)
2. Geographical distance to nearest bank may be too large
3. Cross-border remittance payments are extremely expensive
Regulatory and Economic Environment after the Global Financial Crisis
driver fintech
- Regulatory changes: higher capital requirements lead to decreased profit margins, especially for FI with an on-balance sheet “leveraged” business model
–>increasing complexitx of compliance, requiring more specialized solutions - Job losses in the financial sector, especially young people have to look for new opportunities
Growing distrust in established Financial Institutions
driver fintech
Fin Industry has a lon history of risking customer trust
* conflicts of interest: banks and brokers push products with inferior risk-return profiles to increase short-term profit
* Unethical behavior: FI have been shown to exploit people with low education and the elderly
–>Countless cases of fraud and criminal activity
–>the financial crisis accerlated the overall trust in fin institutions
Open Banking
Open Banking:
* secure sharing financial data, subject to consumer content
* “Liberation” of customer data and accounts
Underlying regulation:
* Revised payment services directive,
* mostyl do not give specific technical standards, its just a legal framework within which oben banking standards have to operate
–>Privacy protection laws: Principlemof data ownership: Your data belongs to you
and APIs
Underlying technology: Application programming interfaces
* software connection between computer programs
* used for output and input of data in standardized form
* Allow for automation and scalability of data transer
Open Banking and Competition
–> Oben Banking and FinTecH: growing competition because
* finde best financial product, irrespective of who provides it
* easily to switch from one bank to another
Open Banking should redcue costs of entry for new businesses
–>APIs allow for new services via apps and platforms provided by third parties
Customer Demographics
Driver fintech - Demographics
Demographics:
FinTech adoption rate is highest among those 25-34 years old
–>DIgital natives and millenials grew up with some of the technologies used
–>They typicall prefer digital channels to communicate and manage their life
–>they don´t have strong, long-lasting relationship with their established FI
Customer Expectations
Customer expectations toward finance have changed
— expect more convenicence (acces from anywhere, service easy to understand)
— social aspects more important (small payments in everyday life, sharing of investments and investment ideas.
—> awareness of social responsibility impacts investment decisions
— customer feel less bound to individual institutions and more likeley to switch fin service providers
—> increasingly compare products and prices
