9. FinTech Flashcards
Q: How does fintech companies create value?
By reducing financial frictions such as intermediaries.
Q: What are the financial frictions that fintechs can reduce?
- Unit costs: It costs less to offer the service (vertical integration, automation, scale)
- Adverse selections: It reduces lending risks (through more data, better modeling)
- Moral hazard and agency conflicts (shirking): It aligns incentives of service providers and consumers.
- Trust: It increases the trust in the system, or altogether eliminate the need for trust.
- Search costs: It easily matches service providers with customers.
- Convenience: It reduces processing time. More tailored financial services.
- Financial inclusion: Fintech can give more people access to financial services.
- Behavioral Biases: It helps us not making mistakes: Nudges/reminders. Automatic savings.
Q: What is the national fintech cluster in Norway?
NCE Finance innovation. A non-profit fintech cluster who works to empower the Norwegian Fintech ecosystem
Q: What is Visma?
Visma is an IT company selling accounting software for entrepreneurs and companies
Q: Provide some examples of technology-based business models in finance
- Platform-based business models
- Software as a Service (Saas)
Subscription-based model where software is delivered over the internet rather than installed on individual computers. - Data-driven models:
Businesses that collect and analyze large amounts of data to provide insights or improve decision-making for customers and other businesses.
Q: What is Platform-based business models?
Refers to businesses that facilitate interactions between two or more distinct groups, typically buyers and sellers, through a digital platform.
A platform-based business model refers to businesses that facilitate interactions between different groups of users through a digital platform, enabling transactions and earning fees or commissions for each transaction.
Q: What are some examples of platform-based business models?
A: Examples of platform-based business models include Vipps, PayPal, Airbnb, Uber, LendingClub, Kickstarter, Etsy, Amazon, and Alibaba.
Q: How can Platform-based business models create value?
By enabling interactions between buyers and sellers, often taking a commission or fee for each transaction.
Q: What are the types of Platform-based business models?
Two types of platforms:
1. Two-sided Platforms:
Bring together two distinct groups of users, typically buyers and users.
Examples: Vipps, Paypal, Airbnb, Uber,
2. Marketplaces:
Bring together buyers and sellers of specific goods and services.
Examples: LendingClub, Kickstarter, Etsy, Amazon, Alibaba
Q: What are the three types of digital platforms that are expanding in financial services?
a) Fintech entrants: specialized in technology-enabled financial innovation
b) Big tech firms: large technology companies whose primary activity is platform-based digital services
c) Incumbent financial institutions with platform-based business models
Q: How do platform-based business models promote financial inclusion?
A: Platform-based business models, including fintech entrants, big tech firms, and incumbent financial institutions, expand access to financial services, particularly in emerging markets, by leveraging technology and offering third-party services like digital payments, credit insurance, and wealth management.
Q: How has regulation influenced the growth of fintech?
A: Open banking regulations have allowed customers to share their financial data with authorized third-party providers, enabling more personalized financial services.
Q: How does fintech contribute to financial inclusion?
A: Fintech can provide access to financial services for individuals and businesses who were previously underserved or excluded from traditional banking systems.
Q: What are the key challenges for platform-based business models?
A: Platform-based business models face challenges related to network effects, trust, safety, and monetization.
Q: How can fintech contribute to reducing financial frictions?
A: Fintech can reduce financial frictions by leveraging technology to lower costs, mitigate risks, align incentives, increase trust, and provide more convenient and accessible financial services.
Q: How do incumbents respond to the rise of fintech?
A: Incumbent financial institutions are also adopting platform-based models and utilizing big data and automation to offer third-party services, competing with and cooperating with fintech and big tech firms.
Q: What has been the impact of the COVID-19 pandemic on the digitalisation of retail financial services?
A: The COVID-19 pandemic has accelerated the trend toward digitalisation of retail financial services.
Q: Which two countries stand out for their superior fintech ecosystem performance?
A: The United Kingdom and Sweden are highlighted for their strong fintech ecosystems.
Q: Can you provide an example of fintech’s impact on financial inclusion?
A: M-Pesa, a mobile money transfer system introduced in Kenya, has expanded to multiple countries, providing accessible financial services to millions of users.
Q: Which region has seen widespread adoption of fintech in mobile payments?
A: Asia
Q: Which sector has seen relatively higher fintech adoption in remittances and cross-border payments?
A: Retail banking
Q: How does the cost of finance relate to fintech adoption?
Fintech adoption is higher in countries with higher financial service costs.
Q: Which age group is more likely to adopt fintech?
Millennials
Q: What economic frictions and forces shape market structure in financial services?
A: Information asymmetries, economies of scale and scope.
Q: What are the classic economic forces that remain relevant in the digital age?
A: Economies of scale, economies of scope, and network effects.
Q: How has digital innovation impacted the production of financial services?
It has alleviated transaction costs and allowed for the disaggregation of financial services.
Q: What are the economic frictions that give rise to financial intermediaries?
A: Transaction costs and information asymmetries.
Q: What are the two key areas of technology advances that have contributed to technology-based finance?
A: Increased connectivity and low-cost computing.
What three types of digital platforms are expanding in financial services?
a) Fintech entrants
b) Big tech firms
c) increasingly, incumbent financial institutions with platformbased business models
Q: What are the potential benefits and risks associated with platform-based business models in financial services?
A: Benefits include lower costs and enhanced financial inclusion, while risks include digital monopolies and oligopolies.
Q: What are the key characteristics of platform-based markets?
A: Network effects, winner-takes-all dynamics, increasing returns to scale and scope, and potential inefficiencies.
Q: What is interoperability, and how does it help mitigate concentration and monopolies in platform markets?
A: Interoperability refers to the ability of users on one platform to interact with users on another platform, ensuring that externalities are available industry-wide and not exclusive to a single firm.
Q: What role have mobile money platforms played in increasing financial inclusion in sub-Saharan Africa?
A: Mobile money platforms in sub-Saharan Africa have played a crucial role in increasing access to low-cost payments and financial services through telecommunications networks.
Q: How have digital platforms in China, such as Ant Group and Tencent, advanced financial inclusion?
A: Digital platforms in China offer low-cost payments, credit, insurance, and savings products to hundreds of millions of users, leveraging their parent groups’ activities in e-commerce and social media.
Q: What impact have platforms had on financial inclusion in India?
A: Platforms in India, supported by public infrastructures like Aadhaar and the Unified Payment Interface (UPI), have significantly increased access to transaction accounts and fintech services.
Q: How have platforms contributed to financial inclusion in other Asian countries, such as Indonesia and Thailand?
A: Platforms in countries like Indonesia and Thailand, including ride-hailing apps and incumbent financial institutions, have provided payment and financial services, particularly targeting retail users and offering services to the informal sector.
Q: What role have platforms played in reaching the informal sector in Latin America?
A: Platforms in Latin America, such as e-commerce platforms and publicly-run platforms like Billeteria Móvil (BIM) in Peru, have been effective at reaching the informal sector and addressing gaps in financial inclusion.
Q: How has the UK utilized platform-based offerings and fintech solutions to improve financial inclusion?
A: The UK has implemented Open Banking to stimulate competition and innovation in financial services.
Q: How have incumbent financial institutions adapted their business models to resemble digital platforms?
A: Incumbent financial institutions have embraced a “banking-as-a-service” (BaaS) model, acting as matchmakers between clients and external fintech providers.
