Chapter 19

Question 1

Provide solutions for high frequency trading, copy trading, e-trading and robo advice

• robo advising
• algorithmic trading
• high frequency trading

Answer 1

investment management

Question 2

______ are online services that use algorithms to automatically perform many investment tasks done by a human financial advisor.

Answer 2

Robo-advisors

Question 3

• It is an end-to-end process that allows fintechs and other third parties to connect with banks’ systems directly via APIs.
• The process begins with a fintech or other third-party provider paying a fee to access the platform.

Answer 3

banking-as-a-service

Question 4

The number of bank branches in the U.S. grew steadily from approximately ______ in 1948 to over ______ in 2008.

Answer 4

4,200; 82,400

Question 5

The iPhone, which was first released in June 2007, is attributed with launching the ____ ___

Answer 5

mobile revolution

Question 6

an application that runs exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference.

Answer 6

smart contract

Question 7

In 1966, the ______ replaced the ______ as the standard for long-distance instantaneous communication of information.

Answer 7

telex network; telegraph

Question 8

The pullback of banks during the crises was due to increases in ___ ___ and ___ ___, which allowed new fintech players to enter the marketplace.

Answer 8

regulatory burdens; risk aversion

Question 9

By 2019, global smartphone penetration reached:

Answer 9

66.9 percent

Question 10

A method of designing a sequence of actions to solve a problem, known as algorithms, which optimize automatically through experience and with limited or no human intervention.

• credit rating (rocket mortgage)
• fraud detection
• forecasting/ stress testing

Answer 10

machine learning

Question 11

Process that allows fintechs and other third parties to connect with banks’ systems directly via application programming interfaces so that they can build banking offerings on top of the banks’ infrastructure to reach users outside of the banks’ existing footprint.

Answer 11

banking-as-a-service (BaaS)

Question 12

• Rent a bank
• Bank invests in fintech startups
• Fintech firms sell to banks
• Banks in-house develop fintech solutions (or fintech becomes banks)

Answer 12

Evolution of Fintech

Question 13

• LendingClub and Prosper’s partnership with WebBank
• Marlette Funding’s partnership with Cross River Bank

Answer 13

Stage 1: “Rent a bank”

Question 14

• Banks acquire loans originated by LendingClub
• BNP Paribas’ acquisition of french digital bank Compte-Nickel

Answer 14

Stage 2: Banks buy assets from and take equity stake in fintech startups

Question 15

• Avant and Regions Bank partnership to underwrite unsecured loans
• OnDeck and JPMorgan Chase’s partnership in serving small businesses

Answer 15

Stage 3: Fintech firms providing technology and infrastructure to banks.

Question 16

• Goldman Sachs launches its in-house online lending arm Marcus
• SoFi acquired Zenbanx and applies for a bank charter

Answer 16

Stage 4: Banks developing in-house fintech arms; Fintech startups apply for a bank charter

Question 17

A system that provides a user with a network of FI’s data using APIs.
- By opening APIs to sharing, third parties have easier access to financial information for existing bank customers, which allows them to build new apps and services.

Answer 17

Open Banking

Question 18

Let customer use a bank account or a credit/debit card to pay friends and family from their mobile phones (ex: paypal, venmo, square cash)

Answer 18

P2P payments

Question 19

is a particular type of DLT that organizes data into batches of transactions which are held together in an append-only data structure.

Answer 19

Blockchain

Question 20

A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. (ex: bitcoin, litecoin, ether and XRP)

Answer 20

Cryptocurrencies

Question 21

A digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time.

• have no central data store or administration functionality.
• Ex: blockchain, smart contracts

Answer 21

Distributed Ledger

Question 22

A way of raising money through the collective effort of family, friends, individual investors, and customers

• ex: GoFundMe

Answer 22

Crowdfunding

Question 23

The ____ fintech charter would allow a fintech company to become a special-purpose national bank that can pay checks or lend money, but the institution cannot take deposits nor can it use FDIC insurance.

Answer 23

Office of the Comptroller of the Currency (OCC)

—regulations: charters

Question 24

The world’s strongest set of data protection rules, which enhance how people can access information about them and places limits on what organizations can do with personal data.

Answer 24

General Data Protection Regulation (GDPR)

Question 25

A European regulation for electronic payment services. It seeks to make payments more secure in Europe, boost innovation, and help banking services adapt to new technologies.

Answer 25

Payment Services Directive 2 (PSD2)

Question 26

The advantages of the establishment of the NASDAQ

Answer 26

I. It helped reduce the bid-ask spread.
II. It ended fixed securities commissions.

Question 27

advantages that retail banks maintain over fintechs

Answer 27

• Banks have tens of millions of trusting customers who interact with them daily.
• The cost of capital for banks is close to zero.
• Banks have decades of compliance experience.
• Banks have more experienced legal teams.