FinTech Flashcards
What is FinTech?
Use of technology to provide new and improved financial services
Describe the historical perspective of FinTech.
Information technology made most products and services cheaper and more functional. The unit cost of financial intermediation has remained at around 2% for the past 130 years.
Technology has always been a part of finance. What’s new?
It’s fast. The speed at which new technologies are introduced into finance is faster than ever.
It comes from outside. Startups and big technology companies from outside finance are disrupting incumbents.
What are the six FinTech areas?
- Payments (Mollie)
- Digital lending
- Digital banking (Every large bank)
- Blockchain and digital currencies (FTX)
- Investment management (Robinhood)
- Insurance (Root)
What are three drivers of investment in FinTech?
- Higher regulatory quality
- Better developed financial markets
- Higher innovation capacity
Who are the 5 FinTech Unicorns in The Netherlands?
Adyen (Payments), Mollie (Payments), Bunq (Neobank), Flow Traders (Trading), BitFury (Crypto-blockchain)
FinTech in the Developing World; describe the situation of M-Pesa.
In 2007, the main phone operator in Kenya launched M-Pesa, a mobile-phone money transfer service. By 2012, there were 17 million subscribers and it expanded to several African countries. It lifted 2% of Kenyan households out of poverty through better financial resilience, savings, more efficient allocation of consumption and labor.
What are three types of Digital Lending?
- Lenders relying on fully online application process, no access to deposits, funded via securization. FinTech lending is a more efficient application process. (Buy-Now-Pay-Later lenders had >100% growth in 2016-2020)
- Peer-to-peer / Marketplace lending. Platform providing online market where borrowers and lenders match directly.
- BigTech lending
Who are the two main players in marketplace lending?
Borrowers are required to provide credit information. Platform verifies info, approves borrower, gives credit score, and sets limits on loan interest rate, maturity and amount.
Lenders choose which loan and how much to finance among approved borrowers, based on borrowers’ info on the platform. They can also choose diversified portfolio of loans delegating to platform investment decision.
How are interest rates set in marketplace lending?
Interest rates can be set by platform, borrowers or lenders through auction.
What are the four main platform models in marketplace lending?
Traditional
Notary
Guaranteed return
Balance sheet
Describe the traditional P2P lending model.
Loan contracts between borrowers and lenders, not with platform.
Platform makes profits from fees, absorbs portion of credit losses.
Describe the Notary Model in marketplace lending.
Loans originated by partnering bank who acts as intermediary between borrower and lender, platforms perform matching process.
Loans can be packaged (pooled) and sold to institutional investors. (Securization)
Describe the Guaranteed Return Model in marketplace lending.
Similar to traditional model, but platform guarantees lenders’ principal and interests.
Describe the balance sheet model in marketplace lending.
Platform originates and retains loans in their balance sheet. Platform funded with debt, equity and securization.