week 8 - financial technologies (fintech) Flashcards
what is financial technology?
the application of emerging technologies such as AI + blockchain to the creation of new products, services + business models within financial services.
what does fintech do?
it drives cost reduction through automation by enabling operational excellence + improved customer experience.
what are some reasons to use fintech innovations?
- easy to set up an account
- more attractive fees/rates
- competitive advantage
- available 24/7
- cost efficiency
- financial inclusion
- improved customer service
- access to different products + services
- greater trust levels than traditional institutions
why is fintech on the rise?
- financial crises
- banks, fees + obsolete processes
- growth of mobiles + the internet
- technological advancements
what is open banking?
a system that allows third party financial service providers access to consumer banking data through api’s.
what does open banking enable?
- innovation
- competition
- improved financial services
how does open banking work?
- they provide secure api’s for authorised third party providers.
- customers give explicit consent for data sharing.
- third party providers use data for payments, financial management + new banking services.
what does an unbundling of financial services mean?
the process of breaking apart something into small pieces.
what are the challenges in fintech?
Regulatory + compliance challenges: diverse regulations, data privacy laws, cross border transactions.
Security + fraud risks: cybersecurity threats, data breaches.
Infrastructure challenges: integration + interoperability.
Financial inclusion + accessibility issues: digital divide, some populations lack access to the internet or mobile banking.
ethical + societal concerns: algorithmic bias + ethical use of ai.
what is blockchain?
a data structure that holds transactional records while ensuring security, transparency + decentralisation.
enables the creation of a distributed ledger.
it is a decentralised peer to peer network where each node has a copy of the ledger.
what does blockchain permit?
transactions to be gathered into blocks + allows the resulting ledger to be accessed by different servers.
what does blockchain consist of?
- transactions
- consensus mechanisms
- optional smart contracts
- encryption processes
- immutable ledgers
- decentralised peers
what is the difference between blockchain + bitcoin?
- bitcoin is the digital token
- blockchain is the ledger to keep track of who owns the digital tokens
- you cant have bitcoin without blockchain but you can have blockchain without bitcoin
what is a ledger in blockchain?
a digital set of permanent records of every transaction shared by many people, making it super secure and trustworthy.
how does a distributed ledger work?
Users initiate transactions using their digital signatures.
Users broadcast their transactions to nodes.
One or more nodes begin validating each transaction.
Nodes aggregate validated transactions into blocks.
Nodes broadcast blocks to each other.
Consensus protocol used.
Block reflecting “true state” is chained to the prior block.
what is a genesis block?
the first block, each new block in the chain is linked to the previous block.
why do we need blockchain?
Resilience: blockchain is replicated, the chain is still operated by most nodes in the event of a massive attack against the system.
Time reduction: it plays a vital role by allowing the quicker settlement of trades as it does not need a lengthy process of verification, settlement + clearance because a single version of agreed-upon data of the shared ledger is available between all stack holders.
Reliability: it certifies + verifies the identities of the interested parties. This removes double records, reduces rates + accelerates transactions.
Security: attacking a traditional database is the bringing down of a specific target. With help of distributed ledger tech, each party holds a copy of the original chain so the system remains operative, even if a large number of other nodes fall.
why do we need blockchain?
Transparency: changes to public blockchains are publicly viewable to everyone. This offers greater transparency + all transactions are immutable.
Collaboration: allows parties to transact directly with each other without the need for mediating third parties.
Decentralised: standard rules on how every node exchanges the blockchain info. This method ensures that all transactions are validated + all valid transactions are added.
what should i know about encryption?
- all blocks are encrypted.
- some blockchains are public + some are private.
- some allow for byoe (bring your own encryption) .
- public blockchains are still encrypted but are viewable to the public.
- private blockchains employ user rights for visibility.
Customer: writes + views all data.
Auditors: view all transactions.
Supplier A: writes + views partner A data.
Supplier B: writes + views partner B data.
what is the difference between open banking + traditional banking with data access?
ob: shared via api’s
tb: limited to bank provided services
what is the difference between open banking + traditional banking with customer control?
ob: customers choose providers
tb: bank controlled services
what is the difference between open banking + traditional banking with innovation?
ob: rapid third party innovation
tb: slower, in house development
what is the difference between open banking + traditional banking with competition?
ob: encourages fintech growth
tb: banks dominate financial services
what are some noteable transaction use cases?
Land registration: Replacing requirements for research of deeds.
Personal id: Replacement of birth/death certificates, drivers licenses.
Transportation: bills of lading, tracking, certificates of origin, international forms.
Banking: Document storage, increased back-office efficiencies.
Manufacturing: Cradle to grave documentation for any assembly/sub assembly.
Food distribution: Providing location, lot, harvest date supermarkets can pinpoint problematic food.
Audits: Due to the decentralised + immutable nature of blockchain, audits will fundamentally change.
