Fintech Final Exam || Already Passed.
Real Time correct answers Payments can settle in real-time (around 5 minutes) instead of being netted and settled at the end of a period
More costly and more risk because these are considered irreversible
Gross Settlement correct answers Indicates that each individual transaction may be settled by itself
Refers to the continuous process of settling payments on an individual basis without netting debits with credits
Deferred Settlement correct answers Relies on netting transactions to reduce overall volume and frequency of moving funds
Netting transactions only complete at the end of the settlement period
Net Settlement correct answers The resolution of all of a bank's transactions at the end of the day
including all cash, check, and electronic transfers
What are the main uses, benefits, and limitations to ACH? correct answers Main Uses: Known as
direct deposit, direct pay, or electronic check
Allows you to deposit your paycheck into your account sometimes even remotely
Also allows you to send payments directly to another consumer
Benefits: Convenience - automation of things like paychecks and bill payments
Efficiency - they are processed electronically which is faster and doesn't require less manual labor
Security - ACH complies with strict regulations and reduces the risk of fraud
Limitations: Processing Time - May take more than a day to settle, can sometimes be sped up for
a fee
Transaction Limits - Limits on the amount of money that can be transferred through ACH transactions which hinders companies that routinely make large transactions
Risk of reversals - Transactions are subject to reversals or chargebacks
Lack of Standardization - Processing times and other procedures vary between different financial
institutions
What are the main uses, benefits, and limitations of Fed Wire? correct answers Main Uses: In the
1910s, Fed Wire was a dedicated network that would use morse code to transfer funds between the Reserve Banks, the Board, and the US Treasury
It was originally created because physical delivery of this cash was risky (due to robberies) and costly
Was modernized later on to work with computer systems to handle transactions
Real-time settlement, Large transactions are possible through it
Benefits: Real-time settlement - Provides immediate final payment
Security - Reduces the risk of fraud
Certainty of funds - Transactions on the Fedwire are irreversible
Liquidity management - Allows institutions to transfer large sums of money quickly Limitations: Cost - Fed Wire transactions are relatively more expensive than other payment methods
Limited Accessibility - Access is restricted to financial institutions and certain government entities
Lack of standardization - There can be variations in operating procedures between institutions
Mobile Payment Use Cases correct answers Peer-to-Peer - Transfers occur when one person pays
another person using a mobile device. The device uses either a preloaded app or a browser-based
app to initiate, authenticate, and transfer funds
In-Person - Purchases are initiated using a mobile device where the buyer and seller are in-
person, usually at a brick-and-mortar retail location where the product/service is immediately delivered
Remote - Payments are made when a buyer purchases goods or services using a mobile device, but the buyer is not physically present with the seller and the goods are not immediately delivered (as with eCommerce)
Peer-to-Peer correct answers The direct connection between two parties without the use of a centralized intermediary
Can be used in a variety of situations including but not limited to computer networks, blockchain
technology, or financial transactions
Zopa correct answers A UK based P2P lending company founded in 2005
Connects investors with individuals seeking loans
The P2P side of the business closed in December of 2021
Prosper correct answers A US based P2P lending company founded in 2005
Connected investors with individuals seeking loans
Has facilitated over $22 billion in loans to more than 1,350,000 people
What are advantages of Peer-to-peer lending? correct answers P2P platforms can offer higher rates for lenders than they can achieve on bank deposits and borrowers pay relatively less fees
Provides access to areas of lending markets previously unavailable to small or individual investors
P2P lenders can have a bigger impact on their community and other social responsibility-related goals than conventional banking
Gains from technological improvements accrue to lenders and borrowers more quickly rather than going to a financial intermediary
What is the key value proposition of peer-to-peer lending? correct answers For lenders - To earn higher interest rate of return
For borrowers - To gain access to credit
What are key challenges of peer-to-peer lending? correct answers Pull borrowers and lenders away from traditional depository institutions
Offering Liquidity services
Real Time correct answers Payments can settle in real-time (around 5 minutes) instead of being netted and settled at the end of a period
More costly and more risk because these are considered irreversible
Gross Settlement correct answers Indicates that each individual transaction may be settled by itself
Refers to the continuous process of settling payments on an individual basis without netting debits with credits
Deferred Settlement correct answers Relies on netting transactions to reduce overall volume and frequency of moving funds
Netting transactions only complete at the end of the settlement period
Net Settlement correct answers The resolution of all of a bank's transactions at the end of the day
including all cash, check, and electronic transfers
What are the main uses, benefits, and limitations to ACH? correct answers Main Uses: Known as
direct deposit, direct pay, or electronic check
Allows you to deposit your paycheck into your account sometimes even remotely
Also allows you to send payments directly to another consumer
Benefits: Convenience - automation of things like paychecks and bill payments
Efficiency - they are processed electronically which is faster and doesn't require less manual labor
Security - ACH complies with strict regulations and reduces the risk of fraud
Limitations: Processing Time - May take more than a day to settle, can sometimes be sped up for
a fee
Transaction Limits - Limits on the amount of money that can be transferred through ACH transactions which hinders companies that routinely make large transactions
Risk of reversals - Transactions are subject to reversals or chargebacks
Lack of Standardization - Processing times and other procedures vary between different financial
institutions
What are the main uses, benefits, and limitations of Fed Wire? correct answers Main Uses: In the
1910s, Fed Wire was a dedicated network that would use morse code to transfer funds between the Reserve Banks, the Board, and the US Treasury
It was originally created because physical delivery of this cash was risky (due to robberies) and costly
Was modernized later on to work with computer systems to handle transactions
Real-time settlement, Large transactions are possible through it
Benefits: Real-time settlement - Provides immediate final payment
Security - Reduces the risk of fraud
Certainty of funds - Transactions on the Fedwire are irreversible
Liquidity management - Allows institutions to transfer large sums of money quickly Limitations: Cost - Fed Wire transactions are relatively more expensive than other payment methods
Limited Accessibility - Access is restricted to financial institutions and certain government entities
Lack of standardization - There can be variations in operating procedures between institutions
Mobile Payment Use Cases correct answers Peer-to-Peer - Transfers occur when one person pays
another person using a mobile device. The device uses either a preloaded app or a browser-based
app to initiate, authenticate, and transfer funds
In-Person - Purchases are initiated using a mobile device where the buyer and seller are in-
person, usually at a brick-and-mortar retail location where the product/service is immediately delivered
Remote - Payments are made when a buyer purchases goods or services using a mobile device, but the buyer is not physically present with the seller and the goods are not immediately delivered (as with eCommerce)
Peer-to-Peer correct answers The direct connection between two parties without the use of a centralized intermediary
Can be used in a variety of situations including but not limited to computer networks, blockchain
technology, or financial transactions
Zopa correct answers A UK based P2P lending company founded in 2005
Connects investors with individuals seeking loans
The P2P side of the business closed in December of 2021
Prosper correct answers A US based P2P lending company founded in 2005
Connected investors with individuals seeking loans
Has facilitated over $22 billion in loans to more than 1,350,000 people
What are advantages of Peer-to-peer lending? correct answers P2P platforms can offer higher rates for lenders than they can achieve on bank deposits and borrowers pay relatively less fees
Provides access to areas of lending markets previously unavailable to small or individual investors
P2P lenders can have a bigger impact on their community and other social responsibility-related goals than conventional banking
Gains from technological improvements accrue to lenders and borrowers more quickly rather than going to a financial intermediary
What is the key value proposition of peer-to-peer lending? correct answers For lenders - To earn higher interest rate of return
For borrowers - To gain access to credit
What are key challenges of peer-to-peer lending? correct answers Pull borrowers and lenders away from traditional depository institutions
Offering Liquidity services
