Fintech || Already Graded A+.
Fintech (Landscape) correct answers technological innovations that seek to improve the provision of financial services
Technology-enabled applications, processes, products, or business models in finance
Mostly start-ups seeking to "disrupt" intermediaries
Innovation Quadrant for Fintech (Landscape) correct answers Established (High age and low funding): 1. Banking Infrastructure
2. Transaction Security
Heavyweights (High age and high funding):
1. Payments Backend
Pioneers (Low age and little funding) :
1. Research and Data
2. Institutional Investing
3. POS payments
4. International Transfers
5. SMB Tools
6. Personal Finance
7. Retail Investing
8. Equity Financing
9. Crowdfunding
10. Digital Banking
Disruptors (Low age and high funding) :
1. Business Lending
2. Consumer Lending
3. Consumer Payments
Fintech Valuation Multiples (Landscape) correct answers High:
1. Lower Margins/Profits
2. High Growth Rate
3. Higher Discount Rate (Riskier)
4. Irrational Expectations
Why we need Intermediaries (Intermediation) correct answers Examples:
1. Centralized bookkeepers
2. Ratings Agencies
3. Financial Intermediaries (VCs, banks) 4. Government
Why:
1. Security
2. They have scale (hard to provide similar services at a smaller level)
3. Data Collection and Analysis
Drivers of Fintech Innovation (Intermediation) correct answers 1. Undermined Trust
2. Monopoly Power
3. Complexity 4. Low-quality service and high financial costs
5. Lack of access
Payment Systems (Intermediation) correct answers Responsible for processing transactions
How it works:
1. Consumer Makes Credit Card Purchase 2. Merchant submits transaction data (credit card purchase) for authorization
3. Payment is processed through Card Network (Visa & Mastercard)
4. Issuer bank (from Consumer) approves transaction, charges small fee and transfers the remaining payment to the acquirer (merchant's) bank
5. Acquirer Bank keeps a small fee and transfers the remaining payment to the merchant
6. Consumer is billed for the credit card purchase
7. Consumer pays issuer bank back
Banks (Intermediation) correct answers Provide credit, creating liquidity 1. Transaction Facilitation
2. Liquidity Creation
3. Screening
4. Monitoring
5. Risk Sharing
6. Funding
7. Maturity Transformation (borrowing money on shorter timeframes than being lent out)
Megabanks dominate banking
Problems:
1. Restrict Competition
2. Limit information portability
3. Lack of transparency
Venture Capital Funding (Intermediation) correct answers Crucial for startups if owner funds insufficient and debt financing infeasible "Capital Markets for Startups"
1. Transaction facilitation
2.Screening
3.Monitoring
4.Risk sharing
5.Funding
Problems:
1. Cyclical (Limited in market downturns)
2. "Flock" together in hot areas
3. Focus on larger deals
4. Reputation/Relationships play a factor
Why has Fintech emerged now (Intermediation) correct answers 1. Technological Advances
2. Lower costs in starting a business
3. More financial regulations
4. Changing Demographics
5. Internet of Things (Network Effect)
Big Data (Big Data) correct answers Datasets that are too large for traditional data processing systems and require new processing technologies
Bottom Line: More data is good, but only if it leads to more informed decisions
How do lenders use data (Big Data) correct answers Small/In Market Banks:
1. Screening: Soft info technologies
2. Monitoring: Active, based on site visits, changes in deposit account flows, loan repayments, renegotiation possible 3. Funding: Bank funds from core deposits
Large/Out of Market Banks:
1. Screening: Hard info technologies, based on credit scores, financial statements, collateral 2. Monitoring: Active, based on change in scores, changes in deposit account flows, loan repayments, renegotiation possible
3. Funding: Bank funds from core deposits and purchased funds
Fintech Lending Platforms:
1. Screening: Hard info technologies. Based on Machine Learning, algorithms, big data, alternative data
2. Monitoring: Passive, based on loan repayments, little to no renegotiation possible
3. Funding: Funds from Investors
Types of Fintech Lenders (Big Data) correct answers 1. Balance Sheet Lenders: Platform lends money and assumes risk
2. Marketplace/P2P Lenders: Investors lend money and take on risk
Fintech (Landscape) correct answers technological innovations that seek to improve the provision of financial services
Technology-enabled applications, processes, products, or business models in finance
Mostly start-ups seeking to "disrupt" intermediaries
Innovation Quadrant for Fintech (Landscape) correct answers Established (High age and low funding): 1. Banking Infrastructure
2. Transaction Security
Heavyweights (High age and high funding):
1. Payments Backend
Pioneers (Low age and little funding) :
1. Research and Data
2. Institutional Investing
3. POS payments
4. International Transfers
5. SMB Tools
6. Personal Finance
7. Retail Investing
8. Equity Financing
9. Crowdfunding
10. Digital Banking
Disruptors (Low age and high funding) :
1. Business Lending
2. Consumer Lending
3. Consumer Payments
Fintech Valuation Multiples (Landscape) correct answers High:
1. Lower Margins/Profits
2. High Growth Rate
3. Higher Discount Rate (Riskier)
4. Irrational Expectations
Why we need Intermediaries (Intermediation) correct answers Examples:
1. Centralized bookkeepers
2. Ratings Agencies
3. Financial Intermediaries (VCs, banks) 4. Government
Why:
1. Security
2. They have scale (hard to provide similar services at a smaller level)
3. Data Collection and Analysis
Drivers of Fintech Innovation (Intermediation) correct answers 1. Undermined Trust
2. Monopoly Power
3. Complexity 4. Low-quality service and high financial costs
5. Lack of access
Payment Systems (Intermediation) correct answers Responsible for processing transactions
How it works:
1. Consumer Makes Credit Card Purchase 2. Merchant submits transaction data (credit card purchase) for authorization
3. Payment is processed through Card Network (Visa & Mastercard)
4. Issuer bank (from Consumer) approves transaction, charges small fee and transfers the remaining payment to the acquirer (merchant's) bank
5. Acquirer Bank keeps a small fee and transfers the remaining payment to the merchant
6. Consumer is billed for the credit card purchase
7. Consumer pays issuer bank back
Banks (Intermediation) correct answers Provide credit, creating liquidity 1. Transaction Facilitation
2. Liquidity Creation
3. Screening
4. Monitoring
5. Risk Sharing
6. Funding
7. Maturity Transformation (borrowing money on shorter timeframes than being lent out)
Megabanks dominate banking
Problems:
1. Restrict Competition
2. Limit information portability
3. Lack of transparency
Venture Capital Funding (Intermediation) correct answers Crucial for startups if owner funds insufficient and debt financing infeasible "Capital Markets for Startups"
1. Transaction facilitation
2.Screening
3.Monitoring
4.Risk sharing
5.Funding
Problems:
1. Cyclical (Limited in market downturns)
2. "Flock" together in hot areas
3. Focus on larger deals
4. Reputation/Relationships play a factor
Why has Fintech emerged now (Intermediation) correct answers 1. Technological Advances
2. Lower costs in starting a business
3. More financial regulations
4. Changing Demographics
5. Internet of Things (Network Effect)
Big Data (Big Data) correct answers Datasets that are too large for traditional data processing systems and require new processing technologies
Bottom Line: More data is good, but only if it leads to more informed decisions
How do lenders use data (Big Data) correct answers Small/In Market Banks:
1. Screening: Soft info technologies
2. Monitoring: Active, based on site visits, changes in deposit account flows, loan repayments, renegotiation possible 3. Funding: Bank funds from core deposits
Large/Out of Market Banks:
1. Screening: Hard info technologies, based on credit scores, financial statements, collateral 2. Monitoring: Active, based on change in scores, changes in deposit account flows, loan repayments, renegotiation possible
3. Funding: Bank funds from core deposits and purchased funds
Fintech Lending Platforms:
1. Screening: Hard info technologies. Based on Machine Learning, algorithms, big data, alternative data
2. Monitoring: Passive, based on loan repayments, little to no renegotiation possible
3. Funding: Funds from Investors
Types of Fintech Lenders (Big Data) correct answers 1. Balance Sheet Lenders: Platform lends money and assumes risk
2. Marketplace/P2P Lenders: Investors lend money and take on risk
