Lecture 24

1) Crowdfunding,
2) P2P lending,
3) BlockChain in detail,
4) Insurtech,
5) RegTech
6) and Central Bank.
Crowdfunding
A method of raising capital through the collective effort of friends, family, customers, and individual
investors.

Workings

 the collective efforts of a large pool of individuals—

 primarily online via social media and crowdfunding platforms
 leverages their networks for greater reach and exposure.

Benefits

Easier to get your opportunity in front of more interested parties and give them more ways to help
grow your business, from investing thousands in exchange for equity to contributing a small amount
in exchange for a first-run product or other reward.

P2P lending

Peer-to-peer (P2P) lending enables individuals or Businesses to obtain loans directly from other
individuals and institutions cutting out the financial intermediaries as the middleman. Direct system
alternate to deposits and lending in bank. An individual person having money to invest and an
individual person looking for funds to run his business but can’t go to bank.

Workings

1) Connecting both parties through website/mobile app, standard rates. Terms and regulations
set on website. Transaction made through website with contracts.
2) For better returns than bank, and low expense to credit than bank.
3) Back end system for risk management. Data saved on systems to protect from frauds.
BlockChain:

A technology that can allow individuals and companies to make instantaneous transactions on a
network without any middlemen.

backbone technology that is driving the FinTech revolution.

maintaining a permanent and immutable record of transactional data. Stores transactional data in a
continuously growing list of records called blocks using cryptography to link and secure these blocks.

Block data consists of

1) information about a transaction (date, time, amount),

2) who is participating in the transaction (via a “digital signature “),
3) information that distinguishes an individual block from other blocks in the chain - expressed
as a unique code called a “hash.

As a T accounts and Trial Balance in accounting.

Benefits

 Secured
 Record of all process made in transferring of money
 Cryptographic encryption algorithms ensure that no record of a transaction on blockchain
can be altered after the fact.
 Democratic system of security.
 Blockchains built for speed can process and verify transactions more quickly than the
alternative systems.
 Blockchains operate with no central authority - can let people or companies add and verify
their transactions—without a single governing body making sure everything is okay.

BlockChain as a solution to frauds

 Decentralized– Meaning that by storing data across its network, blockchain eliminates the
risks that come with data being held centrally.
 Distributed ledger– Each of the computers in the distributed network maintains a copy of
the ledger to ensure transparency and also prevent a single point of failure (SPOF) and all
copies are updated and validated simultaneously.
 Immutable record–Once recorded, the data in any given block cannot be altered without the
alteration of all the subsequent blocks, which requires the consensus of the network
majority.

Traditional Cheque for money transfer process

1) You write up the recipient of your money, the amount of the check, the date of your
payment, and so on.
2) You give the check to your landlord.
3) Your landlord deposits the check in the bank.
4) The bank processes the check, taking a few days to verify that all the information is correct,
that you’re good for the money you promised to your landlord, and that the check isn’t
counterfeit. finally, your landlord receives their rent money.
BlockChain Process

1) You pay your landlord.

2) Your transaction gets recorded on your blockchain, your landlord’s blockchain verifies the
transaction, and everything is set.

Three parts of BlockChain

1) A network of computers/participants
2) A network protocol
3) A consensus mechanism

Three Elements

1) A Hash pointer- link to the previous block

2) A timestamp
3) Transaction data

Computer= Node

Working

Problems in Fintech

 How to make people trust them, and how to make a safe and secure financial product?
 Banks and financial institutions have huge cash reserves using which they create secure
networks on which banking transactions take place.
 Fintech companies lack funds which restrict them from developing or procuring a high-
security system.

Blockchain as solution to Fintech

 Blockchain is cheap in terms of developing and also highly secure or “trustless”. Aa a series
of immutable blocks,
  it allows companies to track the complete lifecycle of a financial transaction - providing the
opportunity to create secure and safe financial products
 bring innovation in the financial sector.
 The blockchain potentially cuts out the middleman, giving back the power to the owner of
the assets — data or tokens carrying some financial value.

Uses of Blockchain

 Smart Contracts: The smart contract code has the ability to facilitate, verify, and enforce the
negotiation or performance of an agreement or transaction.
 Digital Payments: this process is simplified and faster at a cost much less than the traditional
banking institutions.
 Digital Identity: Users still need to register their identity on the blockchain once.
 Share Trading: Eliminating the middlemen from the share trading process speeds up the
settlement process and allows for greater trade accuracy.

Example of BlockChain

Oscar Udhar that turns the paper-based ledger online. The retailer can also look at his/her account
statement for the day, week, month etc.

InsurTech

It is a subdivision of FinTech and is revolutionizing the insurance industry and changing the way
insurers do business.

AI and Machine Learning being deployed for:

 Risk modeling.
 Demand modeling
 Detecting fraud
 Processing claims
 Underwriting.

RegTech
The application of emerging technology to improve the way businesses manage regulatory
compliance.
Risk and Compliance are leveraging technology to help solve the challenges of regulatory compliance
by engaging machine learning, blockchain, AI, and other technologies in order to bring the power of
digital transformation to the world of regulatory compliance.

Guidelines to or for central bank to improve financial Services