Professional Certificate Programme in Fintech

Batch 02
2023-24

Prof. Pankaj Baag

baagpankaj@iimk.ac.in
Ph 0495 2809121
Mob. 8943716269
Room 01/21
Ext 121
Introduction to Fintech
Fintech in Banking and Finance
The Fintech Evolution
Finance and technology have been inextricably intertwined since the very beginning.

The initial impact of technology was in the context of building systems of keeping records of government
finances or payments for taxes and agricultural production or building facilities.
One of the first physical technologies to develop in the industry of finance was “money” - the simple coin or
thousands of years later, not long after 1000 A.D., paper money.

if we think of today's FinTech, the modern period of FinTech and financial technology begins around 150
years ago, and we generally mark the date as 1867.
1867 was the date of the establishment of the first “transatlantic telegraph cable.” That transatlantic
telegraph cable made instantaneous communication between the major markets of New York and London,
or London and Paris, or even eventually several decades later, Shanghai, or Hong Kong, and London
possible.

During the Second World War in 1940s, significant effort was spent in the context of developing codes for
secure communications - particularly for military and intelligence operations. Significant efforts were also
made to develop systems to break those codes and it was this process of encoding and breaking codes that
led to the evolution of the groundbreaking paradigms in computer technology and eventually in artificial
intelligence or AI, which is one of the most exciting developments happening in financial technology today
• The first era of modern FinTech, FinTech 1.0 was about building the underlying
infrastructure that supports today's global financial markets.

• The second major era of the modern FinTech evolution, what we call FinTech
2.0, started in 1967. 1967 marks two very important dates in the evolution of
finance and technology.
1. The first, was the establishment of the first “ATM”, automated teller machine
by Barclays Bank in UK. That automated teller machine allowed, over the next
several decades, a transformation in the relationship that people had with
money and with finance.
2. The second, just as significant, was the launch of the first “handheld
calculator” by Texas Instruments. The first handheld calculator was
transformational in the way that finance, on a day-to-day basis operated.
And, of course, the handheld calculator is also the ancestor of today's
smartphone, perhaps the transformative technology in the context of
FinTech.
• 1967 thus marks a period where we began to see a process of
digitization.
• Digitization is taking processes and systems, which were formerly
analogue, things like handwriting or physical calculation of money,
and digitizing them transforming them into a digital environment, and
three very significant trends came together from these early
beginnings that we can see in today's global financial markets.
• FinTech 3.0 & 3.5: Startups & Emerging Markets

• 2008 marks a major turning point in the evolution of FinTech.

• From the standpoint of FinTech, the global financial crisis had the
following features.

• 1. The first, was that it resulted in large numbers of job losses in the
financial sector, particularly amongst younger people. This drove many of
those people who had been looking forward to very good careers in the
context of financial sector to seek to pursue other opportunities. It's
certainly the case today that if one meets someone who has just left a
large financial institution, it is new normal that they have started a new
FinTech startup company. So, first impact of the global financial crisis, job
losses forcing people in the financial sector to look for new opportunities.
• The second was that a reaction to the global financial crisis involved
large numbers of regulatory changes designed to prohibit or prevent
the sorts of problems that emerged in 2008 from happening again.
These massive amounts of regulatory changes resulted in a dramatic
decrease in profitability of financial institutions as well as massive
increases in compliance and regulatory cost for those institutions. In
many ways, the only way that these new requirements could be
addressed was via technology.
• The third impact of the global financial crisis really was to speed up
something, which was already happening, was a loss or a drop in trust
in traditional financial institutions. Since 2008, certainly amongst
people under 35, it is now generally recognized that they would be
more comfortable doing financial transactions with a technology
company, whether Facebook or Alibaba or Tencent or Google than
with a traditional financial institution like HSBC, Barclays or Bank of
America.
• 2007 was the launch of the first iPhone.
• The iPhone, of course, has now sold over a billion around the world and the iPhone and
other forms of smartphones combined with other factors resulting from the global financial
crisis set the stage for the transformation in FinTech, which we're seeing today.
• This blend has led to an explosion in startups. One very high-profile startup is perhaps one
of the most unique and one that we'll see in future chapters, Bitcoin and other forms of
cryptocurrency based on blockchain or distributed ledger technologies.
• Others have involved various forms of alternative finance like P2P lending, peer-to-peer
lending, or forms of crowdfunding, a range of different payments. But in fact, startups in the
context of FinTech are even not new.
• If we go back to 1999, one of those internet bubble startups was a company called PayPal.
• PayPal today is one of the world's most significant payment services providers along with
traditional firms like Visa or MasterCard or even before that, Bloomberg.
• Bloomberg today is the world's most valuable private information services firm. Bloomberg,
founded by the former mayor of New York City, Michael Bloomberg, started in 1981.
• Bloomberg started in technology in an investment bank called Salomon Brothers. The
technology that he developed was a secure communication service that still underlies most
border transactions around the world.
• So, this period of FinTech 3.0, the “explosion in startups” since the global financial crisis is
new in terms of numbers, volume, transformative potential but we have seen FinTech
startups before.
• The other area where the transformation has been perhaps even more dramatic is in the
context of developing countries and emerging markets.
• 2007 marks the launch of M-Pesa. M-Pesa is a mobile phone-based payment system, which
transformed access to finance of a large portion of the population of Kenya and it's when
we combine these ideas of mobile payment with the smartphone that we see the
transformation of financial services that is taking place particularly in China with Alibaba,
Tencent and others
• In short…
• Financial technology is a 150-year-old industry divided across 3 different eras.
• The first era was a 100 years old, the second was 40 years old, and the third is a decade old from today, 2020.
• Now what you start noticing is that each of these era are shorter than the previous one.
• And what this means, is that technology is changing faster, and is penetrating into the public at a faster rate
than ever before.
• And that's something that you can actually notice from your own perspective. Examples to understand how
technology can impact the speed:

1. It took many decades for land lines to reach a million customers in the US. However, it only took a few years
for mobile phones to reach the same penetration in that country.
2. Now let's bring that to finance and let's think about banks. Acquiring half a million customers is a very big
feet. But KakaoTalk has been able to do that in only “2 days”. Now if you take challenger banks or regular
banks, it would typically take them many years for them to acquire the same number of customers.
3. Most of you must have heard of Bitcoin, if not already owned some. And here the example is very clear. As
an asset class, Bitcoin is producing more value faster than any other asset classes that previously have led to
a bubble. What Bitcoin has done in terms of penetration, value creation and evolving itself in only a few
years; it took many more years for other classes to do.
These examples illustrates that, the technology is changing more and more rapidly, and therefore regulators need
to adapt themselves.
Collaborative and Contextual Banking
• Why Collaboration plays a key role in the way FinTech has developed?
1. Initially, we saw a lot of FinTechs trying to do all the work by themselves, looking to disrupt financial
services and also the banks at one stage, looking to be more guarded about how they use technology,
especially FinTechs with them. But as the reality dawned on the markets, mostly in B2B, Business To Business
scenarios, people realized that there needs to be a lot of collaboration. Banks need a longer time for
transformation, but they also need to be able to be more agile with regards to adopting new technologies. As
for FinTechs, they don't have a long runway, and secondly, they also aren't able to have the required capital if
they want to face off with banks, in particular, where larger creations are impacted. So, it's quite important for
a collaboration in this field.
2. What we are seeing now is that banks are not just collaborating with FinTechs, but they're going a step
ahead and some of them are acquiring them through strategic investments. So, they'll have a large
investment, and these FinTechs are solving just the banks' need for strategy across all regions.
3. Cross-regional collaboration. So, you see certain strands of different FinTechs in different regions, and what
banks are trying to do is try to find these FinTechs here. If you have a FinTech which is very strong in the B2B
section of AI in Hong Kong, they look to use that from Hong Kong, and they might use another coming in from
Singapore. So, it becomes very important for them to have teams that can collaborate on this.
4. Compliance play a key role in making this effort of collaboration between banks and FinTechs faster.
Onboarding is a very important factor and of compliance - time needs to be shortened. It gives the start-ups
more time to present a POC and be onboarded with the banks.
• “Banking is going to change not by disruption, but through collaboration.”
• Underlying trends that will shape the global financial system over the next decade or two.
1. Blockchain Immutable, consensus driven, transparent, distributed, workflow enabled, and
trust being replaced with truth. Blockchain could potentially power the identity marketplace
and hasthe potential to modernize or even replace existing trading, clearing, and settlement
operations.
2. Cognitive computing and artificial intelligence We are just at the beginning of a revolution
that will touch every business, and every life on this planet.
3. The internet of things - IOT Electronic sensors are showing up in devices all around the world.
Customers must have the confidence that their data is collected, stored, and used in a
manner that benefits them, and does not jeopardize their privacy.
4. Open source and API economy APIs are fueling the customer-driven platform revolution.
They're becoming a primary customer interface for technology-driven products and services,
and a key channel for driving revenue and brand engagement.
5. The Cloud Everyone are looking at the Cloud, and for varied reasons and much varied
requirements.
6. Big data Firms need help organizing and collecting enterprise and third-party data to derive
new insights. Data tagging allows investors, regulators and market participants to organize
and analyze massive amounts of data and information more efficiently by associating pieces
of information with keyword tags.
• 3 critical considerations to harness the value of innovation brought
by RegTech:
• 1. RegTech solutions need to be powered by trusted, structured and
unstructured data that also has data mastering capability for effective
integration with existing solutions.
• 2. Advanced analytics and artificial intelligence will play a key role.
• 3. Digital identity. Digital identity is a foundation to all RegTech
solutions because identity of individual, organization, or a physical
asset are atomic in governance, regulatory compliance and risk-
management solutions.
• Where Fintech has not made any improvement???
API stands for Application Programming Interface. In the context of APIs, the word
Application refers to any software with a distinct function. Interface can be thought of
as a contract of service between two applications. This contract defines how the two
communicate with each other using requests and responses.
Summary --Fintech trends and challenges
 Introduction
Fintech is a combination of two words: Finance and
technology. It is a modern Or digital application, software or
using other technology for developing finance, business and
attract their customers. Examples of Fintech are P2P, net banking,
trading websites etc.. First fintech product was introduced at the
mid 1950’s in the form of credit card. Fintech helps to eliminate
physical currencies and intermediaries. The recent survey says
that above 70% of people’s are willing to use fintech and they
believe fintech is secured and protected one.
• To understand the trends in fintech
• To identify the challenges in fintech
 Objective 1: Fintech trends
Financial technology emerges day by day and this lead to the
growth of trends in Fintech. Particularly, from the year 2020 the
emergence of fintech trend is phenomenal. Some of the
important trends in fintech are:
• AI
AI (Artificial Intelligence) is the major trend in fintech. Artificial intelligence is the
combination of computer science and robust data for problem solving. It is used in various fields or
areas like education, retail, business, the military, finance, etc. Generally, in the finance sector, this
trend is used for bookkeeping, maintenance, and more.

• BNPL
BNPL (Buy Now, Pay Later) is another trend in fintech and is used for customer loyalty. In this
trend, customers make bulk purchases and pay in installments. Examples of buy now, pay later are
financial technology organizations like Paypal, Sezzle,Amazon Pay, etc. In BNPL, fintech
organizations provide two types of loans: loans with interest and loans without interest.

• Open banking
This is one of the important trends in fintech because open banking ensures safety and protects
customers when sharing financial data. Sharing of financial data between banks and third parties is
done through the mechanism of APIs. The Unified Payment Interface (UPI) is an example of open
banking. The Reserve Bank of India controls and operates open banking in India.
• Virtual cards
Virtual cards have no physical features; this card is only available in online mode. It is like a
debit and credit card; it contains a unique card number, expiration date of the card, CVV, etc., but
these details are only available online. This fintech trend is used to enhance the security of customers
data and enable smooth functioning. Examples of virtual cards are: Visa Checkout, Google Wallet,
Apple Pay, Masterpass, etc.

• Stable coins
Stable coins are one of the emerging trends in fintech. Stable coins are crypto currency, or
Bitcoin, and they are invested to ensure price stability. A stable coin is a digital asset that is not a
physical coin. Tether is the famous stable coin, and it is pegged with the US dollar.

• Biometrics
Nowadays, Biometrics is part of the fintech trend and is used for the purpose of security and
protecting data. It helps improve the customer experience compared to traditional methods. The
present biometric options available are: Finger prints, Retina scans, Voice recognition, face patterns,
etc. This is mainly done for two-factor authentication. That’s why biometrics is the most important
trend in fintech in 2023.
• Gamification
Engaging the customers is one of the most important things, and Gamification is done by
adding games to websites, learning management systems, community platforms, etc. This is to
increase the participation of people and engage customers. This is a vital strategy in finance, and it is
a familiar trend in fintech.

• Other fintech trends are Embedded finance, Alternative lending, Proptech, Capital market
digitalization, etc.
 Objective 2 : Challenges in Fintech

Fintech has not only having trends, it has some

challenges. Some of the challenges in fintech. They are
 • Security problems
Traditional methods provides a greater security, but modern methods while paying through digital
mode security problems happens there. This is one of the important challenges in fintech industry and not
only security, personal data also sometimes hacked by hackers.
•
• Government intervention
Fintech is one of the important sector , therefore government maximum intervene the fintech sector.
This is a big challenge in fintech and if any mistake in fintech found by government, high penalty will be
imposed.
•
• Lack of expertise
All users prefer the user friendly options. But in fintech, some complexity features like non user
friendly mobile app, lack of expertise, biometrics etc.
•
 • Influence of Block chain
Block chain uses in fintech is good but at the same time integrated block chain is very
complex job and it is not suitable for all financial organization. And moreover block chain trend is
not familiar in our country so majority of financial companies not willing to adopt this trend
•
• Pandemic effect
After covid, all companies effected so it is very difficult to predict the future. This is one of the
main challenge on fintech. Severe economic crises after pandemic lead to backdrop of fintech.
•
• Absence of physical branches
Fintech is completely online oriented and there is no scope for physical branches. Traditional
customer cannot make interest or belief towards online mechanisms. This heavily effect fintech.
 Suggestions
• Fintech should give proper awareness to their consumers about the trends by the way
of social media, television, newspapers, campaigning etc..
• Expertise people should appoint for handling the technologies smoothly and these
expertise should recruit on the basis of technological skills, thinking ability, problem
solving skills etc..
• Simplify the procedures in fintech for engaging customers, For example:Using
single application for doing all process, reduce site traffic, using high internet
connection etc..
Conclusion
Trends and challenges are the two aspects of
fintech. That is if the trend emerging , challenges
also arise. It is not possible to eliminate the
challenges in fintech but it is possible to
minimize it. The experts should care the trends
as well as take the steps or finding solutions to
reduce challenges. If the challenges will be
reduced, surely trends in fintech helps to
develop the country and the whole world.
From fintech to reg tech to techfin
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