MODULE- I

Post Graduate Diploma in Financial and Banking Services

GMFB12204
Technology in Banking & Finance (TBF)
 OVERVIEW:
EVOLUTION - THE 3 AGES AND SPHERES OF FINTECH
DRIVERS OF FINTECH GROWTH
DISRUPTION TO INDIAN AND GLOBAL FINANCIAL SYSTEM
DEMAND AND OPPORTUNITIES FOR FINTECH

FINTECH ECOSYSTEM (SUPPORT FUNCTIONS AND ENABLERS)

KEY SECTORS:
PAYMENT AND REMITTANCES
LENDING
WEALTHTECH
INSUR TECH
CROWD FUNDING.
NEO BANKS, CHALLENGER BANKS AND I-BANKS
MAJOR PLAYERS AND OFFERINGS
• i. A “fintech bridge” needs to be established between India and the UK that will facilitate peer to peer relationships and
cross-border transactions between companies and investors.
• ii. Sharing of knowledge and experience needs to be supported between functionally-equivalent institutions, such as the
Reserve Bank of India and the UK’s Financial Conduct Authority.
• iii. The activities of different UK institutions working in the Indian fintech space should be coordinated through the
establishment of a cross-governmental fintech committee or working group.
• iv. The concept of inclusive fintech within financial inclusion programming should be jointly explored by DFID and other
development partners in India.
• v. The possibility for a fintech challenge fund should be analysed to promote innovation and scaling of new business
concepts.
• vi. The UK should look for ways to offer its expertise to Indian authorities around building an accommodative
environment for start-ups.
• vii. The business case for an Inclusive Fintech Incubator should be examined, to lay a platform for India to become the
global hub for inclusive fintech.
• viii. Greater industry coordination should be supported, potentially by facilitating Innovate Finance to explore the
opportunity for a similar industry association for Indian fintech.
• ix. Support greater private sector linkages, to promote partnerships and investment between Indian and UK fintech.
• x. Carry out a study on the potential role of a guarantee scheme to support digitally-enabled alternative lending models
HISTORY OF FINTECH
• Fintech 1.0 (1886-1967) is about infrastructure
• This is an era when we can first start speaking about financial globalization. It started with technologies such as
the telegraph as well as railroads and steamships that allowed for the first time rapid transmission of financial
information across borders. The key events on this timeline include first transatlantic cable (1866)
and Fedwire in the USA (1918), the first electronic fund transfer system, which relied on now-archaic technologies
such as the telegraph and Morse code. The 1950s brought us credit cards to ease the burden of carrying cash. First,
Diner’s Club introduced theirs in 1950, American Express Company followed with their own credit card in 1958.
• Fintech 2.0 (1967-2008) is about banks
• This period marks the shift from analog to digital and is led by traditional financial institutions. It was the launch
of the first handheld calculator and the first ATM installed by Barclays bank that marked the beginning of the
modern period of fintech in 1967.
• There were various significant trends that took shape in the early 1970s, such as the establishment of NASDAQ , the
world’s 1st digital stock exchange, which marked the beginning of how the financial markets operate today. In
1973, SWIFT (Society For Worldwide Interbank Financial Telecommunications) was established and is to this day
the first and the most commonly used communication protocol between financial institutions facilitating the large
volume of cross border payments.
• The 1980s saw the rise of bank mainframe computers and the world is introduced to online banking, which
flourished in 1990s with the Internet and e-commerce business models. Online banking brought about a major
shift in how people perceived money & their relationship with financial institutions.
• By the beginning of the 21st century, banks’ internal processes, interactions with outsiders and retail customers had
become fully digitized. This era ends with the Global Financial Crisis in 2008.
• Fintech 3.0 (2008-2014) is about start-ups
• As the origins of the Global Financial Crisis that soon morphed into a general economic crisis become more
widely understood, the general public developed a distrust of the traditional banking system. This and the
fact that many financial professionals were out of work, led to a shift in mindset and paved a way to a new
industry, Fintech 3.0. So, this era is marked by the emergence of new players, particularly fintech startups,
alongside the already existing ones (such as banks).
• The release of Bitcoin v0.1 in 2009 is another event that has had a major impact on the financial world and was
soon followed by the boom of different cryptocurrencies (which, in turn, was followed by the great crypto
crash in 2018).
• Another important factor that shaped the face of fintech is the mass-market penetration of smartphones that has
enabled internet access for millions of people across the globe. Smartphone has also become the primary means
by which people access the internet and use different financial services. 2011 saw the introduction of Google
Wallet, followed by Apple pay in 2014.
• Fintech 3.5 (2014-2017) is about globalisation
• Fintech 3.5 signals a move away from the western dominated financial world and contemplates the expansion in
digital banking around the globe, with improvements in fintech technology.
• It puts the focus on consumer behaviour and how they access the internet in the developing world. For
example, in China and India, markets that never had time to develop Western levels of physical banking
infrastructure and so were open to new solutions more quickly.
• This era is marked by an increasing number of new entrants and their last mover advantages.
Fintech 4.0 (2018-today) is about disruptive technologies
• Blockchain technologies and open banking are continuing to drive the innovation of the future of financial services. The game changers
here are neobanks that challenge the pricing and complexity of traditional banks, while earning customers’ trust through simplified, digital-only
experiences and low-to-no fees.
• Machine Learning, on its part, is transforming the way people interact with banks and insurance companies, receiving bespoke offers and
support. Germany’s N26, for example, relaunched its premium account in 2019 to cater to the specific needs and tastes of its subscribers, such
as discounts in coworking spaces and in online travel booking sites.
• ML also has security applications: British Revolut, for example, unveiled a new AI solution in 2018 to combat card fraud and money
laundering, developing deep insights and predictions around customer behaviour to dynamically identify new card fraud patterns without
human intervention.
• Another major event in this period is the new wave of integrated payment providers, with platforms that can offer payments as an
additional strand to an already comprehensive business management system.
• And lately, mainstream use cases for NFTs, like creators strengthening their earning power with digital representations of their contents,
or artists ensuring royalty distributions, or NFTs as tickets or membership cards.
• Fintech Today
• As technology is becoming ever more central in the finance industry, we tend to consider banks and fintech startups as opposing forces fighting
for their share of the market. The reality is that both sides need each other just as much as they need to compete with each other.
• On the one hand, fintech startups have taken funding from banks and often rely on banking, insurance, and back office partners to deliver their
core products. Banks, on the other hand, have acquired fintech startups or invested in them to leverage new technology and ways of thinking to
upgrade their existing operations and offerings.
• Hopefully, this retrospective look into the evolution of fintech will help to sum up the long way we’ve come until today and put into
perspective the busy times ahead of us.
• One thing is certain: Fintech is growing, and fast. And innovation in fintech is reaching more and more areas of the digital economy.
• The increasing number of unicorns (privately held startup businesses with a value of over $1 billion) is an indicator of this.
•How big is the fintech market?
•In 2019, the global fintech market was valued at US$111 million and is
expected to reach US$158 million by 2023 and US$325 million by
2030. However, some experts predict an even bigger rise in the
fintech market in the next decade, as evidenced by the current surge
in fintech funding.
•According to a CB Insights report, fintech funding is not just having a
moment, it's experiencing historical record investments for
"mega-rounds", in which fintechs raise more than US$100 million. If
the fourth quarter of 2020 saw 30 fintech investments worth nine
figures, the first quarter of 2021 is already far ahead with its US$228
million funding surge.
•
 THE FOUR PILLARS OF FINTECH’S GROWTH
• Technology
• Technology is the main reason behind the growth of fintech. Because it operates almost
exclusively in a virtual realm, it has transformed how financial services function, now almost
unrecognisable from a decade ago. Machines and algorithms allowed us to automate
processes that were previously performed by humans, and a whole, technology made
fintechs a cut above traditional financial institutions in several regards:
• More productive – Not only does automation mean faster routine operations, but also
frees staff time to focus on strategy, innovation, and other challenging tasks. The result is
increased productivity.
• Accessible to anyone – By offering a broad range of financial services online and via apps,
fintechs removed intermediaries such as brokers and bank managers, giving everyone direct
access to services and information.
• Cheaper – Technology allowed fintechs to hire fewer employees while staying at a very high
productivity level, and to save on brick and mortar offices. Savings on staffing and local
branches can translate into reduced service fees, making fintech products attractive to a
large audience.
Regulations
• Broadly speaking, regulations can make entrepreneurship more challenging. Even though the financial
technology industry is subject to regulatory obligations, many of these are not as rigid as the
frameworks fully licensed banks are obliged to meet. Hence, financial technology companies can launch
new financial products with greater agility.
• Customer Expectations
• In the beginning, financial technology companies engendered changes to customer expectations. After
the 2008 crisis, when customers lost their trust in established financial institutions, fintech companies
became even more attractive with their lower fees and charges, but also faster services and greater
accessibility.
• Maturing
• The last, but not least, reason why fintech is growing is industry evolution. A new phase in the
development of fintech is upon us. The financial technology sector matured as companies became more
sophisticated and gained greater access to capital, they then scaled and reinvented banking products and
services.
• As an example, Zopa, the pioneering British peer-to-peer lender (founded in 2005), has now become a
bank. Another fintech unicorn, Revolut, is operating as a bank in some EU countries and submitted its
application for a UK banking licence. As it still offers crypto services, Revolut remains a fintech, but it
will gains trust among consumers if it secures a banking license.
5 FACTORS DRIVING THE RISE OF FINTECH
• 1.Increased Mobile Usage
• One of the biggest drivers of Fintech growth is the increased use of mobile devices. In
fact, a recent study by Pew Research Center found that over 77% of American adults
now own a smartphone. This has led to a surge in mobile banking, as well as other
mobile-based financial services. For example, there are now mobile payment options
for nearly every type of transaction, from credit cards to shopping online. In fact,
according to a recent report by Business Insider, people in the U.S. spent over $100
billion through their phones last year alone.
• 2.The Rise in Digital Payments
• Another factor driving the growth of fintech is the increasing popularity of digital
payments. This can be seen in the rise of mobile payment options, as well as other
forms of online and electronic payments. For example, a recent study found that the
global value of digital payments grew from $5058.96 billion in 2020 to $5872.89
billion in 2021.
• This trend is being driven by a number of factors, including the increasing use of
smartphones and other mobile devices, as well as the growing popularity of online
shopping. In addition, more businesses are accepting digital payments due to the lower
costs and increased security offered by these methods.
• 3.Focus On Underserved Areas of Banking
• Banks have been focusing on certain areas of their businesses that have seen a lot of growth in the past, such as
wealth and asset management. At the same time, there are other areas that have been neglected due to this
focus which fintech companies are now trying to move into such as small business lending, student loans, and
mortgages.
• Additionally, the regulatory environment has been changing over the last few years which has led banks and
other companies in financial services trying to make sense of how they can offer their customers products that
meet both compliance requirements while being innovative at the same time.
• 4.APIs
• Fintech companies also use APIs (application programming interface) to build their products and services
around existing financial infrastructure which has become a new trend.
• Application Programming Interface, or APIs, has been a hot topic in the fintech world. API security is now a
necessity before deciding to use and finance a product. Banks are starting to open up their systems so that
third-party companies can develop products and services that work with them. This has led to an increase in
startups and venture capitalists getting involved in this space as they see the potential for growth.
• 5.Large Amount of Capital Available
• Another reason why there's such a large amount of capital available for fintech companies is that venture
capitalists are starting to see the potential for growth in this space. In addition, banks are also making strategic
investments in these startups to try and stay ahead of the curve.
DISRUPTION TO INDIAN AND GLOBAL FINANCIAL SYSTEM
In the process of regulating innovation, regulators are often faced with
the task of balancing conflicting priorities such as market growth and
competition with the integrity, safety and stability of the financial
system. Striking that balance will involve defining how nontraditional
financial service providers fit within existing regulatory structures,
gauging whether there is a need to alter them, and creating agencies,
licenses, or rules to oversee innovation. With the establishment of
appropriate regulatory frameworks, FinTech can contribute positively
to the betterment of financial markets, including to the economic
well-being of the consumers
 WHAT IS A WEALTHTECH COMPANY? AND WHAT DOES IT MEAN
FOR THE FINANCIAL SERVICES INDUSTRY?

what is a wealthtech company? A wealthtech company is a financial technology business that offers
digital tools and services to increase efficiencies and accelerate the growth of financial service
providers serving individual investors.
• Improving operational efficiency while retaining clients (and onboarding new ones) is imperative in
today’s competitive wealth management industry. Innovative wealthtech solutions are varied, from
lead generation tools to client assessments, and financial planning platforms to CRM systems. Even
areas like social media optimization, business intelligence insight programs, estate planning tools, and
401(k) management services are included under the “wealthtech” umbrella.
• All these areas help today’s advisors increase efficiency and dig deeper into a client’s goals and wealth
planning picture. It makes for better service when done right and can help firms grow their business
faster.
• Wealthtech must be understood and adopted, however. Are advisors picking up on the trends? It’s
questionable. According to a Schwab Advisor Services survey, 58% of independent advisory firms
plan to invest in new tech programs over the next year. Considering all the digital tools at advisors’
disposal, that figure could be higher.
 WHY WEALTHTECH IS IMPORTANT FOR ADVISORS AND
WEALTH MANAGEMENT FIRMS
• More advisors should make it a regular practice to review the best new wealthtech tools.
Industry innovations can help advisors and wealth managers scale to serve more clients,
reduce manual work, move employees to higher-value work areas, beef up the security of
client information, and just simply save time and reduce clunky errors. It’s all about improving
the client experience and creating value.
• Wealthtech tools give wealth managers a leg up on the competition when they select the
best applications for their practice. New software solutions and online services brought
about by wealthtech innovations can reduce costs and free up time for advisors to focus on
diligent and customized planning.
• Streamlining back-end operational tasks also allows for more facetime with clients. Still,
advisor adoption of wealthtech products has room to grow. According to a recent Kitces
study (PDF), while some software categories like CRM systems and wealth planning software
have high adoption rates, there are still many manual functions performed in spots such as
lead generation, student loan management, overall plan monitoring, and estate planning.
Financial advisors clearly need a boost to bolster their fintech use.
 HOW WEALTHTECH HELPS WITH INVESTING AND PORTFOLIO MANAGEMENT
• Investment management might not be what comes to mind first when considering wealthtech applications. Consider that
TAMPs and model portfolios from a broker-dealer can be rather simple to set and forget. But once again, the landscape is
shifting under our feet. New ways of constructing and managing portfolios are here, benefiting asset managers and wealth
managers alike.
• Consider the growth in direct indexing platforms. Advisors can quickly create tailored investment plans for clients based on
their preferences and existing holdings. The last few years have seen a boom in direct indexing platform launches and
subsequent M&A. Remember when rebalancing software packages from firms like iRebal, Trade Warrior, and Envestnet were
all the rage?
• How the times have changed. Now we have Canvas, Pontera, and Riskalyze all pushing further into the portfolio management
wealthtech space with innovative investment tools. And startups like Catapult which use a data-driven approach to help
investors take the subjectivity out of choosing and sizing investments. There are even all-in-one products brought about
by technology companies like FinFolio, Orion, Addepar, and a host of others.
• Alternative investment solutions are gaining traction, too. Amid a world of low bond yields and high stock market valuations,
some investors seek defined-outcome products. Today’s tech allows for more cost-effective products to be offered. Halo
Investing, Simon, and Luma are a few firms working with advisors in the alt investment space.
• Wealthtech surely will help in the process of transitioning portfolios from one generation to the next. According to a Cerulli
forecast, some $84 trillion of wealth will change hands over the coming decades. Now, all that money will not simply move
from one investment portfolio to another—surely much will go to charity, pay taxes, or simply be spent by the older
crowd nearing retirement —but there will be the need for efficient buying and selling of securities for an investor group
with perhaps more risk tolerance.
INSURTECH REFERS TO THE USE OF TECHNOLOGY INNOVATIONS DESIGNED TO FIND COST SAVINGS AND
EFFICIENCY FROM THE CURRENT INSURANCE INDUSTRY MODEL. INSURTECH IS A COMBINATION OF THE
WORDS “INSURANCE” AND “TECHNOLOGY,” INSPIRED BY THE TERM FINTECH.

• Importance of Insurtech
• Insurtech plays an important part in changing how coverage is applied and paid for in a
number of different ways:
• Insurtech enhances the customer experience. By leveraging technology, customers are
more engaged in selecting their coverage, understanding their needs, and getting personalized
service. Instead of having to travel to a branch or speak to a representative, the future of
insurtech is moving towards self-serve, online dealings where customers have their choice of
engagement channel.
• Insurtech promotes efficiency. Policy-seekers and policy-holders can often research and
explore options using the internet and apps. Without having to wait for business hours or an
available representative, many insurtech companies empower users to quickly access the
information they need without being bogged down in processes.
• .
• Insurtech emphasizes individuality. Due to the innovative nature of information gathering
and data processing, many new tools (discussed below) are now available to better understand
each individual's true needs. This not only improves pricing but delivers more reliable,
consistent coverage based on historical data.
• Insurtech improves flexibility. Modern insurtech offerings are more likely to have flexibile,
customized, short-term, or transferrable plans. Instead of needing to lock into long-term
arrangements, insurtech is more likely to give individuals specific coverage for a specific need
over a specific duration.
• Insurtech reduces operating costs. Traditional insurance companies relied
on brick-and-mortar locations that necessitated manual labor. Now, insurtech companies can
operate remotely with staff engaging with customers around the world. The operating model
of the online company is similar skimmer with less overhead.
• Insurtech may decrease fraud. By leveraging data, analytics, trend analysis, and machine
learning, insurtech companies may be able to detect fraudulent activities if inconsistencies in
data arises. In addition, big data may also be able to discover potential loopholes that insurers
can seek to close to avoid exploitation
 WHAT INSURANCE AREAS DOES INSURTECH SOLVE?

• Claims Management
• The claims management process traditionally resulted in manually reviewing each claim, deciding
what compensation to award, then remitting that compensation. Now, insurtech companies aim to
build processes that automate certain processes and detect fraud. Larger companies can leverage
technology to gather and aggregate specific data points regarding specific claims. These claims may
also be validated using automation by comparing different data streams. Last, large companies can
use automation or repetitive workflows to pay out a large number of claims with minimal human
intervention.
• Underwriting
• The underwriting process entails reviewing an individual's profile, assessing their risk profile, and
extending them an insurance package offer that includes their coverage. The information provided to
a client also includes their monthly premium in addition to what compensation they may be entitled
to under various claims. Much of this data can be mined or gathered automatically. Even if a client
must submit information, modern technology uses many data points to compare against historical
data that can continually learn, grow, and make more educated assumptions. This means the data
decides for itself whether to extend a policy to the individual and what price is fair for the
associated level of risk.
• Contract Execution
• Whether it's related to paying out a claim, enforcing a different insurance level
tier, closing a customer's policy that has expired, or approving a new customer,
there are a tremendous number of contracts that occur related to insurance.
• When leveraging blockchain technology, smart contracts can be triggered to
execute when specific criteria is met. This eliminates the human element for
needing to handle the contract, and this allows an unbiased, neutral party (i.e.
technology) to evaluate the criteria of a contract and decide the appropriate
course of action.
• Risk Mitigation
• As mentioned earlier, big data can be used to gather, analyze, and summarize
information. This includes analyzing a customer's historical activity or assessing
a broad range of claim types. Based on the information gathered, insurers may
be able to detect fraud, protect against unsuitable risk, or better understand
where they may be most exposed.
 WHAT IS A NEOBANK?
• Neobanks, sometimes referred to as “challenger banks,” are fintech firms that offer apps, software
and other technologies to streamline mobile and online banking. These fintechs generally specialize
in particular financial products, like checking and savings accounts. They also tend to be more
nimble and transparent than their megabank counterparts, even though many of them partner with
such institutions to insure their financial products.
• In the U.S., these fintechs are more commonly referred to as neobanks. The term “challenger bank”
was first popularized in the U.K. to refer to a number of fintech banking startups that emerged in
the wake of the 2007-2009 financial crisis.
• The “challenger” moniker is apt. These companies are often compared to digital disruptors in other
industries. Today, these fintechs are transforming the banking sector in a similar way as Airbnb
revolutionized the hospitality industry or Uber and Lyft overhauled transportation. In the U.S.,
some big-name neobanks are attracting customers in droves. For example, in February 2021, it was
estimated that Chime had 12 million customers, up from eight million one year prior.
• In December 2020, research by Exton Consulting, a strategy and management consulting firm for
the financial services sector based in Paris, France, found there were 256 neobanks worldwide.
• Popular Neobanks
• There’s an overwhelming number of neobanks on the market. Forbes Advisor recently published a breakdown of some of the
most popular online banks, as well as their pros and cons. The list includes a mixed bag of neobanks and “hybrid” platforms
that offer similar digital services but are tied to legacy institutions
• Chime
• Boasting more than 12 million users, Chime is arguably the most widely recognized brand in the neobank space in the U.S.
The platform eliminates many of the common fees typically associated with brick-and-mortar banks. Chime also provides
credit-building opportunities, early access to direct deposit payments and automatic savings features with a competitive annual
percentage yield (APY). Chime is a financial technology company, not a bank. Banking services and debit cards are issued by
The Bancorp Bank or Stride Bank, N.A.; Members FDIC.
• Varo Bank
• Varo Bank was founded as a neobank. But the company, which has around 2 million users, received a full-service national
banking charter in 2020 from the Office of the Comptroller of the Currency (OCC), officially making it a bank. The service
offers similar perks to Chime, including no monthly or overdraft fees and no minimum balance requirement. Users don’t need
to undergo a credit check to open an account.
• Current
• Current is another neobank that has attracted hundreds of thousands of users in the U.S. It offers benefits such as early
access to direct deposit, fee-free overdrafts and cash back on debit card purchases.
• International Challenger Banks
• In the U.K., popular challenger banks include Revolut (which recently made its U.S. debut), Starling and Metro Bank. Other
international challengers include N26 in Germany and NuBank in Brazil.
CHALLENGER BANKS ARE SMALL, RECENTLY CREATED RETAIL BANKS THAT COMPETE
DIRECTLY WITH THE LONGER-ESTABLISHED BANKS IN THE UK, SOMETIMES BY SPECIALISING
IN AREAS UNDERSERVED BY THE "BIG FOUR" BANKS (BARCLAYS, HSBC, LLOYDS BANKING GROUP,
AND NATWEST GROUP).

• Top 10 Challenger Banks in the industry

• 10. Pockit - CEO: Virraj Jatania- Founded: 2014 - HQ: London, United Kingdom
• 9. Atom Bank - CEO: Mark Mullen - Founded: 2013 - HQ: Durham, United Kingdom
• 8.Yolt - CEO: Nicolas Weng Kan - Founded: 2017 - HQ: Amsterdam, NL
• 7. Tandem - CEO: Susie Aliker - Founded: 2015 - HQ: London, UK
• 6. Curve - CEO: Shachar Bialick - Founded: 2016 - HQ: London, UK
• 5. Revolut - CEO: Nikolay Storonsky- Founded: 2015 - HQ: London, United Kingdom
• 4. Monzo - CEO: Tom Blomfield - Founded: 2015 - HQ: London, UK
• 3. N26 - CEO: Valentin Stalf - Founded: 2013 - HQ: Berlin, Germany
• 2. Monese - CEO: Norris Koppel - Founded: 2015 - HQ: London, United Kingdom
• 1. Starling - CEO: Anne Boden - Founded: 2014 - HQ: London, UK
 LARGEST FINTECH COMPANIES BY MARKET VALUATION

sr.
Name Country Type of company Status Market Cap Continent
no

1 Visa United States Paytech Listed 4,27,57,32,65,671.00 North America

2 Mastercard United States Paytech Listed 3,33,43,42,12,223.00 North America
3 Tencent (Fintech business) China Regtech Listed 1,76,75,17,60,337.78 Asia
4 Ant Financial China Open Banking Private 1,51,00,00,00,000.00 Asia
5 Intuit United States Accounting Listed 1,09,89,23,95,914.00 North America
6 Paypal United States Paytech Listed 85,02,32,15,747.00 North America
7 Stripe Ireland Paytech Private 74,00,00,00,000.00 Europe
8 Fiserv United States Open Banking Listed 64,27,11,83,298.00 North America
9 Adyen Netherlands Paytech Listed 43,50,81,89,980.77 Europe
10 Nubank Brazil Challenger Bank Listed 41,50,00,00,000.00 South America
 MAJOR OFFERING IN FINANCIAL TECHNOLOGY INSTRUMENTS
•Peer-to-Peer (P2P) lending
•Alternative credit scoring
•Transaction delivery
•Small ticket loans
•Alternative insurance underwriting
•Digital wallets
•Digital banking
•Payment gateways
•Asset management
•Digital Insurance