![Pay it Forward Benjamin Franklin, 1784
I do not pretend to give such a deed; I only lend it to you.
When you [...] meet with another honest Man in similar
Distress, you must pay me by lending this Sum to him;
enjoining him to discharge the Debt by a like operation, when
he shall be able, and shall meet with another opportunity.
I hope it may thus go thro' many hands, before it meets with
a Knave that will stop its Progress.
This is a trick of mine for doing a deal of good with a little
money.
32](https://image.slidesharecdn.com/mit15-s08s20class12-230315082137-549e0eca/85/MIT15-S08S20_class12-pdf-32-320.jpg)
MIT15-S08S20_class12.pdf
- 1. FinTech: Shaping the Financial World May 11, 2020 1
- 2. Class 12: Overview • Finance Technology Stack • FinTech – The Actors • AI, Machine Learning & Natural Language Processing – Finance • Open API, Open Banking & Robotic Process Automation • Credit Scoring & Alternative Data • Blockchain Technology & Cryptocurrencies • Sector Review, Competitive Landscape & Coronavirus Crisis • Conclusions 2
- 3. Class 12: Study Questions • What is FinTech & how might it shape the future of money and finance? • How can one best assess the viability of FinTech project? • Has this class met your goals? Has it made you more bullish or more bearish on fintech? 3
- 4. Finance Technology Stack ? Blockchain Tech, etc. ? > Sensors & Telematics > Open API > AI, ML & NLP > Cloud > Mobile > Internet > 4 Money, Accounting, Ledgers, Joint Stock Companies, Markets, Derivatives, Electronic Messaging, Credit Cards, Securitizations, etc. >
- 5. Customer Interface Chatbots, CI & Voice Assistants (2010s) Open APIs (2000s) & Open Banking (2015) Contactless & Cardless Systems (2000s) > Mobile Payments (2000s) & Wallets (2008) > Internet (1990s) & On-line Banking (1990s - 2000s) > Automatic Teller Machines (1970s) > Credit Cards (1940 – 50s) & Point of Sale Systems (1980s) > Mortgage Brokerage (1890s) & Automobile Indirect Lenders (1910s) > Electronic Payments (1870s), Wires (1910s), ACH (1970s) & Direct Deposits (1970s) > Checks (800s), Negotiable Checks (1500s), & Preprinted Checks (1760s) > Banking - Tents, Temples, Bricks & Mortar (4th – 1st millennium BCE) > 5
- 6. Funding & Risk Management Sensors & Telematics (2010s) > ML Based Underwriting (2010s) > Peer to Peer Lending (2005) > Credit Default Swaps (1990s) > Asset Backed Securitizations (1970s – 90s) > Interest Rate Futures (1970s) & Interest Rate Swaps (1980s) > Consumer Credit Scoring (1960s) & FICO Scores (1990s) > Consumer Finance Companies & Warehouse Lines of Credit (1920s) > Private (1880s, 1950s), Government (1930s) & GSEs (1930s) Mortgage Insurance > Bankruptcy & Secured Lending Laws, Loan Servicing & Collection Agents (Days of old) > Bank Deposits - (Antiquity) > 6
- 7. FinTech - Finance’s Fertile Ground • Digitalization of Money, Securities and Credit • Wide Public Acceptance of New Tech • Legacy Customer Interface and Processing Systems • Vast and Expanding Amounts of Customer Data • Rapid Expansion of Computational & Analytical Power • Reliance on Multiple Systems of Ledgers • Infrastructure Systems’ Costs and Counterparty Risks • Economic Rents and Centralized Concentrated Risks 7
- 8. FinTech – The Actors • Big Finance: Like ‘Fortresses’ w/ Moats, Towers & Sovereign Affiliations • ‘Towers’: 1) Payments, 2) Balance Sheets, 3) Data, 4) Corporate Structure • Big Tech DNA Loop (BIS): 1) Data, 2) Networks, 3) Activities • Start-ups: 1) Disruptive Innovators, 2) Flexibility, 3) Asymmetric Risk Takers • Official Sector: Goals: 1) Economic Growth, 2) Financial Stability, 3) Guarding against Illicit Activities, 4) Inclusion, 5) Investor & Consumer Protection 8
- 9. AI and Machine Learning - Finance • Asset Management • Call Centers, Chatbots, Robo-Advising & Virtual Assistants • Credit & Insurance - Allocation, Extension, Pricing & Scoring • Fraud Detection & Prevention • Regulatory – Anti Money Laundering, Anti Manipulation • Risk Management & Underwriting • Robotic Process Automation • Trading Image by Lex Fridman. Used with permission. 9
- 10. AI and Machine Learning - Finance • AI as a Tool • Big Finance, Big Tech, & FinTech Disrupters • AI as a Service • AlphaSense (2011) – Search Engine • Cape Analytics (2014) – Insurance Property Risk Analytics • ComplyAdvantage (2014) – Anti-Money laundering & KYC Software • Dataminr (2009) - Market Sentiment Analysis • Featurespace (2008) – Anti-fraud Software • HyperScience (2014) – Document Processing • Tractable (2014) – Insurance Claims Processing • Zest AI (2009) – Credit Underwriting Software • Zesty.ai (2015) – P & C Insurance Risk Analytics Image by Lex Fridman. Used with permission. 10
- 11. Natural Language Possessing - Finance • Content Generation, Content Summarization, Information Retrieval, Intent Parsing, Sentiment Analysis, Speech Generation, Speech Recognition and Translation • Customer Services • Chatbots, Conversational Interfaces and Voice Assistants • Process Automation • Sentiment Analysis 11
- 12. Open API & Open Banking • Open Application Program Interfaces (Open API) allow outside Developers access to and an ability to Integrate Permissioned Customer Data into Third Party Applications • Open Banking initiatives facilitates or mandates Open API for Non-banks to Share Permissioned Bank Customer Data 12
- 13. Open API & Open Banking • Policy Trade-offs of Promoting Competition & Innovation, Limiting Cybersecurity Risks, and Maintaining Privacy & Consumer Protections • EU Payment System Directive (PSD2), UK Open Banking Initiative, etc. • Alternatives: Screen Scraping, Reverse Engineering & Robotic Process Automation 13
- 14. Robotic Process Automation • Account Opening & Onboarding • Loan Processing • Report Generation • Screen Scraping 14
- 15. FICO Scores © FICO. All rights reserved. This content is excluded from our Creative Commons license. For more information, see https://ocw.mit.edu/help/faq-fair-use/ Source: ‘What’s in my FICO. Scores?’, myFICO, Fair Isaac Corporation 15
- 16. Alternative Data • Bank, Checking, Employment, Income, Insurance, Tenant, Utilities • Cash Flow Underwriting • Consumption and Purchase Transactional Data • Educational Background, Employer, Occupation, Work History • App Usage, Browsing History, Email Receipt, Geolocation, Social Media Data • Sensor Data - Drones, IoTs, Smartphones, Telematics, & Wearables • Genetic Testing 16
- 17. Blockchain Technology & Cryptocurrencies • Nakamoto solved the payments riddle - avoiding double spending • Money is but a social & economic construct • Append-only logs & multiparty consensus provides a peer-2-peer alternative • Can address verification and networking costs • Crypto markets are rife with scams, fraud, hacks & manipulation • Cryptocurrencies have evolved into a speculative asset class • Adoption rests on addressing comparative viability & value proposition • The potential, though, to be a catalyst for change is real 17
- 18. Payment System ‘Pain Points’ • Chargebacks • Complexity • Costs • Cross Border Payments • Data Privacy • Delayed Settlement • Financial Inclusion • Fraud • Public Policy Compliance 18
- 19. Big Finance 19
- 20. FinTech – Payments 2003 2007 2011 2013 2014 Big Tech 2014 2007 Startup Unicorns 20
- 21. Credit & Lending: Market Design Data • Alternative Data, Credit Scoring, Cross Selling, Marketing & Underwriting Funding • Balance Sheet, Securitization, or Issuer Bank Partner Marketing Channels • User Experience & User Interface Risks • Credit / Default, Market (Basis, Rate, Spread, Volatility), & Prepayment • Funding, Liquidity, Model, Operational, & Reputational / Compliance Roles • Brokerage / Origination, Underwriting, Credit Enhancing, Securitizing, Credit Rating, Appraising, Servicing, Collecting / Foreclosing, & Funding 21
- 22. FinTech – Credit Big Tech Credit Unicorns 22
- 23. Zero Commission Revenue Models 23 Courtesy of Altruist. Used with permission. Source: ‘The real story behind commission free trading’, Jason Wenk, Altruist (October 16, 2019)
- 24. © LearnBonds. All rights reserved. This content is excluded from our Creative Commons license. For more information, see https://ocw.mit.edu/help/faq-fair-use/ Source: ‘Robo-advisor Industry to hit $1.4trn This Year’ Jastra Ilic, LearnBonds (April 15, 2020) 24
- 25. FinTech – Capital Markets • Online Brokerage • Asset Management and Advisory • Trading and Capital Markets 25
- 26. InsurTech Opportunities • Sales, Account Management & Claims UI & UX: • Digital, Mobile & Conversational Interface • Underwriting Availability, Pricing & Targeted Products: • Machine Learning & Alternative Data • Claims Processing & Underwriting Data Capture: • Drones, Internet of Thing Sensors, Smartphones Telematics, & Wearables • Genetic Testing – Life, Disability & Long-term Care 26
- 27. Insurance Sector Challenges • Agent & Broker Fees • Claims Administration • Distribution Channels • Legacy Tech • Operating Costs & Expense Ratios • Product Development & Speed to Market • Regulatory Landscape • Trust • User Interface and User Experience 27
- 28. FinTech – InsurTech Startups • Property & Casualty • Health • Benefits Administation 28
- 29. Coronavirus Crisis & FinTech Startups • Focus on ‘Runway’: Burn Rates, Cash, Revenue & Adoption Rates • IPOs on Hold • VC Investment will Slow • Valuations Decline • Consolidation likely to Increase • There will be Winners & Losers w/ Sector Mattering • Opportunities arise to Serve Fiscal Stimulus & Loan Programs • Challenges of Delinquencies & Defaults on Horizon 29
- 30. Courses - Fall 2020 • Blockchain & Money (15.235) • Tentatively: Tues/Thurs 2:30 – 4 pm • Collaborative Intelligence Ventures (15.S57/ 6.S077/6.S977) • Prep for MIT’s spring Collaborative Intelligence Ventures Competition • Project focus on humans and machines working together collaboratively • H2 – Tentatively: Wed 3 – 5 pm • Taught w/ Jonathan Ruane & Julie Shah 30
- 31. Courses - Fall 2020 • Coronavirus Lecture & Lab Course (TBD) • Focusing on Coronavirus Crisis • To include both Lecture and Project Components • Led by Simon Johnson, Asu Ozdaglar along w/ other MIT faculty • Tentatively: Tues / Thurs • Multiple Action Learning Streams tentatively to include: • FinTech & Coronavirus • Public Policy & Coronavirus • Other Project Work Streams 31
- 32. Pay it Forward Benjamin Franklin, 1784 I do not pretend to give such a deed; I only lend it to you. When you [...] meet with another honest Man in similar Distress, you must pay me by lending this Sum to him; enjoining him to discharge the Debt by a like operation, when he shall be able, and shall meet with another opportunity. I hope it may thus go thro' many hands, before it meets with a Knave that will stop its Progress. This is a trick of mine for doing a deal of good with a little money. 32
- 33. MIT OpenCourseWare https://ocw.mit.edu/ 15.S08 FinTech: Shaping the Financial World Spring 2020 For information about citing these materials or our Terms of Use, visit: https://ocw.mit.edu/terms. 33