Fintech workshop Part I - Law Society of Hong Kong - Xccelerate

Accelerating the Future of Work
The Law Society of Hong Kong
Hong Kong Academy of Law
Fintech Workshop

Who are we
•Xccelerate is a HK based training
institute with focus in Technology
•Xccelerate has developed and
provides courses in AI, Data Science,
Software Engineering, UX Design and
Fintech
•Xccelerate also manages a tech
community and a hiring network
•Henrique works as Innovation Project
Manager implementing Fintech and
Blockchain Projects for the Financial
Industry
•Find me here:
linkedin.com/in/henriquecentieiro

Agenda
MODULE 1 - May 18th
• Workshop Format / Goals
• Basics
• What is Fintech
■ The 4 technologies leveraging Fintech: AI, Blockchain, Cloud and Data
Analytics
• The eight clusters that will be disrupted by Fintech
• Digital Finance and Alternative Finance

Agenda
MODULE 2 - May 25th
• Data in Fintech - Finance is Data? What is Data Science? How companies are
investing in data
• Data-driven Finance - New scoring methodologies, accounting human
capital, behavioral finance, Investment Strategy, peer-to-peer lending and
how big data is changing business
• Fintech Regulation and RegTech - Fintech regulations, how regulators and
the HKMA see Fintech, what is Regtech, regulatory sandboxes, data
protection and regulatory constraints

Workshop Format
● Ask questions as we go! Type the questions
in the chat. At the end of each chapter I will
stop and reply to the questions
● We will stop a few times for polling
● We will have a coffee break!

Workshop Goals
● Understand what is Fintech and the main
technologies enabling the Fintech revolution
● The main areas being disrupted by Fintech
● Technological trends being adopted by the
corporate industry
● How to lead innovation through Agile

The Main Technologies Enabling Fintech;
ABCD
AI, also referred to as Machine Learning AI is
a "a system's ability to correctly interpret
external data, to learn from such data, and
to use those learnings to achieve specific
goals and tasks through flexible adaptation."
Blockchain is a distributed, peer-to-peer,
decentralize and immutable ledger (or
database). Blockchains can be public or
private, permissioned or permissionless.
Cloud providers allow on-demand availability
of computer system resources, especially data
storage (cloud storage) and computing power,
without direct active management by the user.
Most common providers are AWS, Google
Cloud, MS Azure, IBM, Rackspace.
Data analytics is a process of inspecting,
cleansing, transforming and modeling data
with the goal of discovering useful
information, informing conclusions and
supporting decision-making.

AI – Artificial Intelligence

Blockchain
• Consensus - all parties in the business network agrees
on the kind of information to be captured about an
asset
• Provenance – parties are able to trace records (of an
asset) to its source
• Immutability – records in a ledger cannot be altered or
removed
• Finality – when a transaction is committed there is no
rolling back

Cloud Computing
Main providers in the market are AWS – Amazon
Web Services, Microsoft Azure, Google Cloud,
IBM, AlibabaCloud, Rackspace and others.
Main characteristics:
• On-demand self-service with no upfront costs
• Pay only the resources used
• Broad network access
• Elasticity and Scalability
• Detailed Metrics
• Many plug-and-play services available

Data Analytics
Data analytics is the science of
analyzing raw data in order to
make conclusions about that
information. Many of the
techniques and processes of data
analytics have been automated
into mechanical processes
and algorithms that work over raw
data for human consumption

Quiz 1
What are the 4 ABCD technologies? Select 4
• Artificial Intelligence
• Broadcasting
• Deep Web
• Blockchain
• Cloud Computing
• Decentralization
• Data Analytics

But… what is Fintech?
● FinTech is the technology and innovation that aims to compete with
traditional financial methods in the delivery of financial services. - Wikipedia
● Fintech is used to describe new tech that seeks to improve and automate
the delivery and use of financial services. - Investopedia
● Fintech is the combination of innovation and new technologies used to
architect new financial products or re-architect existing financial products. -
Henri’s definition

10 Most valuable companies by market cap
in 2000
● General Electric
● Cisco Systems
● Exxon Mobil
● Pfizer
● Microsoft
● Wal-Mart
● Citigroup
● Vodafone
● Intel
● Royal Dutch Shell
➔Conglomerate
➔Networking hardware
➔Oil and gas
➔Health care
➔Software industry (Tech)
➔Retail
➔Banking
➔Telecommunications
➔Computer hardware
➔Oil and gas

10 Most valuable companies by market cap
in 2020
● Microsoft
● Apple
● Amazon
● Alphabet
● Alibaba
● Facebook
● Tencent
● Berkshire Hathaway
● Visa
● Johnson & Johnson
➔Tech
➔Tech
➔Tech
➔Tech
➔Tech
➔Tech
➔Tech
➔Conglomerate
➔Financial Services
➔Consumer Products

Corporate Darwinism - Companies that don’t
evolve and adapt will die
Source: https://www.researchgate.net/figure/Average-company-lifespan-on-S-P-500-Index-each-data-represents-a-rolling-7-year-average_fig9_307560120

Netflix innovated and shifted the business
model
Source: https://techcrunch.com/2012/01/25/netflixs-streaming-dvd-margins/

model
Source: https://www.marketwatch.com/story/15-years-after-ipo-netflix-has-changed-drasticallyand-is-worth-nearly-22000-more-2017-05-23
Netflix share
price was
US$445 in
13th May 2020

Blind Spots
Look at companies like Toys R Us, Borders
and Blockbusters. These companies were
not poorly managed but they had only big
blind spots. They were caught of guard by
innovators.

Moving from brick and mortar to digital

Every Company is in the Innovation Business
Companies need to produce innovation as part of the business

The Innovation Business - Ideas
 Idea Origination
 Idea Evaluation
 Idea Execution
Every organization needs to have idea inventory and needs to use
Design Thinking and Agile to unlock those ideas and innovate frequently

The Innovation Business – Design Thinking

The Innovation Business - Agile

Quiz 2
What are the mereologies that companies are using to
improve the innovation process? Select 2
• Kaizen
• Agile
• HIPPO
• Design Thinking

Shifting from X company to a technology company
Tesla is a tech company more than a automotive company and
has more software engineers than mechanical engineers

Shifting from X company to a technology company
Technology and Fintech companies do A/B testing or Canary Testing

model
Source: https://www.pinterest.com/pin/348114246189989312/
From 10
Million
customers in
50 years to 10
Million
customers in 5
years

Fintech Ecosystem in Hong Kong

Fintech Funding
Source: CB Insights

Fintech is disrupting every banking business line
Source: https://www.cbinsights.com/research/disrupting-banking-fintech-startups/

Wheel of Disruption
Source: World Economic Forum http://www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf

Credit Card Scoring
Name Nationality Gender Employment Salary Outstanding Balance Number of Cards Late payments
Adam UK Male Employed 35 000 62 123 3 5
Alice HK Female Employed 60 000 10 088 2 0
Amy HK Female Employed 45 000 32 000 1 1

Training and Scoring
Source: https://towardsdatascience.com/data-preprocessing-3cd01eefd438

How Peer-to-Peer Lending Works
Lender/
Investor
Borrower
Loan Agreement
P2P Platform
Partner Bank
Issues the actual loan

Individualization of Finance
Source: https://medium.com/@jhansibhushann/big-5-model-of-personality-ff21be76d298

Source: https://applymagicsauce.com/demo

Source: https://www.pnas.org/content/112/4/1036

Text Mining
The authors Oded Netzer, Alain Lemaire, Michal Herzenstein used text-mining and machine-learning tools to
automatically process and analyze the raw text in over 120,000 loan requests from Prosper.com, an online
crowdfunding platform.

Quiz 3
Can data analytics improve credit scoring?
• Yes
• No

Finance companies connect to ERP
systems for plug and play finance

Plug and play supply chain finance
Source: https://www.fbicgroup.com/sites/default/files/Supply_Chain_Finance_VI.pdf

Inventory Financing
Source: https://www.fbicgroup.com/sites/default/files/Supply_Chain_Finance_VI.pdf

Quiz 4
How can a finance company get updated data from their
corporate customers?
• Get the data from the quarterly reports and annual report
• Connect to the customers ERP systems using APIs

Telematics and IoT
Source: World Economic Forum http://www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf

Telematics and IoT
Source: https://www.confused.com/car-insurance/black-box/telematics-explained

Quiz 5
What kind of devices can provide insurance
companies with better quality data?
• Telematics and IoT
• Radar
• Wearable devices (Fitbit, etc.)
• Alexa

Robo-Advisory Evolution: Digital Wealth
Management from 1.0 to 4.0
Source: https://www2.deloitte.com/content/dam/Deloitte/de/Documents/financial-services/Deloitte-Robo-safe.pdf

Wealth Management 4.0
Source: https://www.hedgethink.com/how-robo-advisors-revolutionize-wealth-management-sector/screen-shot-2015-11-18-at-01-34-03/
“Across generations, income, and
gender, more than 75 percent of
respondents indicated they would be
“very likely or somewhat likely” to
consider the above offer from their
bank, with 22 percent selecting “very
likely.”Source: https://home.kpmg/content/dam/kpmg/pdf/2016/07/Robo-Advising-Catching-Up-And-Getting-Ahead.pdf

Wealth Management 4.0
Robo-advisors – advantages
• Robo-advisors are digital platforms that provide
automated, algorithm-driven investment services
with little to no human supervision.
• Robo-advisors most often automate and optimize
passive indexing strategies that follow mean-variance
optimization.
• Robo-advisors are often very inexpensive and require
very low opening balances so that nearly everybody
can benefit from a robo-advisor if they choose.
Source: https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp

Quiz 6
What are the main benefits of robo-advisors?
• Inexpensive
• They talk
• Low opening balances
• Any person can benefit of a robo-advisor
• Only for rich investors

Demand for Robo-Advisors
Source: https://home.kpmg/content/dam/kpmg/pdf/2016/07/Robo-Advising-Catching-Up-And-Getting-Ahead.pdf
Projections in
2020 were
not met but
Robo-
Advisors
growth
continues to
be impressive
with more
than 1 Trillion
USD under
management
and more
than 223
Million users

Social Trading or Copy Trading
eToro has now more than USD 30
Billion assets traded on its platform first
half of 2019

Different types of Crowdfunding
Equity-Based
For financial return
Sale of registered
securities by early stage
companies to investors.
Enabled by the Jumpstart
Our Business Startups
Act, or JOBS Act
Reward-Based
For non-
monetary
rewards
Donors have the
expectation of
receiving a tangible
reward or product
Lending-Based
For financial
return
Debt-based
transactions between
individuals
Donation-Based
For philanthropy
or sponsorship
No legally binding
financial obligation
occurred by recipient
to donor

Quiz 7
What are the main types of crowdfunding?
• Equity-Based, Reward-Based, Lending-
Based and Donation-Based
• Donation-Based and Reward-Based only
• Blockchain-based and Equity-based

ICO Funding Overtook VC Funding before
SEC Crackdown
Source: https://medium.com/cashlink-crypto/ico-funding-has-overtaken-angel-seed-venture-capital-c44affbb6dd3/

ICO Funding Overtook VC Funding before
SEC Crackdown
Source: https://digitalchamber.org/wp-content/uploads/2019/08/Trends-in-Token-Project-Fundraising-Events.pdf

ICOs took advantage of the Ethereum
Blockchain but more to come with STOs!

Payment systems
Current Core Payment Systems
are:
- Cash
- Wire Transfers
- Checking
- ACH (Automated clearing house)
- Cards (debit/credit)
- Other payment apps

Mobile payments are overtaking other
payment methods
Account-related
liquidity revenues
will continue to
lead revenue
growth. Payments
contributes with
6% for the banks
revenue.

PaaS – Payment as a Service
8
Banking is continually
undergoing
transformations in
response to new
technology, regulation,
and operating models. An
important recent example
is the rise of banking as a
service (BaaS), a new
approach to delivering
banking services and
products. Offering BaaS
became an attractive
strategy thanks to cloud-
based technologies, API-
driven architectures,
open banking, and agile
business processes.
McKinsey and Company Global
Payments
Report 2019

But… are these mobile payments disruptive?

Mobile payments use the same railways
Source: https://www.pdcflow.com/resources/guides/credit-card-payment-processing/

Source: https://wallethub.com/edu/cc/credit-card-transaction/25511/
Mobile payments use the same railways

Some companies are taking advantage of data

Disintermediation of payment systems
As of March 2020, around 765 million people used mobile
payment transactions in China, up from around 583 million
users at the end of 2018.

Number of mobile payment users in China from 2013 to
March 2020

Source: https://innovator.news/how-china-is-changing-the-financial-services-industry-2225b640c193
Plus
Insurance,
wealth
management
Credit Rating
and more!

Source: https://www.pdcflow.com/resources/guides/credit-card-payment-processing/
Bitcoin: disintermediation of everything

Quiz 8
Which examples of technologies are
disintermediating banks? Select 3
• WeChat and Alipay
• Visa
• Mastercard
• Octopus
• MPesa
• Bitcoin

Battle for the customer
Alibaba: the world’s largest accommodation provider, owns no real estate.
Facebook: the world’s most popular media owner, creates no content.
Uber: the world’s largest taxi company owns no vehicles.
Alibaba: the world’s retailer owns no inventory.
Bitcoin: the world’s largest bank with no cash.
Bitcoin market cap was USD176 Billion in May 2020.

Examples of Cryptocurrencies
Invented in 2009 by Satoshi Nakamoto, is
the first decentralized peer-to-peer
cryptocurrency based on the Bitcoin
Blockchain.
Market cap: USD 174 Billion
Blockchain 2.0 allows the creation of
smart tokens to automate business
logics and token issuance for ICOs.
Initial release in 2015 by Vitalik Buterin.
Ripple is a real-time gross settlement
system, currency exchange and
remittance network created by Ripple
Labs Inc., that allows to send money
between banks.
Blockchain-based stablecoin backed by
USD. 1 USDT = ~1USD. Based on the
Ethereum Network, i.e. it’s an ERC20 token.
Bitcoin Fork created in 2017 by Roger Ver to
improve scalability of the Bitcoin Network,
lower fees and faster transactions.
Created in 2014, Monero uses an obfuscated
public ledger. Anybody can broadcast or send
transactions, but no outside observer can tell
the source, amount or destination.

Remittances
Source: https://www.economist.com/finance-and-economics/2012/04/28/new-rivers-of-gold/

Remittances and Cross Border Payments

Disrupting Cross Border payments

Blockchain coming to the remittances market

But Bitcoin is still not the best solution

Blockchain Enterprise Solutions

Permissioned Blockchains
Source: https://www.cbinsights.com/research/blockchain-disrupting-banking/

Quiz 9
What type of blockchain are banks adopting?
• Permissioned
• Permissionless

Clearing Securities
Source: https://www.hkex.com.hk/Services/Clearing/Securities/Overview/Clearing-Services?sc_lang=en

Securities Sales in the Blockchain
Source:https://medium.com/decon-lab/why-security-tokens-886a42971855

Contracts on the Blockchain
https://www.cbinsights.com/research/blockchain-real-estate-disruption/

Smart Contracts
Smart Contracts are
self enforcing contracts

Quiz 10
What are smart contracts?
• A self enforcing contract written in a
programing language which can mimic real life
contracts
• A contract written by a smart lawyer

Millions need to upgrade skills
Ant Financial Sustainability Report 2016

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