This document discusses the growth of financial technology (FinTech) and the relationships between FinTech firms and traditional banks. It provides examples of popular FinTech applications and companies. FinTech is growing globally and disrupting financial services through technologies like mobile payments, peer-to-peer lending, and robo-advising. Banks are both collaborating with and acquiring FinTech firms to gain innovation and better serve customers. The skills needed for the FinTech revolution include both technical and soft skills across areas like software, analytics, design, security and business models.

1. 1H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
INNOV-ACTS, Limited
H2020 FINSEC Project
The FINSEC project is co-funded from the European Union’s Horizon 2020 programme under grant
Agreement No 786727
The Financial Technology
Revolution (FinTech)
05/11/2019

2. 2H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
What is FinTech?
§FinTech stands for Financial Technology
§Delivery of Financial Services based on
software and technology
§Scope:
§ Technical innovation applied in a traditional
financial services
§ Disruptive Innovation Empowered by
Digital Technology
§ Otherwise IT and digital technologies are
already used by financial institutions -
FinTech is about disruption
FinTech
Digital
Technologies
(“Enablers”)
Disruptive
Financial
Services

3. 3H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
FinTech Growth

4. 4H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
FinTech Value per Region (source: EY FinTech Adoption Index 2017)
New York
• Close to markets
• Many
incubators &
accelerators
California
• Mature FinTech
community
• Established
connections and
large VC funds
UK
• Global financial
hub
• Progressive
government &
regulation
• Effective
network of hubs
Germany
• Mostly credit
& lending
• Increasing
focus on b2b
• Complex
startup
environment
Hong Kong
• Relatively
nascent
market
• Focused on
capital
markets
Singapore
• Linked to Asia
• Friendly
Business
Environment
• Dedicated
team at
regulator

5. 5H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
FinTech Barriers per Age Group (source: EY FinTech Adoption Index
2017)

6. 6H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
FinTech Value by Segment in USA

7. 7H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
Examples of FinTech & Financial Inclusion
Mobile money payments, high demand for international transfer of funds
Philippines
Banks have a reputation for poor customer service and of inefficiency i.e. 150+
Fintech companies operating in Mexico and acquiring market share in
payments and lending through smartphones
Mexico
BKash Limited, a subsidiary of BRAC Bank Limited was launched in 2011 to
provide mobile financial services, including payments and money transfers, to
both the unbanked and banked populations. Upon registration, each user
receives a mobile wallet that serves as a bank account
Bangladesh

8. 8H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
FinTech: The Five Transformations
FinTech Startups intermediate between banks and their customers.
Intermediation
Human wealth advisors and asset managers are complemented and/or
replaced by Robo-advisors
Robo-advisors
InsurTech startups obviate the need for insurance agents
Insurance without
agents
Point of Sales devices are becoming mobile
Mobile POS
Blockchain streamlines processes throughout financial institutions and
facilitates data sharing between them
Blockchain driven data
sharing & collaboration

9. 9H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
FinTech Examples: Stripe.com
§ A complete payments platform engineered for
growth
§ PayPal – like service charging flat fee per transaction
§ Billing customers on a recurring basis
§ Set up a marketplace
§ Accept payments,
§ Fully integrated global platform that can support
online and in-person payments
§ The payments platform for platforms
§ Marketplaces and platforms use Stripe Connect to
accept money and pay out to third parties:
§ Complete set of building blocks to support virtually
any business model (e.g., on-demand businesses,
e-commerce, crowdfunding, and travel and events)

10. 10H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
FinTech Examples: LendingClub
§Personal loans up to
$40,000
§Brings borrowers and
investors together
§Competitive Returns
e.g., Fixed-income
alternative, with
historical returns of 3–
8% per year
§Diversified portfolio

11. 11H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
FinTech Examples: Kabbage.com
§Facilitates accessing to
funding for small
businesses
§Kabbage developed a
simple way to get up to
$250,000
§Kabbage extends $1
billion each year in
working capital funded
to small businesses

12. 12H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
FinTech Examples: Wealthfront
§ “Pocket assistant” for
investments and finances
§ Builds free financial plan
that is personalized to the
customer’s needs
§ Automates investments at
a low cost.
§ Investments concern
retirement, travels, collage,
homeownership etc.

13. 13H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
FinTech Examples: Personetics.com
§ Real time banking and finance
insights for traditional banks
(i.e. in collaboration with
them).
§ Provides PFM (Personal
Finance Management)
solutions.
§ Emphasis on forward-looking
insights and timely bite-sized
advice.
§ Helps customers make
smarter day-to-day decisions
about their investments and
money.

14. 14H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
Classification of FinTech Applications
FinTech
Applications
Peer-to-Peer
Lending
Lending
Marketplaces
Crowdfunding
Roboadvice -
PFM
Virtual
Currencies
Payment
Accounts
Payment
Initiation
Credit Risk
Assessment
Customer-
Centric
Analytics

15. 15H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
FinTech: Pros and Cons
Pros / Benefits: Privacy,
Transparency, Lower Transaction
Costs, Financial inclusion (e.g.,
Poorer Countries)
Cons / Risks: Anonymity, No
Government Intervention,
Lower Consumer Protection,
Volatility, Cyber Crime Enabler

16. 16H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
Skills Needed for the FinTech Revolution
Maths, engineering, software development, programming, AI,
analytical skills in context
Hard skills
Design and development of the customer experience
Soft skills
Digital channels and social media & ensuring financial inclusion despite
the complexity of future products and services
Communication
Expertise in understanding threats and vulnerabilities, but also in
assessing, averting, managing and confronting them in efficient ways
Cyber security
Imagining new business models that require new ways of working,
different ways of taking decisions
Business Models
Expertise
In the globalization and technology acceleration context
Managing Change

17. 17H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
Typical SWOT Analysis for FinTech Enterprises
Strengths
•Innovation of the
Product/Service
•Competency of the
technical teams
•Strong Branding
•Agility and Flexible
Cost Structured
•Secured Partnerships
•Lack of Strong
competition
Weaknesses
•Entry Barriers in a
Regulated Market
•Lack of adequate
capitalization
•Declining profitability
of the target product
•Need to seek for track
record and reputation
Opportunities
•Growth in FinTech
investments
•Inefficiencies of
traditional products
and services
•Opportunities in
emerging markets and
millennials
•Replacement of
existing ecosystems
towards higher
automation and better
customer experience
Threats
•Changing Regulatory
Environment &
Uncertainty
•Cybersecurity Threats
•Threats associated
with economic cycles
and possible financial
crises

18. 18H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
Banks Strengths over FinTech Firms
There is strong bonding and trust relationships between banks and
their customers
History & Track Record
Banks have higher market capitalization than FinTechs- They are less
susceptible to turbulence and market volatility
Wealth and Liquidity
Including Marketing Agents and Sales Force
Sales force and
Customer Service
infrastructure
Competitive advantage for novel digital data-driven applications
including BigData analytics and AI applications
Own more data

19. 19H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
Banks: Suggested Stance Against FinTech firmsMonitoring
Follow closely
FinTech
developments
Including regulation,
new products and
activities
Their innovation
structures should be
closely linked with
FinTech ecosystems
Positioning
Position their
activities against
FinTech
developments
Complete or partner
with FinTechs to
provide more
efficient and
desirable services to
customers
Collaborating
Collaborate with
Fintech in selected
areas
Regulatory
compliance and risk
reduction are
primary candidates
Leverage
opportunities to
increase their
innovation capital

20. 20H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
Banks & FinTechs Symbiotic Relationship Up to Date
Innovation Investments
•Banks invest in FinTech
•Banks operate incubators and
start-up programs for FinTech
enterprises
Partners and
Collaborations
•Banks partner with FinTech
enterprises companies
•Areas of collaboration: Loans,
Cobranding arrangements,
White label/private label
arrangements, Referral
arrangements
Acquisitions
•Banks acquire FinTech
companies

21. 21H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
Example of FinTech – Bank Relationships: Alternative Lending
Alternative Lenders (ALs)
• Nonbank lenders
• Leverage Internet and digital
technologies such as data-analytics.
• Offer improved customer experience,
better lending decisions, customer
sourcing, and funding.
ALs vs. Banks
• Originally viewed as competitors to
banks despite relying on incumbent
banks for loan origination.
• Recently banks establish business
relationships with ALs.

22. 22H2020 FINSEC – DIGITAL FINANCE ACADEMY FOR SECURITY
Bank & ALs Relationships Models
Banks originate loans (funding from individuals/institutional investors)
Traditional AL
business model
Banks provide referrals, whole loan purchases, white labeling/cobranding
of AL lending platform, and securitization services
Partnerships
Banks fund ALs through credit extensions, whole loan purchases, and
equity investments
Funding
Banks acquire an AL that becomes a primary business line unit, such as an
online consumer lending unit
Acquisitions
Banks provide workspace, seed funding, mentoring, training, and other
related support for startup entrepreneurs
Incubators
Source: “Fintech Innovation: An Overview”, Clement Ancri, Board of
Governors of the Federal Reserve System