FINA411 Final Exam Ch. 1 - 5
Ch.2&5 .3 New banking models
*API - application programming interface -a. Infrastructure providers to fintech firms -b. distributors of financial services -c. Banking as a service -access to software to build applications on top of software -d. API collaboration and individualization of services (analytics, third-party management) -e. API examples: Curve - offers a card that stores several cards from different banks -Leader*** - CHIME in fintech banking
Ch.2&5 .1 Traditional banking landscape`
-a. Checking accounts, savings accounts, credit cards, and mortgages -b. Depositors and borrowers (financial intermediation) -c. Lack of competition: size, barriers to entry, regulation, capital requirements
3.3 traditional delivery
a. Money orders b. Checks c. Drafts -d. Wire transfer (SWIFT, Society for Worldwide Interbank Financial Telecommunication; Cash wire transfer; MoneyGram or Western Union -e. ACH transfer: electronic movement of money between banks through Automated Clearing House network (banks own network) (free) -f. Online through access to bank accounts; PayPal (email address as unique identity); paying into a PayPal account from a credit card or bank account Remittance cost 10%, or $60 billion, reduction to 3% or $18 billion (savings of $42 billion).
Ch.1.4 Innovation: opportunities and challenges
a. New product or service - Payment in installments (Affirm) b. New markets - The unbanked and remittances (Wise) c. New processes - Software as a service, wallet connected to bank accounts and credit cards; digital wallet (Ripple) e. New business models - Person to person payment system (Venmo)
Ch.2&5 .4 Fintech financial services innovation
a. Specialized platforms: business lending, foreign exchange -b. Servicing underserved segments: subprime loans -c. Pricing improvement and customer selection -d. Cost reduction: robotic process automation -e. Optimization of process: fact credit approval, real time international payments -f. Payroll, online accounting, expense management, benefits management
4.2.3 Digital lending for students
a. Student loan debt over $1.5 trillion in loans outstanding (government loans, consolidated loans after graduation, traditional loans for graduate school) b. Key players: SoFi (targets high end customers), Common Bond, Earnest-Navient, LoanHero, Lendedu
2.4. Digital lending for small-sized enterprises
a. Three types: short-term working capital, peer to peer lending, and invoice financing b. Short-term financing: Kabbage, OnDeck and PayPal require credit history, credit turnover information, and owner personal credit c. Peer to peer business loans: Auction, borrower specifies the terms of the loan, lenders bid on loan offering an interest rate, borrower decides to accept rate or not d. Invoice financing: getting funds for unpaid invoices (A/R), by invoice factoring, invoice trading or invoice discounting. Factoring: manage invoices and collects money owed to the business. Trading: selling invoices to investors. Discounting: investors will buy invoices at a discount and after collect them (assuming risk of no payment) e. Players: Kabbage, OnDeck, PayPal, Square, Lendio
Chapter 4: Digital lending innovation 2.2. Consumer lending
a. Unsecured loans carry a high interest rate (personal, credit card, student, peer to peer loans) b. Benefits: convenience, simplicity, transparency, flexibility, personalization (consumer selects loan maturity and value), better rates c. Banks response to fintech competition: better customer experience, remove obstacles and easier process, leaner cost structure to offer cheaper, better, and faster lending experience d. Players: Affirm (pay in instalments), Zest finance (credit to customers with FICO scores of 600-680), LendUp (pay day loan business)
Ch.1.1 Why now?
The integration of technology in delivering financial services -a. (high profit potential) -b. (lower barriers to entry) -c. (increase sales) -d. Lack of regulation (peer-to peer lending) -San Francisco (AvidXchange, LendingTree, CreditKarma, and Robinhood)
2.5. Digital mortgages
a. Market size: $15 trillion b. Assessing risk: collateral, borrowing capacity, cash flow, employment, income, credit score and usage, assets, and new ones like employment markets, household cash flow, alternative investments, demographic trends, personal preferences c. Fintech offers: platforms and IT solutions to originators, data aggregation and AI for originators and servicing loan, and disruptive end to end origination. d. Players: SoFi, Better.com, lenda, loandepot, sindeo
Ch.3.4 Innovative ways of sending money
EX: TransferWise Remittances: money sent from one country to another, -a. Mobile money transfers: text messaging, mobile apps -b. Peer to peer money transfers: online marketplace, no central authority -c. Cryptocurrency: maintain anonymity -d. Social media: WhatsApp
3.2 Traditional remittance transaction
Typical transaction at Western Union (not in real time and collect overnight interest, commission, and currency-conversion fees) - Customer sends money through a sending agent via the internet, phone or email; - Agent instructs team to send the remittance to the recipient's country, and - Recipient receives funds from paying agent;
