Fintech 2

A priori segmentation

Is planned, researcher choose some segment-defining characteristics in advance e.g. age

Benefits of credit cards for customers

-Acceptance levels -Reward points -Airport lounge access -Joining fee/welcome bonus -Buyer protection -Status symbol

Who are the players in the market

-Banks -Private banks -Family offices -Asset management firms -Financial advisors

To accept credit cards

-Banks pay for their global network coverage with ATM's & merchant terminals (POS) -They're not a bank -Not liable for any dispute -Middle men processing the payment for banks & merchants

Benefits of the robo-advisor (more 5)

-Better accuracy -Transparency -Bias & conflicts reduced -Big data -Collaborate & engage with customers

Difference between credit & debit card

-Both eliminate need to carry cash -Fundamental difference is where card pulls money Debit: Pulls from your banking account Credit: Charges to your line of credit

Impact of robe-advisory on wealth management

-HNW also becoming interested -Boomers inheriting money have different attitudes (want more transparency & control) -Transparency, control, usability

Major types of robo-advisors

1. Standalone or independently operated robo-advisors 2. Robo-advisor accounts developed or brought on by incumbents

Three main and highly interrelated disruptive factors, which have helped the market develop in this area

1. Technology enables innovation 2. Regulatory intervention 3. Shift in consumer preferences

Post hoc descriptive & predictive methods

Descriptive: Factor analysis and cluster analysis Predictive: Combine post hoc grouping with predictive predisposition, e.g. automatic interaction detector (AID) & canonical analysis

Segmentation basis

Is the characteristic or groups of characteristics of consumers used to assign consumers to segments -Varies among groups of a certain market -Consistent within each group

Market infrastructures for settlements

Is the completion of a transaction System used to facilitate the settlement of transfers of funds

Strategic asset allocation process

It is an approach towards portfolio construction It helps determine the allocation to asset classes considered for the investment

4 types of loans

-General loans -World poverty reduction -Family and friends loans -Specialized loans (e.g. for student loans)

List of criteria or basic strategies to segment the consumer market

-Geographic -Demographic -Psychographic -Buyer behavior

New fintech business models for advisory

-Comparison websites (provide investment advice) -Financial aggregator platforms (allow user to link accounts across multiple financial institutions) -Social trading & investment platforms -Robo-advisors

3 main features for their digital business

-Content: what is consumed? -Experience: how is it packaged? -Platform: How is it delivered

Pain points in traditional monetary subsitutes

-Costs -User experience -Time waiting -No control on spending -Fraud

Pain points of neo banks

-Customer acquisition -Customer retention -Scalability -Profit model

Can classify variables according to the fact that they are

-Customer specific -Situation specific * Can further break this down into observable and unobservable bases

Forms of payment cards

-Debit -Credit -Pre-paid

Risks more specific to p2p lending platforms

-Default risk of borrower -Liquidity risk/lack of secondary market liquidity for the loans

Statistical methods to be used (there are 2)

-Description methods: structural, interdependence methods since they analyze mutual association across variables (no distinction between independent & dependent variables) -Predictive methods: analyze the relationships between 2 sets of variables (distinction between independent & dependent variables)

Concerns related to innovations

-Devalue role of professional advisor -Disintermediation -Belief financial planning cannot be carried out adequately by inhuman appliances -Some believe will make market less profitable

Different forms of crowdfunding can be classified as

-Donation/philanthropic (very low risk) -Reward/commerical-based: finances ideas can be rewarded non monetarily -Royalty: share profits from monetary investment -Crowd investing

Benefits of the robo-advisor (first 5)

-Effective -Younger & less wealthy clients -Free professionals to devote time to other things -Data collection -Updates real time-market changes

Benefits of market segmentation

-Enables cost reduction -Enhanced customer satisfaction -Certain groups can be selected to exclusion of others -New customer requirements can be anticipated -Customer retention improved -Enhanced brand reputation -Differentiation purposes -Increased customer value -Being more market oriented

Types of crowd investing

-Equity-based crowdfunding -Lending-based crowdfunding -Invoice trading

MiFID II can be separated into three core pillars (market in financial instruments directive)

-Fairer, safer and more efficient markets -Stronger investment protection -Greater transparency

Corporate market poses distinct characteristics which market it different from personal market

-Fewer in number compared to individuals -More complex financial requirement

PFM key activities

-Financial needs analysis -Risk appetite -Holding period -Life styles analysis and sources of wealth -Portfolio composition: proposal -Portfolio management and implementation -Monitorin -Rebalancing

Requirements for effective market segmentation

-Homogeneous (with their segments) & heterogeneous (with other segments) -Measurable (measure effectiveness of segment) -Substantial enough to be profitable -Accessibile (segment has to be reachable) -Actionable & different in its response to a marketing mix -Stable -Appropriate for the company's policies and resources

Banks use as key vectors for segmenting the SME banking market the following

-Industry sector -Customer profile

PFM value proposition

-Investment advice ---Tailor services -Financial planning -Tax planning -Fiscal advisor -Corporate finance (on demand) -Succession plans -Art advisory -Legal advisory -Real estate advisor -Retirement planning

Fintechs new story about payments

-It is not in the payment itself or in the payment mechanism -But in what the payment does for the customer, merchant, and other service providers Value in connecting each individual with their money in different ways

Mobile payments can be classified as the following

-Mobile remote payment (pay independently of phone's location) -Mobile proximity payment (for in-store) -Mobile P2P payments

Ways new wave of digitalization has changed the financial advice landscape

-Move focus from PFM to personal financial performance -Increasing use of tablets/mobile devices for direct advisory -Increasing visual approach -Develop real-time messaging -Advice becoming increasingly real time

More fintechs address their value proposition to small medium enterpises (SME's)

-Offer them basic bank service -Create platforms for matching lenders & borrowers -Multi-sided platform market

Non-cash payment methods

-Payment cards: Can take cash out of ATM and used to pay vendors at point of sale -Bank transfers: Payment orders made by debtors to transfer sum to creditor -Direct debits: Where one individual withdraws funds from another person's bank account -Checks: Negotiable instrument instruction financial institution to pay an amount from an account in makers name

Fintechs can be grouped according to what parties are invovled

-Peer to peer (P2P) -Business to person (B2P) -Person to business (P2B) -Business to business (B2B)

Success of payment instruments usually constrained by

-Presence of reliable clearing and settlement infrastructures -Sufficiently wide acceptance -Adoption of common standards -Definition of security requirements and guidelines

Cost structure of players in the markets

-Provision of financial instruments (in-house production vs. open architecture) -Costs for info, data providers, other related services -Labour costs for portfolio managers, advisors, specialists, etc. -Distribution (branches/offices, etc.) Etc.

Growth in P2P propelled by

-Reduced technology costs -Previously underserved market segments -Low interest rates -Risk diversification

Risks in lending platforms

-Risk of conducting general solicitation/unlicensed activities -Disclosure risks: may lack standardisation -Cross-border risk: multiple jurisdictions -Rick of collapse/malpractice: leads to less trust and repetitional risk -Risk of fraud

Risks more specific to the robo-advisor

-Risks of errors in algorithms -Risks of overly complex algorithms -Risks of overly simplistic algorithms -Risk of static client information

Hybrid approach of technology & human touch

-Role of advisors as decision validators -Continuous and regular conversation with advisors -Combines goals-based planning with technology -Removes many middle-office administrative tasks, allowing advisors to focus on areas of highest value to their clients -Client provided with broader services

Two approaches to segmentation

-Segments are developed in advance (a-priori) -Segments are developed widely using data based on customer behavior (post hoc)

Streamlined payments

-Services such as location-based payments e.g. geotagging, -Machine to machine payments -Mobile point of sale e.g. paypal

How neobanks are radically changing customer expectations

-Smartphones helps retain customers by deepening relationships -Focus on better & friendlier experience -Emphasis on transparency, bring down commissions and fees

Value proposition of Neo banks

-Solve pain points with other banks -Give banking to those who are unbanked

Investment choices

-Stocks and bonds -Futures and options -Mutual funds -Exchange-traded fund -Prebuilt portfolios

When credit cards e.g. American Express are issued by American express

-They issue cards & process payments on their own network -Some of them may be better at dispute handling (better at saving you from issues) -Charge higher transaction fees

Factors explaining growth of robo-advisory in market

-Universal tightening of regulations -Blooming period of US stocks -Extensive expansion of smartphone usage -Realization that robo-advisors have appeal to affluent and HNW (high net worth) investors as well as retail customers.

How do banks segment individuals in practice

-Wealth of the customer -Volume of business done with the banks -Usage of financial services

Key reasons why industry sector is such a ubiquitous segmentation dimension are the following

-key factor in the risk characteristics of customers -strongly linked to geographic competitive advantage -rich with statistical data on size, structure, growth, and trade relationships

Neo-bank based on two main criteria

1. Bank license vs non-bank license 2. Relationship-only vs full service

Four market segments in cross-border payments ((how do they work))

1. Capturing: interfacing directly with users 2. Messaging: involved handling payment instructions 3. Settlement: Involves 1. Transfer of money from bank to bank domestically), 2. Transfer of funds across borders (cross-border settlement) 4. Disbursing: involves interfacing with clients again

Two interesting areas in payments

1. Cross-border payments 2. Mobile payments

How robo advisors work

1. Gather info from clients on their financial situation & goals with questionanaire 2. Robo-advisors use algorithms to determine risks & allocate assets 3. Clients personalized portfolio structured to achieve optimal returns at every level of risk

Traditional p2p lending model (6 steps)

1. Investors & borrowers subscribe to platform 2. Investor/borrower verified & b assigned credit score 3. Loan request displayed on platform 4. Investor decides where to invest 5. Once borrowers request funded, conditions are shown 6. Platform rules the money transactions between borrowers and lenders and intervenes in case of delayed payments

Top 10 fintech issues (1-5)

1. Lack of understanding by consumers 2. Ability of automated questionnaries & risk anaylsis 3. Potential conflict of interest with automated service providers 4. Cybersecurity 5. Regulators understanding the complexity

Can classify the platforms according to two alternatives

1. Reverse auction: l set min interest rate & b set their max 2. Automatic matching: platform sets rates

Small medium enterprises (SMEs) is the typical business segment for a retail bank Serving them requires answers these key questions

1.How can banks better understand SME customer needs? 2. How can they match diverse needs with the right offer, service level, and delivery channel? 3. How can customer management be used to maximize the revenue opportunity when servicing this market segment? 4. How can banks effectively manage SME customers across their life‐cycle?

Top 10 fintech issues (6-10)

6. Inadequate disclosure to those accessing 7. How execution only platforms vet clients 8. Inadequate competence/supervision of humans that support device 9. Inadequate testing of advice of algorithm 10. Inadequate training or competencies of those developing algorithms

Thanks to fintech lending has become

Cheap & ubiquitous -Credit in various forms -Given in communities that typically don't have this access

Integrated billing mobile

Consists of payment services such as ordering and payment apps and integrated mobile shopping apps e.g. Uber

A priori descriptive & predictive methods

Descriptive: Cross-classifying the variables in contingency tables Predictive: Regression or discriminant analysis

Market segmentation bases: the business market

Distinction between large corporate customers and small businesses -Differ in nature and scale of financial requirements & expertise

Post hoc segmentation

Driven by empirical concerns after seeing the data e.g. purchasing behavior or attitudes

First takeaway

Each new payment must be better in some features to substitute an old one

Fintech firms fall into one of two categories

Fintech fin: Work directly with consumers Fintech techs: concentrate on providing specialized technologies for banks

Fintechs & payments

Fintechs started mostly with payments, now may seem to be shifting away to become a data industry

Credit cards are e.g. visa

Global networks that process payments and charge a fee for that

Neo-bank

Innovative approaches to day-to-day banking -Internet only -Focused on multichannel landscape -Range of products offered

Time horizon

Length of time over which an investment is made or held before it is liquidated

Second takeaway

Level of acceptance for any monetary substitute is FUNDAMENTAL and depends on network of merchants

Emphasis on what factors in cross-border payments

Low cost Security Convenience Predictability Transparency Assumption of confidentiality

World bank's says a possible classification is the number of employees and turnover

Micro: 1-9 employees Small: 10-49 Medium: 50-99

Guidelines bank follows to segment their individual customer base #1

Minimizing the amount of strategic segments towards 3 or 4 Allows for proper managerial focus

Financial advisory

More than a service it is a method of matching investment needs with the investments factors (has many dimensions according to needs)

about SMEs

SMEs more than any-other banking segment vary by size, sector, financial sophistication, business maturity -Not a one size fits all approach -Don't treat as homogeneous group

Customer specific (observable & unobservable)

Observable: Cultural, geographic, demographic etc. Unobservable: Psychographics (personality & lifestyle)

Situation specific (observable & unobservable)

Observable: User status, usage, frequency, brand-loyalty etc. Unobservable: Psychographics (benefits, perceptions, attitudes)

Guidelines bank follows to segment their individual customer base #2

Other segmentation parameters: -Assets & liabilities -Life stage -Equipment rate (product amount, account activity) -Financial potential

Market infrastructures for clearing

Process of transmitting, reconciling orders prior to settlement

Mobile money

Refers to a network that supports payments from one user to another via a mobile device

Evolution of robo-advisors

Robo 1.0: fill survey & clients manage themselves Robo 2.0: Human investment managers invest & adjust for clients Robo 3.0: Asset allocation and portfolio rebalancing based on automatic algorithms. (sill have human final oversight) Robo 4.0: Investments are fully automated due to machine learning artificial intelligence (AI)

Robo-advisors

Robo-advisors: They provide automated portfolio management advice, strategies and services for investors

Main objective of financial advisory

TRUST and CONFIDENCE of retail investors in the financial services sector and ensure the availability, accessibility and affordability of high quality financial advice

Personal financial management (PFM)

The process of controlling personal income and expenses

Main goal behind segmentation practice

Type of products, channels, services and advice your financial institution presents must be customized to the particular segment being targeted

Risk tolerance

is the amount of risk that an investor is comfortable taking or the degree of uncertainty that an investor is able to handle Often varies with age, income, and financial goals.

Guidelines bank follows to segment their individual customer base #3

marketing segmentation affects value added services (VASs) and pricing flexibility

Three key themes of MiFID II are

•Trade and reference data reporting •Compliance and investor protection •Markets venues, instruments and infrastructure