The second lecture of Fintech at QMU London: Digital Transformation. A non-examined elective for an international class of 300 students.

1. Fintech
”Beta”
Dr Drago Indjic
QMUL
19 October 2019

2. Reminder
• An on-going experiment – Week 2
• Slides and recordings made available post module
• https://www.slideshare.net/dindjic
• My social network policies
• LinkedIn: invite accepted only following (supervised) project, internship
• Twitter: open
• No questions or essays received– yet?
• dindjic@london.edu
• indjicd@regents.ac.uk

3. Syllabus
1. Digital Transformation of Financial Services
2. Regulation: law, community, platforms
3. Identity: Customers, People, Privacy
4. PayTech: Money, Payments
5. Blockchain: Coins, Tokens and Contracts
6. WealthTech: Personal Services
7. Infrastructure: Services, business, wholesale
8. Innovation: Entrepreneurship and Strategy

4. Remember 2nd Exercise Last Week?
• Q1. Which 2-3 modules would you like the most?
• Can be ranked/rated (0-10)
• (use envelopes)

5. Results
• N=19 responses (out of 300 students!? Bad compliance ☺ !)
0 2 4 6 8 10 12 14
Digital
Regtech
Identity
Paytech
Crypto
Wealthtech
Cloud
Innovation
Student's Choice of Topics)

6. Teaching Methods and Assessment
• Elective = voluntary. No pre-requisites. Non-examined, no course credits
• Yet …. maybe a short (team) essay? Suggestions:
• Video(s) - max 1/2 h long; IMDB-like review and discussion
• Apps - use case, review (loan, crypto wallet etc)
• Topic - academic; bonus point if adding an annotated bibliography
• Extras
• Guests - founder/CEO: e.g. GlobePay, ETFmatic, Manigo, ECD …
• Networking - meetups, seminars … useful for internship, job references
• Syllabus is Work in Progress
• Crowdsource, bootstrap, open source; just a curator, narrator
• Oct 2019 news: Libra demise, tax on crypto staking, $4b ICO fined, BSA

7. 1. Digital Transformation of Financial Services
• Generation born 2000: “Millennial” == post-2008 cohort
• Global Financial Crisis
• “Financial innovations changes at such a rate that sufficiently broad
empirical evidence still has not been documented”
• #startup ethos: “Move fast and break things”
• Highly regulated (by politicians/MBAs yet no clinical statistics or trials)
• “Public trust in institutions, central banks and mechanisms of money
and credit creation have been challenged and arguably has not
recover”
• https://www.sibos.com/about/sibos-2019-London; https://devcon.org/

8. Global Financial Crisis: 10+ Years Later
• “The world has a debt maturity mismatch (repo), a savings-
investment mismatch (NIRP), a liquidity mismatch (USD reserve FX
priviledge), a balance sheet debt-equity mismatch, and a sectoral
mismatch (a bank-nonbank risk gap)” (IMF)
• This is not Macroeconomic class, hence you can watch movies:
• “Inside Job” (2010) https://www.youtube.com/watch?v=FzrBurlJUNk
• “Margin Call” (2012) https://www.youtube.com/watch?v=YlDr8HBdk4A
• “Big Short” (2015) https://www.youtube.com/watch?v=vgqG3ITMv1Q
• “The Wizard of Lies” (2017) https://www.youtube.com/watch?v=05HK-z6HoHM

9. Risks: NIRP < Aging < Climate …)
• A
• Effects: DC pensions, real estate valuations ...

10. Definitions
• “Technologically enabled financial innovation that could result in new
business models, applications, processes or products with an
associated material effect on financial markets, financial institutions
and the provision of financial services”, Carney (2017; 2019)
• “Finance 2.0” benefits, Haldane (2016)
• Diversity -> financial system stability
• Efficiency: allocative, operational, dynamic
• Democracy, inclusion
• Motive behind financial innovations, Llewellyn (2009)
• Restore trust in markets, public finance, fraud detection, OECD (2017)

11. Fintech: Structure by Carney (2017)
• .

12. “Future of Finance”, van Steenis, BoE (2019)
• “The Financial Stability Board (FSB) estimates that around 50% of the
US$382tn total global financial intermediation now takes place
outside the banking system” (Ch. 7)
• “~60% of retail banking transactions worldwide are now estimated to
go through mobile/online channels”

13. “Future of Finance” van Steenis, BoE (2019)
• USA lagging: US$ but still cheques, no RTGS, no Open Banking

14. Summary: Where/What is your bank?
• “Out of roughly 30,000 banks today only 6000 will be left by 2038”
• Game changer: the EU e-money institution license (EMI); QR (1994)
• “Monzo (..) has topped a leading customer satisfaction survey of all
banking clients” (2019)
• “Financial institutions must embrace a customer and regulator centric
world ”, PwC Project Blue; EY Playbook
• Developing world in overdrive: innovation and scalability
• China: 600m+ users; GoPay & PayPal; India: future of identity (and ATMs)
• Africa: https://mojaloop.io/ by Gates Foundation

15. Discussion (or Essay) topics
• Why system stability (FSB, G20) and identity (LEI) focus only now?
• What exactly are banks and brokers selling?
• User experience/convenience: mobile-first, voice-first
• Whom do you trust with deposit or transaction?
• Can you trust fintech as previous generations have trusted banks? Can we
trust tech vendors more than bankers and politicians?
• (Big) Tech challenge government sovereignty over money. Competition helps
people. Which type of competition do you favour?
• Inclusiveness: is branch-less bank or cash-less commerce risky?

16. 2. Regulation – Preview
• Principal banking functions
• arranging payments, allocating credit, taking deposits (or equivalent)
• Regulated
• Money and customers → fraud, financial crime and consumer rights.
• EU Single Digital Market (2015)
• Citizen’s identity (eID), drive from 2007 Payments Directive (PSP) to EMR/EMI
e-money (2011) and PSD2 banking (2018) regulation
• #openbanking
• banks must provide 3rd party access to customers’ accounts and payment
services.

17. Future is … fintech
• “#OpenBanking: the first attempt by competition authorities to use
technology to rebalance complex markets towards consumers” (OBIE
Report, July 2019) => banks as utilities