MGFD25 Financial Technologies and

Applications (FinTech)

Module 2
Reminders
▪ Setup instructions for Assignment #1 is now released. Please
complete the instructions before week 3
▪ Week 3 is a coding lab session, we will be going through the
sample script together in class
▪ Office hours start this week, I encourage you to see me or the
TA for any questions
FinTech Coverage
Today’s agenda
▪ How to assess FinTech
▪ The Business of Payment
▪ Cloud computing
▪ Software-as-a-Service (SaaS)
How should we assess the Tech?

Speed Accuracy

Connectivity Security
How should we assess FinTech - Speed
How should we assess FinTech - Speed
Speed and Convenience in Lending

Digital lending:
▪ Dashboards for managing and drawing funds
▪ Pre-determining eligibility of borrowers
▪ Automating underwriting and integration of third-party data
How should we assess FinTech - Accuracy
Better Pricing of Risk is a Source of Growth
How should we assess FinTech - Accuracy
Benefits of More Reliable
Risk Assessment
Alleged benefits of applying
alternative data to credit
models:
1. Improving models’ predictive
quality
2. Expanding access to credit
How should we assess FinTech -
Connectivity
Open Banking
▪ “Open banking” is a framework governing data sharing in
the financial industry that emphasizes consumers’ control
of their own financial data and calls for frictionless sharing
of said data between banks and authorized third parties.
▪ This allows third parties to develop new apps and services
for the bank.
▪ Creating opportunities to form partnership rather than
competition.
How should we assess FinTech -
Connectivity
Possibilities Created in Financial
Services by API Integration
▪ Banking-as-a-service
▪ Rapid data ingestion by digital lenders
and insurance companies
▪ Marketplace banking
How should we assess FinTech -
Connectivity
How should we assess FinTech -
Security

Link to story

Link to story
The FinTech Explained Lens
The four questions of
The FinTech Explained Who? • Customer
Lens
What? • Pain Point
Why? • Value Proposition
How? • Monetization
The Business of Payments
▪ Let’s take a minute and think of how you paid at your most
recent transaction?
▪ When is the last time you used cash in a transaction?
The Business of Payments
▪ Two broad category of Payment Instruments:
Cash
Face-to-face transfer of value
anonymous, immediate and final
Non-cash
Transfer of money from one account to another
Many different forms, but mostly divided into two:
1. credit-based – initiated by the payer (eg. buying something)
2. debit-based – initiated by the payee (eg. Paying your employees)
Payment Technologies
▪ 3 sub-domain:
1. Payments back-end and infrastructure
• Payment processing providers
• Solutions for accepting electronic payments
• Point of sales terminals (POS)
• Card providers and mobile payments
2. Consumer payments
• Mobile wallets
• Seamless payment solution (pay-as-you-go)
• Peer-to-peer transfer of money
3. Cryptocurrency
The Credit Card Payment Flow
Why is the credit card called “𝐭𝐡𝐞 𝐦𝐨𝐬𝐭 𝐩𝐫𝐨𝐟𝐢𝐭𝐚𝐛𝐥𝐞 product in banks”? How does VISA/Mastercard make money?

The diagram below shows the economics of the credit card payment flow.

1. The cardholder pays a merchant $100 to buy a product.

2. The merchant benefits from the use of the credit card with higher sales volume, and needs to compensate the issuer and the
card network for providing the payment service. The acquiring bank sets a fee with the merchant, called the “𝐦𝐞𝐫𝐜𝐡𝐚𝐧𝐭 𝐝𝐢𝐬𝐜𝐨𝐮𝐧𝐭
𝐟𝐞𝐞.”

3 - 4. The acquiring bank keeps $0.25 as the 𝐚𝐜𝐪𝐮𝐢𝐫𝐢𝐧𝐠 𝐦𝐚𝐫𝐤𝐮𝐩, and $1.75 is paid to the issuing bank as the 𝐢𝐧𝐭𝐞𝐫𝐜𝐡𝐚𝐧𝐠𝐞 𝐟𝐞𝐞.
The merchant discount fee should cover the interchange fee.

The interchange fee is set by the card network because it is less efficient for each issuing bank to negotiate fees with each
merchant.

5. The card network sets up the 𝐧𝐞𝐭𝐰𝐨𝐫𝐤 𝐚𝐬𝐬𝐞𝐬𝐬𝐦𝐞𝐧𝐭𝐬 𝐚𝐧𝐝 𝐟𝐞𝐞𝐬 with each bank, which pays the card network for its services
every month. For example, VISA charges a 0.11% assessment, plus a $0.0195 usage fee, for every swipe.

6. The cardholder pays the issuing bank for its services.

Why should the issuing bank be compensated?

The issuer pays the merchant even if the cardholder fails to pay the issuer.
The issuer pays the merchant before the cardholder pays the issuer.
The issuer has other operating costs, including managing customer accounts, providing statements, fraud detection, risk
management, clearing & settlement, etc.

Over to you: Does the card network charge the same interchange fee for big merchants as for small merchants?
The Business of Payments
▪ "The world seems to be moving to a faster payments closely
coupled with open data. As this happen, we expect to see a
lot of interest in the FinTech companies that provide solutions
that are either enabled these activities, or that can leverage
the outputs to create new value propositions.”
Ian Pollari, Global Co-leader KPMG FinTech
Loyalty Programs

Alliance Data Systems Corp provides data-

driven and transaction-based marketing
and customer loyalty solutions. The
Company offers a portfolio of integrated
outsourced marketing solutions, including
Checkout their job postings customer loyalty programs, database
marketing, consulting, analytics and
creative, email marketing, private label, and
co-branded retail credit cards.
Loyalty Programs
Case study discussion
▪ What is your experience with mobile payment?
▪ What do you think is the primary drivers for wider mobile payment
adoption for the specific country? Can you provide some examples?
▪ What are the resistances in adopting mobile payment?
▪ How would you imagine mobile payment to evolve in the next 10
years? And what would be some of the major challenges?
China
India
Africa
USA (link#1, link#2)
Break
A generalized software architecture: MVC
A generalized software architecture: MVC
Local computing
▪ Number of users are
limited
▪ The data is vulnerable to
loss due to:
Theft
Physical damage
System failure
Etc.
Server computing
▪ Number of users can be
increased
▪ The data is much more
secure, but still
vulnerable to:
Physical damage (natural
disaster)
System failure
Etc.
Cloud computing

1. Multiple data centers

2. On-demand access
3. Connected by the internet
4. Cloud can be private or public
What is the Cloud?
Cloud computing is the on-demand delivery of compute power,
data storage, applications and other IT resources through a
cloud services platform (3rd party) via the internet with pay-as-
you-go pricing.

This business model was created by

Amazon in 2006
Benefits of cloud computing
▪ Lower costs—no need to purchase hardware or software,
and you pay only for the service you use.
▪ No maintenance—your service provider provides the
maintenance.
▪ High reliability—a vast network of servers ensures against
failure. 99.99% uptime.
▪ Near-unlimited scalability—on-demand resources are
available to meet your business needs.
Horizontal Scaling vs Vertical Scaling

Vertical Scaling Horizontal Scaling

Cloud deployment options

internet

▪ Public cloud
▪ Private cloud
▪ Hybrid cloud
Cloud deployment options
▪ Public cloud
• Most common
• Owned and operated by cloud service providers
• Sharing cloud infrastructure with other ‘tenants’
▪ Private cloud
• Used exclusively by one client
• Private network
• Often used by government agencies, financial institutions and other
organizations that seek enhanced control and to comply with relevant
regulatory requirements
▪ Hybrid cloud
• A mixed infrastructure of the above
FinTech and Cloud Computing
▪ The use of cloud technology is catching on in Financial
Services.
▪ It is estimated that ~22% of all financial applications are run
on the cloud, with much room to grow.
▪ Cloud technology allows banks to partner with FinTechs much
more easily.
▪ Startups are developing tech solutions leveraging the cloud
The public cloud leaders
Planetary Scale of the Cloud

Source: azure.microsoft.com
Azure Columbia Data Center

Source: azure.microsoft.com
Apple’s Data Center in China

Source: Bloomberg.com
Opportunities
What’s that #aaS?
▪ DBaaS
▪ DRaaS
▪ MaaS
▪ CaaS
▪ FaaS
▪ XaaS
Other SaaS that AWS offers

Join AWS Educate

Join AWS Educate

AWS services examples
▪ Amazon Translate
▪ Amazon Polly
▪ Amazon Rekognition
▪ AWS Ground Station
In-class activity
▪ Test out some very cool AWS SaaS
Bloomberg was the pioneer
▪ See examples