Introduction to

digital and
alternative finance
UNIT 1
Fintech 2

 Finance + Technology
 It's is a new technology that automates and improves the various
financial services employed by businesses and organizations.
Regardless of the field you're in, Fintech is transforming it
 FinTech, a portmanteau of "financial technology", refers to firms
using new technology to compete with traditional financial methods
in the delivery of financial services.
Finance 3
Finance is the study and discipline
of money, currency and capital assets. It is
related to, but not synonymous
with economics, the study
of production, distribution and consumption of
money, assets, goods and services (the
discipline of financial economics bridges the
two).
 Finance can be divided broadly into three
distinct categories: public finance, corporate
finance, and personal finance.
 More recent subcategories of finance
include social finance and behavioral
finance.
Features of Finance 4
Investment •Finance is required to invest your money to create wealth or
earn profits from it.
Opportunities:

Allocation and •A business must guarantee that satisfactory funds are

accessible from the available sources at the correct time.
Utilization of Funds:

Diversify your •A best features of finance is to diversify your investing funds and
you may require additional finance for your diversification
Investment: needs.

Financial Decision •Decision making is one the primary features of finance. If you
are really a good financial planner and you can analyze it well
Making: but you are unable to take decision makes no sense.

Financial •Maximization of valuation of an organization is one of the

features of finance which is a goal of the company.
Management:
4
Financial innovation 5

 Financial innovation refers to the process of creating new financial or

investment products, services, or processes. These changes can
include updated technology, risk management, risk transfer, credit and
equity generation, as well as many other innovations.
 Financial innovation refers to the process of creating new financial or
investment products, services, or processes.
 These changes can include updated technology, risk management,
risk transfer, credit and equity generation, as well as many other
innovations.
 Recent financial innovations have included crowdfunding, mobile
banking technology, and remittance technology.
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6

Prof. Bandita S Nikam

 Mobile banking has come a long 7
way from SMS Banking, which first
appeared in 1999. Today,
smartphone banking apps allow for
mobile payment and management
Mobile of all banking and financial services
on the go. Not only does mobile
Banking banking reduce location
dependency of financial services
and operation costs, but it also
provides an end-user interface for
the expansion of Banking-as-a-
Platform (BaaP).
  A blockchain is a distributed database that is shared
among the nodes of a computer network. 8
 As a database, a blockchain stores information
electronically in digital format.
 Blockchains are best known for their crucial role in
cryptocurrency systems, such as Bitcoin, for
maintaining a secure and decentralized record of
transactions.
 The innovation with a blockchain is that it guarantees
the fidelity and security of a record of data and
generates trust without the need for a trusted third
party.
Blockchain  It is mainly used in Banking and Finance, Property
Records, Supply Chains
 Benefits :
a. Improved accuracy by removing human involvement in
verification
b. Cost reductions by eliminating third-party verification
c. Transactions are secure, private, and efficient
d. Transparent technology
9 9
 Artificial Intelligence 10

Artificial intelligence •With the help of AI, you can create such To achieve the above factors
software or devices which can solve real- for a machine or software
can augment human
world problems very easily and with Artificial Intelligence requires
intelligence, amplify
accuracy such as health issues, marketing, the following discipline:
human capabilities, traffic issues, etc.
and provide •Mathematics
•With the help of AI, you can create your •Biology Example : Siri, Alexa and
actionable insights personal virtual Assistant, such as Cortana,
that drive better •Psychology other smart assistants
Google Assistant, Siri, etc.
outcomes for our •Sociology Self-driving cars, face
•With the help of AI, you can build such
employees, customers, •Computer Science recognition, voice
Robots which can work in an environment
partners, and where survival of humans can be at risk. •Neurons Study commands. Internet of
communities. •AI opens a path for other new technologies, •Statistics Things (IoT) | What is
new devices, and new Opportunities. IoT | How it Works | IoT
Explained | Edureka
(youtube.com)
Machine learning 11

Machine learning is the A subset of machine

study of computer learning is closely related to
algorithms that can computational statistics,
improve automatically which focuses on making
through experience and by predictions using
the use of data. It is seen as computers; but not all
a part of artificial machine learning is
intelligence. statistical learning.

Machine learning is a
modern innovation that has Example : Image & Speech
enhanced many industrial recognition, Medical
and professional processes diagnosis, Predict machine
as well as human daily failure.
lives.

https://www.youtube.com/
watch?v=cfSDvPlFFVQ
  The Internet of things (IoT) describes physical objects (or groups of such objects)
that are embedded with sensors, processing ability, software, and other
technologies that connect and exchange data with other devices and systems
12
over the Internet or other communications networks
 Over the past few years, IoT has become one of the most important
technologies of the 21st century. Now that we can connect everyday objects—
kitchen appliances, cars, thermostats, baby monitors—to the internet via
embedded devices, seamless communication is possible between people,
IOT processes, and things.
 Benefits :
(Internet  Deriving data-driven insights from IoT data to help better manage the business

of Things) 


Increasing productivity and efficiency of business operations
Creating new business models and revenue streams
 Easily and seamlessly connecting the physical business world to the digital world to
drive quick time to value
 Application of IOT :
 Smart manufacturing
 Smart City
 Smart Logistics

Internet of Things (IoT) | What is IoT | How it Works | IoT Explained

| Edureka (youtube.com)
 Big data refers to the large, diverse sets of information
that grow at ever-increasing rates. It encompasses 13
the volume of information, the velocity or speed at
which it is created and collected, and the variety or
scope of the data points being covered.

Data analysts look at the relationship between

different types of data, such as demographic data
and purchase history, to determine whether a
correlation exists.
Big Data
Such assessments may be done in-house or externally
by a third-party that focuses on processing big data
into digestible formats.

Businesses often use the assessment of big data by

such experts to turn it into actionable information.
What is Big Data | Big Data in 2 Minutes | Introduction to Big
Data | Big Data Training | Edureka (youtube.com)
  Robotic process automation (RPA) is a software technology that
makes it easy to build, deploy, and manage software robots that 14
emulate humans actions interacting with digital systems and
software

 RPA automation enables users to create bots(Software Robot) by

Robotic observing human digital actions

Process  RPA provides organizations with the ability to reduce

Automation staffing costs reduce human error, streamline processing
and drive better customer experiences

 RPA is used in most industries, particularly those that

include repetitive tasks such as insurance, banking,
finance, healthcare and telecommunications.
 RPA In 5 Minutes | What Is RPA - Robotic Process
Automation? | RPA Explained | Simplilearn
(youtube.com)
 15
 Digital and alternative finance refer to the use of technology to deliver
financial services in innovative ways, diverging from traditional
methods. This includes a broad spectrum of activities such as digital
payments, crowdfunding, cryptocurrencies, and more. The shift
towards digital and alternative finance has been driven by
advancements in technology and a desire for increased efficiency,
accessibility, and inclusivity in financial services.
 Digital finance is the term used to describe the impact of new
technologies on the financial services industry. It includes a variety of
products, applications, processes and business models that have
transformed the traditional way of providing banking and financial
services.
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Digital Finance 17
Digital Finance can be defined as the financial
services provided through or using digital
infrastructures such as mobiles and the Internet.
It negates the reliance and usage of cash and
other traditional bank branches. Digital Finance
allows individuals and business to make
seamless transactions across all parties.
Digital Financial Services (DFS) can be defined
as the set of financial services accessed and
delivered through certain digital pathways. In
another word, DFS are services provided and
accessed on the customer's respective mobile
phones, computers, Point-of-Sale (POS), ATMs,
etc.
Next-generation payment structures, such as
mobile wallets, payments banks, BharatQR, and
electronic authentication, have created new
forms of digital payment channels and servicing
capabilities. The payment industry in India is
going through gigantic changes.
Digitalization in Financial services 18
categorization
 Products & Services (loans, investments, commodities, forex, MF,
insurance, credit cards, payments, deposits, bank account)
 Processes (Internal banking, authentication, allocation of resources/
departments, approval processes, financial calculations, underwriting
process, claim & settlement)
 Distribution Channels (apps, companies, digital platforms, channel
partners, marketing, atm.)
 Back office (analysis and handling of data, data management, data
science, predictive analysis, database, tools)
Essential components of digital financial 19
inclusion
 Digital transactional platforms enable customers to make or receive payments and
transfers and to store value electronically through the use of devices that transmit
and receive transaction data and connect to a bank or non-bank permitted to store
electronic value

 Devices used by the customers can either be digital devices (mobile phones, etc)
that transmit information or instruments (payment cards, etc) that connect to a digital
device such as a point-of-sale (POS) terminal.

 Retail agents that have a digital device connected to communications infrastructure

to transmit and receive transaction details enable customers to convert cash into
electronically stored value ("cash-in") and to transform stored value back into cash
("cash-out").

 Additional financial services via the digital transactional platform may be offered by
banks and non-banks to the financially excluded and underserved — credit, savings,
insurance, and even securities — often relying on digital data to target customers
and manage risk.
Key components of Digital Finance
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Digital Payments
Mobile Wallets
Contactless Payments
Online Banking
Internet Banking
Mobile Banking
Cryptocurrencies and Blockchain
Digital Lending (Peer-to-Peer Lending, Online Lending Platforms)
Robo-Advisors
InsurTech
Crowdfunding
RegTech
Examples of Digital Finance 21

 Mobile Payment Apps: Examples include PayPal, Venmo, and Cash

App.
 Cryptocurrencies: Bitcoin, Ethereum, and Ripple.
 Digital Banks: Online-only banks like Ally Bank, Chime, and N26.
 Robo-Advisors: Wealthfront, Betterment, and Vanguard Personal
Advisor Services.
 Peer-to-Peer Lending: LendingClub, Prosper, and Funding Circle.
 Crowdfunding Platforms: Kickstarter, Indiegogo, and GoFundMe.

 Digital Wallets: Apple Pay, Google Pay, and Samsung Pay.

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Digitalization in finance 23

 Banking:
 Mobile App, Internet Banking, UPI.
 Insurance
 App based services, Online claim settlement/ renewal
system, payment of premium
 Investment
 App& internet based buying & selling of investment,
dematerialized form of holdings, real-time transactions
 Forex
 Use of AI, FX is more accessible, cross border payments &
trading, forex hedging (Bound)
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 Alternative finance refers to financial channels, processes,
and instruments that have emerged outside of the traditional
finance system, such as regulated banks and capital markets.
Examples of alternative financing activities through 'online
marketplaces' are reward-based crowdfunding, equity
crowdfunding, revenue-based financing, online lenders, peer-
to-peer consumer and business lending, and invoice
trading third party payment platforms.
 Crowdfunding is the practice of funding a project or venture by raising money from
a large number of people, typically via the internet. Crowdfunding is a form 25
of crowdsourcing and alternative finance. Crowdfunding has been used to fund a
wide range of for-profit entrepreneurial ventures such as artistic and creative
projects, medical expenses, travel, and community-oriented social
entrepreneurship projects.
 Equity crowdfunding is the online offering of private company securities to a
group of people for investment and therefore it is a part of the capital markets.
Because equity crowdfunding involves investment into a commercial enterprise, it is
often subject to securities and financial regulation. Equity crowdfunding is also
referred to as crowdinvesting, investment crowdfunding, or crowd equity.
 Equity crowdfunding is a mechanism that enables broad groups of investors to fund
startup companies and small businesses in return for equity. Investors give money
to a business and receive ownership of a small piece of that business. If the
business succeeds, then its value goes up, as well as the value of a share in that
business—the converse is also true. Coverage of equity crowdfunding indicates
that its potential is greatest with startup businesses that are seeking smaller
investments to achieve establishment, while follow-on funding (required for
subsequent growth) may come from other sources.
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 Revenue-based financing is a type of financial capital provided to small or

growing businesses in which investors inject capital into a business in return for
a fixed percentage of ongoing gross revenues, with payment increases and
decreases based on business revenues, typically measured as monthly
revenue.
 It is a non-dilutive form of financing, which means that the company's
management retains complete independence and control, as there is no equity
investment or impact on the company's shareholding. Usually, the returns to the
investor continue until the initial capital amount, plus a multiple (also known as a
cap) is repaid.
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 Peer-to-peer lending, also abbreviated as P2P lending, is the practice

of lending money to individuals or businesses through online services that
match lenders with borrowers. Peer-to-peer lending companies often offer
their services online, and attempt to operate with lower overhead and
provide their services more cheaply than traditional financial institutions. As
a result, lenders can earn higher returns compared
to saving and investment products offered by banks, while borrowers can
borrow money at lower interest rates, even after the P2P lending company
has taken a fee for providing the match-making platform and credit
checking the borrower. There is the risk of the borrower defaulting on the
loans taken out from peer-lending websites.
 What is a P2P network? (youtube.com)
 Explained | What Is Peer-To-Peer (P2P) Lending & How It Works -
YouTube
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 Factoring is a financial transaction and a type of debtor finance in which a
business sells its accounts receivable (i.e., invoices) to a third party (called
a factor) at a discount. A business will sometimes factor its receivable
assets to meet its present and immediate cash needs. Forfaiting is a
factoring arrangement used in international trade finance by exporters who
wish to sell their receivables to a forfaiter. Factoring is commonly referred
to as accounts receivable factoring, invoice factoring, and sometimes
accounts receivable financing. Accounts receivable financing is a term
more accurately used to describe a form of asset based lending against
accounts receivable.
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FinTech
Framework
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Benefits of Fintech 38
 Benefits of FinTech for Businesses
 Access to More Resources
 Business Process Optimization
 Better Retention Rate for Businesses
 Benefits of FinTech for Consumers
 Secure, Personalized, and User-Friendly Financial Service
 Access to Complex FinTech Services Together with Robo or Human Advisors
 A More Convenient Access to Credit Pool
 Benefits of FinTech for Investors
 FinTech is the Ultimate field for Disruptive Innovations
 The Growth of Startups Increases the Chance to Invest in the Next Unicorn
 Alternative Investments are Becoming more Profitable
 The Benefits of FinTech for Startup Founders
 Big Number of Business Opportunities
 The Growth of Investments and the Number of Investors
 Insurtech is Making Giant Strides
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Benefits of
FinTech for
Businesses
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Benefits of FinTech for Consumers

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Benefits of FinTech for Investors

 FinTech is the Ultimate field for Disruptive Innovations (payment services,

wealth management, banking etc.)
 The Growth of Startups Increases the Chance to Invest in the Next Unicorn
(Creates a dynamic sales channel, helps counter competition)
 Alternative Investments are Becoming more Profitable (hedge funds,
venture capital, private equity, angel funds, real estate, commodities)
Innovative concept in Fintech 42
 Digital Payment: A digital payment, sometimes called an electronic payment,
is the transfer of value from one payment account to another using a digital
device such as a mobile phone, POS (Point of Sales) or computer, a digital
channel communications such as mobile wireless data or SWIFT (Society for
the Worldwide Interbank Financial Telecommunication). This definition
includes payments made with bank transfers, mobile money, and payment
cards including credit, debit and prepaid cards.

 Blockchain: Blockchain technology allows for decentralized transactions

without a government entity or other third-party organization being involved.
Blockchain technology and applications have been growing quickly for years,
and this trend is likely to continue as more industries turn to advanced data
encryption.

 Artificial Intelligence: The future is fintech and companies will extend their use
of intelligent technology, from typical institutions’ testing of robotic advisers to
sophisticated algorithms examining credit profiles. The rise of artificial
intelligence, machine learning, and robotic process automation offers
numerous advantages to those working in the finance industry, including
lower loan default risk, better risk management, process efficiency from data
gathering and analysis, and improved customer experiences.
Innovative concept in FinTech - Cryptocurrency 43

Cryptocurrency is a digital payment system that doesn't rely on banks to

verify transactions. It’s a peer-to-peer system that can enable anyone
anywhere to send and receive payments. Instead of being physical money
carried around and exchanged in the real world, cryptocurrency payments
exist purely as digital entries to an online database describing specific
transactions. When you transfer cryptocurrency funds, the transactions are
recorded in a public ledger. Cryptocurrency is stored in digital wallets.
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Innovative concept in FinTech – Crowd Funding
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Crowd funding is most often
used by startup companies
or growing businesses as a
way of accessing alternative
funds. It is an innovative way
of sourcing funding for new
projects, businesses or ideas.

It can also be a way of

cultivating a community
around your offering. By
using the power of the online
community, you can also
gain useful market insights
and access to new
customers.
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Peer-to-peer lending: The crowd lends money to a company with the understanding that the
money will be repaid with interest. It is very similar to traditional borrowing from a bank, except
that you borrow from lots of investors.
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Equity crowd funding: Sale of a stake in a business to a number of investors in return for
investment. The idea is similar to how common stock is bought or sold on a stock exchange, or
to a venture capital.

Rewards-based crowd funding: Individuals donate to a project or business with expectations of

receiving in return a non-financial reward, such as goods or services, at a later stage in
exchange of their contribution.

Donation-based crowd funding: Individuals donate small amounts to meet the larger funding
aim of a specific charitable project while receiving no financial or material return.

Profit-sharing / revenue-sharing: Businesses can share future profits or revenues with the
crowd in return for funding now.

Debt-securities crowd funding: Individuals invest in a debt security issued by the company,
such as a bond.

Hybrid models: Offer businesses the opportunity to combine elements of more than one crowd
funding type.
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There are three types of people involved in crowd funding:-

1. The Entities that Intends to raise money through this platform
2. The Investor who support the idea.
3. The platform which brings together the fundraiser and the Investor.
 Indian Scenario Presently, raising funds in India by a Company is governed by
the provisions of Companies Act,2013, Securities Exchange Board of India Act 50
1992, Securities Contracts (Regulation) Act, 1956, Depositories Act, 1996.
 In India Equity Crowd funding is Illegal. To issue equity shares in India,
companies need to comply with the provisions of The Companies Act,2013.
 The Companies Act, 2013 Provides detailed provisions and rules regarding the
issue of Equity shares through public and private placement. Private
placement of Equity shares is governed by section 42 of The Companies
Act,2013.
 In order to regulate Crowd funding in India it is important that the following
are established:
 The investors that are allowed to invest through the crowd funding platforms,
 The types of entities that are allowed to raise funds through this channel and the
disclosure requirements,
 The types of entities that are allowed to set up internet-based Crowd funding
Platforms to enable online solicitation from such investors, and the different
associated aspects
51

Prof. Bandita S Nikam