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S1 & S2: Fintech

Puneet Gupta

Introductions 2

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Ground Rules 3

Grading
• 20% Class Participation
• 40% Project (Company/Idea/Case Study) – 20% Individual/ 20%
Group
• 40% End Term Exam

Group (Max of 5 people per group)

• Case Overview and Presentation
• New Idea
• Existing Company (as a case study)

What do you want to learn? Any Ideas/Suggestions/ Thoughts?

Q&A 4

Any Questions on course outline, grades?

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What is Financial Services? 5

Class Discussion

What is Financial Services? 6

Core Banking Insurance Capital Markets Lending

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Where is Technology in FS? 7

Historical Perspective of Financial Services 8

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Fintech: 1992-2000 9

Core Banking Systems Fund Accounting

1 BaNCS, Finnacle, Flexcube, Midas Kapiti, .
2 Mfund, SmartFund

ATMs Switches FX Terminals

3 Base24, Narada
4 Reuters and Bloomberg.

Cross-border transactions Passbook Printers, Currency Counters

5 SWIFT.
6 etc
Epson, Kores.

Fintech: 2000-2010 10

POS MACHINES LENDING MANAGEMENT

1 Verifone, Venture Infotek
2 Finnone, R Systems. Vision Plus

INTERNET BANKING CARD MANAGEMENT SYSTEMS

3 Bank Anywhere, Trading Platforms: Sharekhan, Power IndiaBulls
4 Vision Plus,

PHONE BANKING PAYMENT SYSTEMS

5 Automated Voice Response
6 ECS – Electronic Clearance Service.

CREDIT BUREAUS SETTLEMENT SYSTEMS

7 CIBIL
8 NEFT, RTGS, IMPS.

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Fintech: 2010-2020 11

PAYMENT & SETTLEMENTS WALLETS

1 NACH. BHIM, UPI
2 Amazon Pay, CitrusPay, Freecharge, Google Pay, Mobikwik, Ola Money,
Oxigen, PayTM, PayU, PhonePe, Payzapp, Yono, .

DIGITAL LENDING & MICRO LENDING MOBILE BANKING

3 AnyBank, Mifos.
4 Axis, HDFC, ICICI.

CHATBOTS PAYMENT GATEWAYS

5 Sensforth EVA, iPAl ICICI
6 Airpay, Atom, Citrus, EBS, FSS, InstaMojo, PayU, PayTM, Worldline, .

P2P LENDING ANALYTICS & CLOUD

7 Lendbox, i2i funding, PaisaDukan
8 AnyBank.

Fintech: 2020 & Beyond 12

Artificial Intelligence Blockchain

and Machine Learning
A B

s Ĥ
Cloud
C l D Digital Currency
Ñ

E
IOT
I R Robotics

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Fintech: Lay of the Land 13

Regulators

Banking/ Payments
Capital Markets
Security &
Privacy

Insurance
Lending

= Bank
Integration

Risk Mgmt

Fintech: Lay of the Land 14

Security &
Regulators
Privacy
Banking/ Payments
Capital Markets

AI/ML
Insurance
Lending

API
Bank

Blockchain
Integration Risk Mgmt

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Fintech: Lay of the Land 15

Smaller and
Bank
smaller

Security & Banking

Banking/ Payments
Regulators
Privacy

Capital Markets
AI/ML

Insurance
Lending

API
Bank

Blockchain Risk Mgmt

Integration
Crypto

Fintech: Building Blocks (1): AI/ML 16

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AI/ML 17

Static
Input Output

Dynamic – Continuous
Input Output improvement system

Fintech: Building Blocks (2): APIs 18

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Example in-class (Account Aggregator) 19

GST –
IT Returns -
Government of
GOI
India
Banking World
Brok1 - person
Zerodha BK1 - HDFC

Securities Brok2 - Upstox

World/
Student 1/ Bk2 - ICICI
Capital Person 1 Wallet1 (ABC)
Markets
Brok3 – HDFC BK3 - Kotak
world
Securities

Payments Bank Wallet2 (DEF)

CC1 (Credit Card)

HEALTH
CC2 (Credit Card) Car Policy with POLICY INS 2 – Life policy with
CC3 (Credit Card) INS1 - Bajaj HDFC/ TATA LIC
AIG

Sahmati Website & OCEN Framework – White Board 20

Sahmati – SRO Self Regulated Organization – RBI

RBI – NBFC License - P2P License, Aggegator

Problem Statement
Understand what is the total Cash balance of Gagan at the end of 16th Jan 2022?
Complexity – Anyone may have 5 different bank accounts – Go to each bank account – get a bank
statement and then combine those bank statements – In the past there was no way to get this data in
real time at one shot.
1) Consent (Gagan – Yes)
2) App based, no human interaction, in real-time, I can get the bank statement – 30 secs [GETTING OF
THE BANK STATEMENT FROM DIFFERENT BANKS IS DONE THROUGH API – API IS MACHINE TO
MACHINE BASED COMMUNICATION MECHANISM – MY APP (MACHINE) ASKS SBI APP (MACHINE)
AN ELECTRONIC QUESTION BY FIRST PROVIDING AUTH ]
3) Aggregate that information
4) Eventual result – I have the answer to the question that I started with?

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Sahmati Website & OCEN Framework – White Board 21

• Gagan and Abhishek Kumar – Sahmati will aggregate financial data in one place
• Ankita – Multi-purpose and consent based
• Raunak – Common platform – Lending institution needs to go to a credit institution? Not sure [ what
happens today and what will happen after sahmati)
• – SPEED (FASTEN)
• No history of loans – Maybe it will reduce cases of fraud? By analyzing all data
• Gautam Sahoo - Framework – Rules and regulations and technological standards – Aggregator ,
Financial Institution and User – Enables entities to use real-time data
• Abhishek Minocha – Intermediary between FI AND FU – Financial data will be stored in encrypted
form
• Harshit Banka –
• Aayush Rajput – Encryption – Customer doesn’t need to bother with data
• Rahul Kumar – Created by RBI (account aggregator) and hence more trusted and will reduce
complexity

WHAT IS SAHMATI

Sahmati Class Notes – White Board 22

HOLISTIC VIEW OF AN INDIVIDUAL OR A BIZ

----
Why is holistic view required?

----
Because it gives you the ability to make financial decisions?

---
What kind of financial decisions?
----
Loans, More Insurance policies, More Life insurance, or newer products that don’t exist today
It also helps in reducing inefficiencies – lowers the cost of transactions – thereby making the system
more efficient

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Myths 23

BK1 - HDFC

Aggregator
Centralized data Bk2 - ICICI
App layer – That will
contain
aggregate data
BK3 - Kotak

Myths 24

BK1 - HDFC
Aggregator

Bk2 - ICICI
App

BK3 - Kotak

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HDFC ICICI OR LARGE BANK PERSPECTIVE 25

Why would I (large bank) not like this model?

---
Any large bank today is like a gated community – only they allow people to come in and see their data
– This will mean anyone can come and see their data – it also means user empowerment

---
Data which is the most valuable component in a bank will get commoditized

---
The value of a bank or the monopoly that a bank use to hold will slowly deteriorate
---
This will give birth to anyone with the ability to build an app and have an innovative idea to come to
the market –
--
It is essentially breaking down all barriers
--
The fundamental premise is that this is the data of the user and they can chose who to share it with
and what they want to do with it – versus the BANK

Data Islands and it’s Utility 26

One form of credit

- Build an overview of how you borrow money
CC1 (Credit Card) - I also want to understand other things (what payments you
make, where do you spend your money?)
CC2 (Credit Card)
- This gives me a good perspective on your liability side? (In
CC3 (Credit Card) simpler words how much money do you spend in a month and
where?)

ABILITY TO UNDERSTAND SHOULD I GIVE YOU A LOAN

CREDIT CARD – SHORT TERM LOAN

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DATA ISLAND 27

Other forms of credit

- Loan on your house – That you don’t pay monthly EMI from your CC
- OR you have taken a personal loan from your parent and you don’t pay any EMI (interest free loan)

MISS THE HOLSITIC PICTURE

WHEN MAKING A CREDIT DECISION

Fintech: Building Blocks (3): Blockchain 28

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Fintech: Building Blocks (3): Blockchain 29

Fintech: Building Blocks (4): Crypto 30

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Fintech: Verticals (1) – Lending/Banking 31

Fintech: Verticals (2.1) – Capital Markets 32

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Fintech: Verticals (2.2) – Capital Markets 33

Fintech: Verticals (3) – Insurance 34

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Fintech: Verticals (4) – Payments 35

Questions from Video 36

1) Walmart – Disrupted – Amazon Now SBI, HDFC, ICICI Disrupted – Leads to WHO?
2) Amazon moment has come to banking? How
3) Software is eating the world? What does that mean?
4) Craigslist (website) – That did things poorly
1) Rent a car – But was inefficient – UBER
2) Get a house for short or long term stay – AIRBNB
5) Unbundling BANKING (VERY IMPORTANT)
1) SBI
1) Personal. Chequing account
2) Equity trading account
3) Insurance (of various types)
4) Payroll
5) Credit Card
6) Other things
WELLS FARGO – Top 3 Bank in USA – Shows different things they do that have been taken up by startups
6) Millennials vs Oldies like me
7) STARTUP vs Incumbents (Innovation versus Distribution)
8) 4 key segments of FS to better understand what FS does and how will innovation/ change/ startups/ disruption occur?
9) In each identified segment of FS (lending, capital markets) – which are the startups – The video talks about global
startups or US startups – MEDICI report which has a flavor of Indian startups
10) LENDING – CONSUMER LOANS, STUDENT LOANS, SMB LOANS, MORTGAGE/HOME LOANS – HERE P2P HAS BEEN
INTRESTING

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Questions from Video 37

11) User Experience (old vs new age)

12) Lending
-Disrupting traditional business done by banks with newer data
- Alternative data for underwriting
- SOFI (HENRY – High Earnings but Not Rich Yet)
- LendUP (Behavioral data, how much time did you spend on the application?)
- Create new market segments (that banks do not have or were not able to do as they have taken birth due to this rich
availability of data and high compute/ technology)

13) Capital Markets

Disrupting Existing in new ways
Creating new markets (which didn’t exist)
14) Insurance
Disrupting Existing in new ways
Creating new markets (which didn’t exist)
15) Others
Disrupting Existing in new ways
Creating new markets (which didn’t exist)

Startups vs Large 38

Why Startups succeed?

1. Agility/ Long-short term – Live on quarter to quarter earnings and therefore both the ability to
look longer term and change quickly are impacted
2. Disruption – Competencies of success change but needs of the customer remain same so smaller
companies “innovate” to bring the new competencies to fore
3. Obvious area – lots of examples – from past 100 years
4. Ref: Creative Destruction – Mckinsey Guy’s book (Fact based look on the last 50+ years on
changing companies in the listed space)
Why do some startups fail against the incumbents or What environments lend stronger advantage to
the incumbents? [FOR almost NO FAULT OF STARTUP}
1. Getting to scale before incumbents come after you
2. Get their distribution (Cost of customer acquisition = or lower than incumbent ) – If not done in a
timely manner – a great innovation can be easily copied or acquired by an incumbent
Why do some startups fail against the incumbents or What environments lend stronger advantage to
the incumbents? [FAULT OF STARTUP}
1. Chew more than they can digest (?) – Strategy, Team, poor decisions etc.

ZERODHA – Entered very crowded space of brokers in capital markets and scaled against all odds – Got
to distribution very quickly and build a low-cost technology platform as a core basis of competition

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Unbundling Banking 39

Key Learnings ? 40

- Cost of experimentation – AWS Infra – Has come down dramatically? (In the past, expensive and
time consuming – Took 6months to 1 year to start and lot of money was required before you could
even begin innovating)
- Brought into focus – Software as a Service
- Education (Brick and Mortar classroom is going away)
- IT (Technology)
- Food Services (tech company)
- Travel
- Every Industry – Technology + Financial Services – FinTech is all pervasive
- Pharmaceutical –
- Entertainment -
Open Items?

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Banking Stack Role of Regulator – Less / Diversified 41

Appendix 42

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