Module 1: Introduction and What is FinTech?

Let’s take a look at what a learning
plan is over the next four courses. As we have discussed,
we have defined fintech very broadly as technological innovations
that improve how money and capital are transferred,
raised and invested. Therefore, our courses will be structured
as deep dives into each of these three segments and
analyze both the technology and the business side of
innovations in these segments. Feel free to take these courses in
any order that works best for you. Our first two courses look at
fintech Innovations in the capital transfer sector. They’re about the digital challengers to
financial institutions that promise to make paying for things and getting
paid faster, cheaper, and more secure. In the first course,
which we’ll call PayTech, we’ll examine the payment innovations that
do not rely on decentralized technologies, such as blockchain. A good example of this type of
innovation is the digital and mobile wallet, for instance, PayPal,
Venmo, and Apple and Android Pay. We’ll first look at how
things are traditionally done before these innovations and connect
the specific inefficiencies of these practices to the specific technological
advantages of the innovations. We’ll also look at the business side
into how to leverage the data advantage of the new technology to build
entire payment ecosystems. And to give you a broad exposure, we’ll look at building the PayTech
business from multiple angles. Both in the markets with good existing
payment infrastructure and in markets where there’s none and where things had
to be built completely from scratch. The second course in the series,
which we call CryptoFinance, examines payment innovations
that do use decentralization. We’ll first look at the technical
aspects of the blockchain, which powers the thousands of
cryptocurrencies, like Bitcoin. As usual, we’ll identify the specific
advantages of blockchain’s decentralized record-keeping technology and connect them to current inefficiencies
in the transaction system. On the business side, we’ll first look at the angle of
blockchain as a tradeable asset. That is, the market dynamics of
cryptocurrencies, how they are priced, and their role vis-a-vis fiat currencies,
such as the dollar. We’ll then look at the angle of
blockchain as a business and show you some real experiences and
lessons from growing a new business idea based on the blockchain
into a profitable company. The next course in our series,
which we call CreditTech, looks at how fintech is
helping both individuals and businesses raise capital more broadly and
more efficiently. We’ll start with how things
are currently done and how credit actually works from both
a finance and a statistical point of view. Then we’ll deep dive into how fintech
is disrupting this equilibrium. We’ll first look at the lending market and
see how peer-to-peer-based platform lending could expand credit access to
both individuals and small businesses. And how to translate this customer
expansion into profitability. We’ll then turn to the equity side and see
how our traditional initial public stock offerings, or the IPO,
could be complemented by the myriad of new funding opportunities
enabled by online crowdfunding. And also by crypto token-based
fundraising vehicles, such as the initial coin offering. We’ll then combine these markets together
and look at how fintech disruptors are competing on the entire
fundraising spectrum. And how incumbents, or existing financial
institutions, like banks, should respond. The fourth course of the series is
called InvestTech, and not surprisingly, it deal with how fintech is fundamentally
changing the way that we invest money. On the technology side, we’ll deep dive in
the application of machine learning and artificial intelligence. And see how they could help
us better select stocks for more targeted portfolios and
manage our long-term Investments. We’ll also look at how big data,
particularly new, unstructured data from mobile sources and
social media, could help better understand the consumers
and better plan their wealth. On the business side, we’ll examine the
business models of the new robo-advisors, which combine online platforms
with machine learning to deliver customized financial
advice at a low cost. Hopefully by now you’ll notice a common
theme from these descriptions. That is the intricate link between
the technology and the finance. In the world of fintech, there are many finance talents and
there are many tech talents. The emerging problem is that sometimes there is a communication
barrier between the two sides. The finance people don’t understand
the technology well enough to make the customer’s pitch. And then the tech people don’t
understand finance well enough to design the optimal product. The goal of this series
is to bridge this gap. Throughout the courses, we’ll learn to be well-versed in
the languages of both tech and finance. We’ll have a good knowledge of
the core fintech concepts and connect these technical know-how to both
financial theories and market practices. So that we could be an effective
communicator between the tech and finance sides. Decipher fintech beyond
just the buzz words. Understand their specific
value propositions. And provide critical judgments
on new technological ventures.

Welcome to the Fintech
Innovation Series. My name is Andrew Wu, I’m a professor of Technology and Operations and professor of finance at University of Michigan’s
Ross School of Business. This series is jointly taught by me and Professor Robert Dittmar, and both of us
share a passion for new research in
the Fintech space, and both of us have
worked extensively with leading global
Fintech innovators, ranging from small startups
to large conglomerates. We’re excited to share these experiences with
you and look forward to embarking on an
exciting journey where we learn and discover
Fintech together. In this video, will give you a brief overview of what
defines the Fintech industry, it’s major components and what to expect over the next four
courses in this series. So what is Fintech? If you ask 10 people
this question, you’ll likely get 10
different answers, and they’re all likely to be correct in different aspects. The truth is, even if the
buzzword Fintech is new, technology and finance is not. Think about the historical
times where people have to barter with physical
goods with one another. In that age, the development of money in the form of
gold nuggets and coins, which served as a common
medium of exchange, was an excellent
technical innovation? Similarly, checks,
which ushered in the trend for cashless
transactions three centuries ago, was also the Fintech breakthrough in the age of paper money. Over the last century, we’ve had countless other
innovations, ATM machines, online banking and
trading, wire transfers, etc, that are continuously evolving the way
finance was done. Therefore, if you think about it, the financial services industry has always been at the forefront of technological innovation
and it has been constantly, “disrupted” by new technology. If that’s the case,
then what is new about this recent Fintech boom that
have received so much buzz? It turned out that
in the past decade, the Fintech innovation took a significantly different
path from before. The main differences,
who’s leading the charge? Historically, there has been
the financial institutions, the banks, the
investment managers, the hedge funds, they
are the trailblazers in most technological
innovations from money, to checks, to ATM
and online trading. This time, however, is by enlarge the tech companies,
leading the charge. For the first time, we’re seeing tech companies like Google,
Amazon, and Facebook, which we wouldn’t think of as financial institutions begin to take “finance functions” like payment, lending and investment. This is partly because
of the big data boom and the tech companies unparalleled
access to consumer data, and partly because tech
companies are not subject to strict regulations as
financial institutions. Therefore, there are
significantly more aggressive in taking on risks
in developing new products, new technology, and
opening new markets. This has led to a situation where our traditional
financial institutions are in danger of being technologically
leapfrogged on many fronts by tech companies that have
never done finance before. To illustrate this situation, I’d like you to think about a traditional financial
institution like a full-service bank.
What does the bank do? Obviously, it would hold deposit accounts like
checking or savings accounts, it also provides
payment and transfer services to move money
between these accounts. On the other hand, it
would also provide lending services such as personal and business
loans and credit cards. You could also have an investment banking
division that helps business to raise money from debt and equity markets by
issuing bonds and stocks. Moreover, there will be investment advisory services that help people invest these money. Because of this,
it might also have a trading department to provide brokerage and settlement
services for traders. Finally, there are dedicated private banking and
wealth management services available if you’re very wealthy and are willing
to pay a premium fee. This pretty much sums up what a full service
financial institution does on a daily basis. They all involve
capital and money. The code functions of finance is simply
moved them around, raising them, and investing them. Now, I’m going to decompose these functions and
show you that today, the traditional
financial institution is being threatened on
all of these fronts, not as a whole but
piece by piece, by different types
of tech companies. For instance, we now have
completely branch less, data-driven online Neil banks that provide deposit
accounts at cheaper rates. The payments space has seen a large number
of new entrance, ranging from digital wallets
like PayPal and Venmo, to social media based
ecosystems like Facebook, and to decentralize technologies
like cryptocurrencies. Similarly, the personal
lending market has seen many peer-to-peer
online learning platforms, such as LendingClub and Prosper, and this has spread to the business lending
market as well with new platforms operated by
Kabbage and even Amazon. Traditional equity
fundraising such as IPO has been increasingly
diversified with new platforms like
crowdfunding and the crypto base initial coin offerings and
exchange offerings. On the investment front, human visors are
feeling the heat from robo-advisors like
Wealthfront and Betterment, which you use
artificial intelligence and machine learning to deliver customized investment
advice at a low-cost. Retail brokerages have
also been threatened by low cost online trading
platforms such as Robinhood. Finally, personalized wealth and lifestyle management is no longer exclusively to the rich, with new consumer
analytics companies like Credit Karma and
Mint that leverage the power of data to compete with financial institutions
on low cost, personalized budgeting, and
credit planning advice. Today’s Fintech is defined by this piecemeal type of
innovation and disruption. Consequently, we’re
going to define today’s Fintech market broadly as technological innovations
that improve how money and capital are transferred,
raised, and invested. I know for over the
next several courses, we will deep dive into
each of these segments. Before we move on, I’d like to quickly correct a
common misconception. A lot of people tend to equate the latest Fintech boom with a boom in cryptocurrencies
like Bitcoin. Sure, they’re an important part of the innovation and many of the decentralized technology have very good
business applications, some of which we’ll carefully analyzed as part of the series. However, blockchain and crypto are far from being the
only part of Fintech. Innovations in payment
lending and investment that do not use decentralized technologies for mobile wireless, to supply chain finance, to robo-advisors have received significantly more
venture funding because they use more
proven technologies. At the same time, they hold
just as much, if not more, potential to
significantly transform our financial lives
in the near future. Therefore, we designed the series to give you the broadest
exposure to Fintech. After taking the series, you’ll be well-equipped
to discuss and analyze all aspects of
the Fintech market.