What is FinTech?

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From the course by Duke University

FinTech Law and Policy

1 оценка

Duke University

FinTech Law and Policy

1 оценка

Being a successful FinTech firm requires more than just great technology; it also requires an understanding of the laws and regulations applicable to your business. This course will provide you with that understanding. You will learn about the critical legal, regulatory, and policy issues associated with cryptocurrencies, initial coin offerings, online lending, new payments and wealth management technologies, and financial account aggregators. In addition, you will learn how regulatory agencies in the U.S. are continually adjusting to the emergence of new financial technologies and how one specific agency has proposed a path for FinTech firms to become regulated banks. You will also learn the basics of how banks are regulated in the U.S. If you are unfamiliar with how these new financial technologies work, fear not. We will begin each new course section with a high-level overview of the underlying technology. While the course is principally focused on the U.S. FinTech industry, we cannot possibly cover every relevant legal and regulatory issue. Therefore, this course should not be construed as legal advice. Rather, the goal of the course is to familiarize you with the key legal and regulatory challenges FinTech firms in various sectors face, as well as the critical policy debates that are occurring in Washington D.C. and state capitals across the country.

From the lesson

Welcome to FinTech Law and Policy

In this course, you will learn about the critical legal, regulatory, and policy issues associated with cryptocurrencies, initial coin offerings, online lending, new payments and wealth management technologies, and financial account aggregators. In addition, you will learn how regulatory agencies in the U.S. are continually adjusting to the emergence of new financial technologies and how one specific agency, the Office of the Comptroller of the Currency, has proposed a path for FinTech firms to become regulated banks.

Introduction to the Course1:42

What is FinTech?5:42

Meet the Instructors

Lee Reiners, CFA
Executive Director, Global Financial Markets Center
Duke University School of Law

Before we go any further in this course,

we must first define the term FinTech.

It's a bit of an amorphous term that is used differently depending on the context.

What many people commonly think of FinTech as

a relatively recent and unique marriage of financial services and information technology.

However, finance and technology have long gone together and support each other,

with financial firms supplying the capital to fund

technological developments and then

incorporating many of these new technologies into their business.

In fact, you could argue that one of the earliest examples of FinTech occurred in

the mid 1800s with the introduction of the telegraph

and the laying of the first transcontinental telegraph line,

which helped integrate the national economy.

In 1871, 10 years after the first transcontinental telegraph,

Western Union introduced money transfers

making them arguably the country's first FinTech firm.

A more recent FinTech example occurred in 1967,

when Barclays introduced the Automatic Teller Machine or ATM.

Thinking of FinTech as a recent phenomenon also ignores the fact that

the financial industry has historically been

the largest purchaser of information technology.

In this chart, we can see that the banking and securities industry

spends over seven percent of their annual revenue on information technology.

The amount that large financial firms spend every year on IT is staggering.

In 2016 alone, JPMorgan spent $9.5 billion on technology.

So, the application of finance to technology is nothing new,

why has FinTech generated so much buzz these past few years?

Well, the current hype and policy concerns arise not so much from the technology itself,

but from who is applying the technology.

Many FinTech firms are non-bank financial services companies.

In other words, these firms are defined by what they're not, namely banks.

The proliferation of these companies is assisted by rapid technological developments.

The internet has lowered many barriers to providing financial services.

It's now possible for these types of companies to readily acquire

customers without the need of a physical branch to accept deposits.

It has also made these firms more competitive on

a cost basis and facilitated rapid expansion to national operations.

Smartphones have also lowered barriers to using financial services.

Just think, the first iPhone was introduced in 2007.

Now, pure research reports that 77 percent of Americans own a smartphone,

the functional equivalent of a bank branch in their pocket.

Our phones are capable of sending money to our friends,

depositing cheques, and even buying stocks and other financial instruments.

Finally, distributed ledger technology holds the potential to seamlessly and

securely transfer digital assets without the need for any financial intermediaries.

In addition to technological advancements,

modern FinTech was also spurred on by the 2008 financial crisis.

It's hard to overstate the impact the crisis had on today's FinTech marketplace.

Almost nine million US workers lost their job,

many of whom were in the financial services industry.

Out of work, many of these people found their way to burgeoning FinTech companies.

In addition, many tech-savvy college graduates

were confronted with a lack of job opportunities.

So, they decided to start their own FinTech companies or join a recent start-up.

Congress also adopted tougher bank standards and regulations in response to the crisis.

This increased the compliance obligations of

traditional banks and led them to pull back from certain business and market segments,

which provided an opportunity for new FinTech firms to pick up market share.

Many consumers lost trust in

traditional financial institutions after the crisis and rightfully so,

as many banks had to be bailed out by the government.

In 2006 before the crisis,

30 percent of respondents in the general social survey

indicated that they had a great deal of trust in banks and financial institutions.

Four years later, in 2010,

only 11 percent respondents had

a great deal of trust in banks and financial institutions.

Similar declines in consumer trust occurred in most major countries aside from China,

which remain relatively insulated from the effects of the financial crisis.

As a result, many consumers are more willing to engage with

new technology startups who offer competing financial services products.

The financial crisis led consumers to not only lose trust in financial institutions,

but in central banks and other government institutions as well.

Many blame central banks and regulatory agencies for

contributing to the crisis or at least failing to prevent it.

When governments around the world bailed out their banks,

consumers were incredulous and those put

out of work were left wondering where their bailout was.

This loss of trust in governmental institutions gave rise to

cryptocurrencies and other decentralized applications,

that were outside the government's control.

So with all this in mind,

let's narrow our definition of FinTech by describing it in two parts.

First, the term refers to businesses who are using technology to operate

outside of traditional financial services business models

to change how financial services are offered.

Second, FinTech includes firms that use

technology to improve the competitive advantage of

traditional financial services firms by providing

faster and more convenient products and services to their customers.

The first part of the definition refers to

those non-bank technology companies that have entered into the financial services space,

while the second part of the definition applies to legacy

financial institutions who are deploying and developing innovative new technologies.

This definition also implies that FinTech covers the entire range of products

and services that have historically been provided by financial services firms.

Unfortunately, we do not have the time to cover every single FinTech application.

So, we will focus on the FinTech activities that will

likely have the greatest impact on the future of finance.

This includes cryptocurrencies, initial coin offerings,

online lending, payments, wealth management, and account aggregation.

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